Summary
The United States Court of Appeals for the Second Circuit affirmed dismissal of a civil RICO complaint brought by investors who alleged that Ivan Boesky's insider trading and reputation inflated the prices of certain takeover stocks. The court held that the plaintiffs' alleged losses were not proximately caused by Boesky's predicate acts because the asserted causal connection was too remote. The court declined to extend RICO liability to investors who were neither targets, competitors, nor customers of the alleged racketeering enterprise.
Topics
Practice areas
Questions Presented
- Whether plaintiffs' alleged losses from declines in the prices of six takeover stocks were injuries suffered 'by reason of' a violation of 18 U.S.C. § 1962 within the meaning of civil RICO's damages provision.
- Whether the alleged direct or indirect causal relationship between Boesky's racketeering activity and plaintiffs' stock-market losses satisfied RICO's proximate-cause requirement.
- Whether foreseeability alone established proximate cause for the claimed RICO injuries.
Holdings
- A civil RICO plaintiff may recover only for injury proximately caused by a violation of 18 U.S.C. § 1962; factual or foreseeability-based causation alone is insufficient.
- Plaintiffs' alleged losses were too remote to constitute injuries proximately caused by Boesky's racketeering violations because they were not direct victims, competitors, customers, or displaced investors of the alleged racketeering enterprise.
- Foreseeability alone does not establish proximate cause under civil RICO.
Key quotations
“Although RICO is broad, it is not that broad.”
“We believe that plaintiffs cannot show that their injuries were proximately caused either directly or indirectly by Boesky's racketeering violation.”
Factual background
Plaintiffs purchased shares or call options in six publicly traded takeover companies during November 1986. They alleged that Boesky's illegal insider trading, payment for confidential information, and resulting reputation artificially inflated the prices of takeover stocks, including the six stocks they purchased. After the SEC and United States Attorney announced Boesky's guilty plea and misconduct, the prices of the stocks declined, causing plaintiffs' alleged losses. Plaintiffs did not allege that Boesky illegally traded in the six stocks or directly deprived them of money or property.
Procedural history
The plaintiffs alleged that Boesky's insider trading and related racketeering activity artificially inflated the prices of six takeover stocks and caused losses when the Securities and Exchange Commission announced his misconduct. The district court dismissed the complaint, concluding that the alleged injuries were not proximately caused by Boesky's racketeering violations. The Second Circuit affirmed.