RICO 2.0: State RICO Statutes in Opt-Out Securities Litigation
Securities Regulation Law Journal, Vol. 44, p. 51, 2016
23 Pages Posted: 14 Jan 2016 Last revised: 16 Jul 2016
Date Written: January 11, 2016
This Essay analyzes the potential role for state racketeering statutes in the future of opt-out securities litigation. In the 1980s and early 1990s, securities fraud plaintiffs often asserted claims under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), largely motivated by the treble damages provision. This trend ground to a halt in 1995, when Congress eliminated the private remedy under RICO for most securities fraud cases. More recently, a new trend has emerged: institutional investors have begun opting out of federal securities class actions, choosing instead to pursue individual actions in state court under state law. An often overlooked implication of this enhanced prominence of state law in securities litigation is that many states have enacted so-called “little-RICO” statutes, which largely mirror the pre-1995 version of federal RICO. This raises the potential for RICO 2.0 — a new wave of racketeering claims premised on securities fraud asserted by opt-out plaintiffs under state RICO statutes.
This Essay argues that, if this prediction comes to fruition, opt-outs’ ability to recover enhanced damages under state RICO statutes would not further the purposes of RICO, would not further the goals of securities litigation, would implicate serious distributive justice concerns, and would inhibit necessary reforms of the federal securities laws. Therefore, this Essay contends that the playing field between negative-value investors and potential opt-out investors should be leveled, either by reinstating federal RICO claims premised on securities fraud or by eliminating state RICO claims premised on securities fraud. In other words, this Essay argues for RICO 3.0.
Note: Copyright 2016 by Thomson Reuters. All rights reserved. Reprinted by permission of Thomson Reuters/West from Securities Regulation Law Journal.
Keywords: Securities Regulation, Securities Litigation, Racketeering, RICO, Opt-Out Litigation
Suggested Citation: Suggested Citation