similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events"). Likewise, the predicates, which were allegedly committed over the course of the years 1978-83, were part of defendants' regular way of conducting their illicit tax shelter business; the Amended Complaint makes clear that maintaining the appearance of legitimate trading activity required a steady flow of paper confirmations and documentation. The predicates thus amounted to a closed period of repeated conduct in the past that satisfies the "continuity" aspect of the "pattern" definition. See id. at 240-42.
Given all of the foregoing, we hold that plaintiffs have stated a claim that Tese and Sinclair violated Section 1962(c).
We also uphold against Tese and Sinclair plaintiffs' third claim for relief, which is that "defendants, and each of them" conspired to violate Section 1962(c). Am. Compl. P 136. To state a claim of RICO conspiracy, a plaintiff must allege that the defendant "embraced the objective of the alleged conspiracy, and agreed to commit two predicate acts in furtherance thereof." United States v. Viola, 35 F.3d 37, 43 (2d Cir. 1994) (quoting United States v. Neapolitan, 791 F.2d 489, 495 (7th Cir.), cert. denied, 479 U.S. 940, 93 L. Ed. 2d 372, 107 S. Ct. 422 (1986)).
For the reasons already given in our discussion of scienter, we believe plaintiffs have stated facts from which one could infer a knowing embrace by Tese and Sinclair of the tax shelter fraud, and an agreement on their part to commit acts in support of it.
D. The Underwriting Defendants
Plaintiffs charge that a group of defendants "knowingly participated in and aided and abetted the [fraudulent] plan and scheme by marketing the limited partnership interests to plaintiffs and other investors in the investment partnerships . . . and by acting as placement agent and underwriters for the investment partnerships." Am. Compl. P 98. Four of these defendants -- Barry Lyman, Palisades Planning Corp., Evelyne Simon, and Cosmopolitan Planning, Ltd.
-- argue that the Amended Complaint fails to allege facts sufficient to establish their scienter or to state a RICO claim against them. They move pursuant to Rules 9(b) and 12(b)(6) to dismiss the Amended Complaint.
We agree that plaintiffs have failed to plead facts giving rise to a "strong inference" of fraudulent intent on the part of Simon and Cosmopolitan. Plaintiffs attempt to state a case of fraudulent intent by pointing out that Simon and Cosmopolitan were involved in marketing the limited partnerships, Am. Compl. PP 74, 98, and that they were paid well for their involvement, id. PP 101-103. But neither of these facts suggests fraud, much less a "strong inference" of fraud. The element of motive, for one, is missing. Unlike the situation with Tese and Sinclair, the Amended Complaint does not allege or suggest any benefit that flowed to Simon or Cosmopolitan from the fraudulent nature of the trading activity as such; the compensation they received presumably would have been the same had the trading been genuine. Further, there was nothing atypical in anything Simon and Cosmopolitan are alleged to have done. Their underwriting efforts, as alleged, were straightforward; there was no involvement with empty shell corporations, no transfer of corporate ownership free of charge. Needless to say, mere involvement with a business that happened to be run on a phony basis suggests only business association, not fraudulent intent.
We reach a different conclusion with respect to Lyman and Palisades. Paragraph 100 of the Amended Complaint contains excerpts from Lyman's testimony at the trial of Manko and Edelman. These excerpts, together with longer passages of Lyman's testimony submitted by the parties as exhibits to their motion papers,
reveal several things: First, that Lyman testified at the Manko/Edelman trial under a criminal immunity agreement with the Government, Exh. A to Plaintiffs' Memorandum of Law in Opposition to the Motion of Defendants Barry Lyman and Palisades Planning Corp. to Dismiss or for Summary Judgment ("Pls.' Mem. in Opp. to Lyman's Motion") at 118; second, that during the years 1978-1983, Lyman frequently discussed with Manko "everything associated with the tax aspects of [the] partnerships," id. at 159, and constantly discussed with Manko and Edelman the types of transactions the partnerships were doing, id. at 221; and third, that Manko and Edelman told Lyman in 1982 and 1983 that the partnerships were engaged in both "tax" transactions (i.e., transactions that would generate tax losses and that the IRS could find to be insufficiently profit-motivated) and non-tax transactions (i.e., transactions that had the potential to generate profit), and, further, that the non-tax transactions were intended to shield the tax transactions from scrutiny by the IRS, id. at 557, 560-61. In our view, these revelations suggest that Lyman may have known about, and been involved in, the fraudulent scheme. They are certainly substantive enough to justify allowing plaintiffs to proceed against Lyman beyond the pleading stage.
Like Tese and Sinclair, Lyman also contends that the RICO counts, as pled, fail to allege elements necessary to state a claim against him. Only one of Lyman's arguments gives us pause, and that is his argument, based on Reves v. Ernst & Young, supra, that as an underwriter of the partnerships, he did not operate or manage the tax shelter enterprise.
Whether professionals who closely serve an enterprise from outside its walls can be said to participate in its operation or management is a difficult question. Reves strongly suggests that the entities most amenable to RICO liability are those existing within an enterprise, not outside entities serving an enterprise. Reves, 113 S. Ct. at 1173. Indeed, in stating that outsiders "associated with the enterprise" could be liable under RICO, the Court offered only one scenario -- that of bribery -- which does not appear to apply here. Id.
We need not decide this question, however, in order to reject Lyman's argument. For the Amended Complaint alleges not only that Palisades marketed the limited partnerships as an outside professional service, but also that it received annual fees for administrative services it rendered the partnerships. Am. Compl. P 104. Specifically, Palisades, and Lyman through Palisades, received ongoing fees for disseminating information about the partnerships to the limited partners. Lyman testified at the Manko/Edelman trial that:
They [the limited partners] would call us with questions and we would respond to them after speaking with the general partners [Manko, Edelman, Bushnell]. It was a fee [sic] in such a way that the investors did not have to call directly down to the general partners, they did it through us. We kept track of the investors, we answered any questions, to send out [sic] the monthly statements on behalf of the general partners.