A District Court denied a motion to dismiss claims asserted under the Racketeer Influenced and Corrupt Organization Act (RICO). The plaintiff alleged that he had obtained a business loan from the defendants with respect to which he transferred stock to the defendants to hold as collateral. Defendants represented that they would not sell the stock and would return it upon repayment of the loan. The plaintiff further alleged that, in breach of their representations, defendants sold the pledged stock despite his timely repayment. The plaintiff asserted claims under RICO, Section 10(b) of the Securities Exchange Act of 1934, and Securities and Exchange Commission Rule 10b-5.
Defendants moved to dismiss the RICO claim, arguing, among other things, that the plaintiff’s claim was barred by the Private Securities Litigation Reform Act (PSLRA), which prohibits using “any conduct actionable as fraud in the purchase or sale of securities” to satisfy RICO’s “predicate act” requirement. The District Court agreed that under the PSLRA, securities fraud claims cannot be used to satisfy the predicate act element of a RICO claim. However, the court denied the motion after noting that the predicate acts in the complaint were alleged to arise from wire and mail fraud in connection with a fraudulent “loan scheme”—and not in connection with any securities fraud. The court held that before it could determine whether the plaintiff’s claims were barred by the PSLRA, it had to determine whether the plaintiff’s allegations were, in fact, based upon securities fraud, which it ruled could not occur prior to discovery. Accordingly, because the claim, as alleged, sufficiently pleaded plausible claims under RICO, dismissal was unwarranted. (Amari v. Spillan, 2009 WL 995627 (S.D. Ohio Apr. 14, 2009))