The opinion of the court was delivered by: EUGENE H. NICKERSON
NICKERSON, District Judge:
Plaintiffs, investors in various limited partnerships organized by defendant Bernard Manko and others, filed the initial complaint in this action on February 13, 1991, alleging that the then named defendants defrauded plaintiff, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Jurisdiction is alleged under RICO.
On April 2, 1993 plaintiffs filed an amended complaint (herein called "the complaint"), naming additional defendants, including Vincent Tese and James Sinclair. These two have moved to dismiss the complaint against them on the grounds that it (a) fails to state a claim, (b) fails to plead claims with requisite particularity, (c) alleges claims barred by the statute of limitations, and (d) states common law claims over which the court lacks jurisdiction.
Plaintiffs then cross-moved for leave to file a second amended complaint (herein called "the amended complaint"). Defendants Tese and Sinclair oppose the motion on the ground that the proposed pleading does not properly state a claim and in any event is barred by the statute of limitations. Tese and Sinclair also ask for Rule 11 sanctions.
The allegations of the complaint, insofar as they are pertinent to the motion of Tese and Sinclair to dismiss, are in summary the following.
During the period 1978 to 1983 plaintiffs made investments in various limited partnerships organized, marketed, and managed by defendant Manko and other defendants (collectively referred to as "the Manko group"). The Manko group was a general partner in Arbitrage Management, which held itself out as a broker-dealer in U.S. Government-backed securities and in the management of arbitrage investment accounts.
In 1979 the Manko group embarked on a scheme through Arbitrage Management and affiliated entities to offer what purported to be tax-advantaged investments. The group represented to investors that the transactions to be entered into would be profit-motivated and not simply risk-free tax-motivated trades. These representations were material because plaintiffs wished not only to invest for a profit but also to obtain favorable tax deferrals and deductions, as the investors and the group knew the Internal Revenue Service (IRS) would disallow tax benefits derived from transactions that lacked economic substance or were primarily tax-motivated.
The Manko group's representations were knowingly false. It planned to and did engage in transactions either wholly fictitious or prearranged to preclude the investors from achieving economic gains. As a result plaintiffs lost their investments and incurred large income tax deficiencies, together with interest and penalties.
One of the investment vehicles that the Manko group established to defraud investors was in the form of discretionary trading accounts managed by Arbitrage Management through which the group purported to engage in legitimate straddle transactions in U.S. Treasury bill put options. The group represented to plaintiffs that there was an active market in these put options so that there was a possibility of gain or loss to an investor. In fact there was no such market.
The Manko group simply generated fictitious trades, insuring that plaintiffs always lost money paid to the group in the form of commissions. The complaint does not mention Tese and Sinclair as involved in these discretionary trading accounts.
Between 1978 and 1983 the Manko group used another means to defraud plaintiffs. It solicited plaintiffs to invest in limited partnerships, falsely representing that it would not engage in transactions lacking any opportunity to make a profit.
In fact the group had predetermined to use the same bogus government option transactions as had been used with the discretionary trading accounts. In 1982 and 1983 the group organized three companies through which it caused the partnerships to engage in fictitious "repo" transactions to generate interest deductions. ...