Two men share securities regulation news

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Securities Regulation Daily, March 17, 2014

Plaintiff relied on fraudulent conduct to support its RICO claim

By Rodney F. Tonkovic, J.D.

A district court has dismissed a RICO claim with prejudice. According to the court, the claim was barred under the Private Securities Litigation Reform Act because it was actionable as fraud. The court then declined to exercise its supplemental jurisdiction and dismissed the remaining state law claims without prejudice (Perkumpulan Investor Crisis Center Dressel – WBG v. Wong, March 14, 2014, Coughenour, J.).

The Dressel Ponzi scheme. The plaintiffs claimed that Dressel Investment Ltd. (Dressel) operated a "classic Ponzi scheme" which defrauded Indonesian investors of hundreds of millions of dollars between 2001 and 2007. According to the complaint, Dressel represented that its principals were qualified professionals who would deliver annual returns between 24 and 28 percent. The investors' funds were used instead to repay earlier investors and were stolen for the defendants' personal uses. The RICO defendants were a group of individuals who allegedly operated the investment scheme and solicited investors.

Contracts were securities. The court first found that Dressel's investment certificates were "securities" under the federal securities laws. The complaint alleged that the plaintiffs invested money in one of two funds run by Dressel expecting to receive a specified return and relying on Dressel's expertise and experience. Based on these allegations, the court was satisfied that the investment certificates were "securities."

Securities fraud. The court then found that the plaintiffs' claim relied on conduct actionable as securities fraud. Section 107 of the PSLRA bars RICO claims based on any conduct that could be "actionable as fraud in the purchase or sale of securities." Here, the plaintiff alleged that the RICO defendants knowingly made material misrepresentations despite their fiduciary duties to provide truthful information for inducing individuals to invest in the scheme. The court concluded that the alleged conduct was generally actionable as fraud in the purchase or sale of securities and accordingly dismissed the RICO claim with prejudice.

The plaintiffs argued that while there was a domestic RICO violation, it was predicated on an extraterritorial securities fraud. Under the Supreme Court's decision in Morrison v. Nat’l Australia Bank, Ltd., then, the plaintiffs would not be able to obtain relief under the securities laws. The court, however, was not persuaded, stating, the "PSLRA explicitly removes securities-fraud type conduct from the civil RICO arsenal, regardless of whether the plaintiff or the SEC could successfully pursue a securities fraud claim based on the same alleged conduct."

The case is No. C09-1786.

Attorneys: Craig Weiner (Hofheimer Gartlir & Gross) and David Ryan Ebel (Schwabe Williamson & Wyatt) for Perkumpulan Investor Crisis Center Dressel - WBG. Brent D. Huntley (Shumway Van & Hansen, CHTD) for Dwight B. Williams.

Companies: Perkumpulan Investor Crisis Center Dressel – WBG

MainStory: TopStory FraudManipulation WashingtonNews

Securities Regulation Daily

Introducing Wolters Kluwer Securities Regulation Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.

A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.