District Court Dismisses Civil RICO Amended Complaint Finding the PSLRA Amendment Barred Plaintiffs’ RICO Claim Regardless of Whether there Were Other Predicates Based on Conduct Not Actionable As Securities Fraud

Awad et al v. Sharif Omar and Sami Omar, 2019 WL 5727327, (S.D.N.Y., Nov. 5, 2019)

The Court granted the Defendants’ motions to dismiss the first amended complaint. The amended complaint alleged that Defendants deceived Plaintiffs (two sisters) into signing “shareholder transfer and other corporate documents” pursuant to which they sold their stock in two companies, Liptis USA and Liptis Holding, to those entities “for little or no consideration” and then defendants purchased it from the Liptis entities “for little or no consideration.” After defendants acquired the shares, Sharif allegedly “coerced” Sami “through threats and extortion” into giving Sharif all of his shares of Liptis USA and Liptis Holding. Plaintiffs contend that after defendants defrauded their sisters of their Liptis USA stock, defendants “caused their accountants to fraudulently report in the [s]isters’ federal tax returns that the payments were for the purported sale of the [s]isters’ shares of stock of Liptis.”

The amended complaint also alleges that from 2009 through 2017, defendants defrauded various lenders into issuing mortgages on the properties owned by Liptis, New Life, and Omar Holding, and then misappropriated the proceeds.

The court discussed that “[s]ection 107 of the PSLRA – which was enacted as an amendment to the RICO statute and accordingly is often referred to as the ‘RICO Amendment’ – provides that ‘no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962.’ ” MLSMK Inv. Co. v. JP Morgan Chase & Co., 651 F.3d 268, 273 (2d Cir. 2011) (quoting 18 U.S.C. § 1964(c)). The RICO Amendment not only “ ‘eliminate[s] securities fraud as a predicate offense in a civil RICO action,’ ” but it also “bar[s] a plaintiff from ‘pleading other specified offenses, such as mail or wire fraud, as predicate acts under civil RICO if such offenses are based on conduct that would have been actionable as securities fraud.’ ”

The court discussed that the RICO Amendment applies expansively and where plaintiffs allege ‘a single scheme,’ courts have held that ‘if any predicate act is barred by the PSLRA it is fatal to the entire RICO claim.’ The court found that the Plaintiffs allegations amounted to a course of conduct which amounts to a single scheme. As part of this scheme, plaintiffs allege that defendants defrauded the sisters into selling their Liptis USA stock, which fraud was plainly actionable as securities fraud.

Given this clear assertion of a securities fraud, plaintiffs’ reliance on certain alleged mail and wire frauds was unavailing.*4. The RICO Amendment accordingly barred plaintiffs’ RICO claim, and did so regardless of whether the other predicate acts that plaintiffs allege are based on conduct that is not actionable as securities fraud. *5, citing cases. The court stated that allowing such surgical presentation of the cause of action here would undermine the congressional intent behind the behind the RICO Amendment.” (internal quotation marks omitted)).

Ed Note: David J. Stander Esq. provided consulting services to the prevailing party in this matter. As mentioned, Defendant Sharif Omar presented numerous other arguments in support of his motion to dismiss which were not considered in the decision.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s