The Supreme Court in a decision issued earlier this month may have blocked one route for stockholders to challenge corporate fraud, but in doing so, may have “inadvertently left open a far more dangerous path for the plaintiffs’ bar: claims under the Racketeer Influenced and Corrupt Organizations Act, or RICO,” writes Howard A. Fischer for Thomson Reuters Accelus.
Fischer, a senior trial counsel in the New York Regional Office of the Securities and Exchange Commission, analyzes the 5-4 decision in Janus Capital Group, Inc. v. First Derivative Traders, and concludes that the high court majority led by Justice Clarence Thomas may have unwittingly provided “the plaintiffs’ bar with a potential weapon far more powerful than the one it takes away. The Supreme Court appears to have ignored the warning of George Santayana that those who cannot learn from history are doomed to repeat it.”
Fischer notes that traditionally plaintiffs have enjoyed a “wide armament of statutes and causes of action in attacking and seeking redress for corporate misconduct,” but the use of RICO has been “denied in claims involving securities violations….”
But with the Janus opinion, has the door been opened for RICO claims, Fischer asks. “While RICO claims impose their own set of onerous pleading requirements on civil plaintiffs, the availability of treble damages plus attorneys’ offer significant inducement to counsel to bring such claims. If a major impediment to bring some claims was the fact that those claims were actionable as securities laws violations, the Supreme Court helpfully has removed that hurdle.”
See Fischer’s article here.