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IN RE SUMITOMO COPPER LITIG.

March 11, 1998

In re Sumitomo Copper Litigation


The opinion of the court was delivered by: POLLACK

 Global Minerals and Metals Corp. ("Global") and R. David Campbell ("Campbell"), (collectively referred to as the "Global Defendants") move pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure to dismiss the Second Claim of the Second Consolidated Class Action Complaint (the "Complaint"), brought under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), U.S.C. § 1961, et seq. (the "Second Claim").

 Background

 Plaintiffs allege that Sumitomo Corporation ("Sumitomo"), through its head copper trader Yasuo Hamanaka ("Hamanaka"), and other parties, including the Global Defendants, manipulated the price of copper on the London Metal Exchange (the "LME"), and thereby by implication on the COMEX division of the New York Mercantile Exchange ("Comex"), for approximately seven years, from 1989 to 1996.

 Specifically, between February, 1995 and June, 1996, defendants allegedly manipulated prices of copper futures contracts by purchasing and holding "unneeded" copper exchange contract long positions, thereby restricting available supply. Allegedly, as a result of the manipulation, copper prices reached an artificially high level. The purported scheme collapsed under regulatory scrutiny, at which time Sumitomo fired Hamanaka and liquidated its positions at a loss.

 Plaintiffs allege that during 1995-96, after regulators became suspicious, Sumitomo and Global Defendants opened brokerage accounts together in Sumitomo's name, but as to which Global Defendants held a power of attorney and managed the trading. Plaintiffs claim this was done to exert maximum effect upon prices and to deflect the regulators attention away from Sumitomo. Plaintiffs further allege that Global Defendants and Sumitomo regularly discussed and coordinated their price manipulation and that they acted in concert in making false statements to the market place and regulators. This concerted action in manipulating the copper market forms the factual basis for the RICO claims at issue in this motion.

 The Global Defendants assert that the Second Claim consists of no more than news articles, rumors and generalized allegations which defendants "will at the appropriate time prove to be baseless." They argue that the Second Claim is deficient in the following respects: 1) the Global Defendants are not alleged to have participated in the operation or management of a "RICO enterprise"; 2) the alleged predicate acts of mail fraud and wire fraud are not sufficiently particularized; and 3) Plaintiffs have not pled reliance on any acts of mail or wire fraud.

 For the purposes of this motion, the factual allegations of the Second Consolidated Class Action Complaint are accepted as true, and all inferences are drawn in favor of the pleader. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993).

 Discussion

 A. Sufficiency of RICO Enterprise Allegations

 To state a RICO claim, a plaintiff must allege that defendants "conducted or participated...in the conduct of [an] enterprise's affairs through a pattern of racketeering activity." 18 U.S.C. § 1962(c). RICO defines "enterprise" as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). The enterprise may be "proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." United States v. Turkette, 452 U.S. 576, 69 L. Ed. 2d 246, 101 S. Ct. 2524 (1981). This Circuit construes the enterprise element of RICO liberally: "The language and the history [of RICO] suggest that Congress sought to define the term as broadly as possible ...." United States v. Indelicato, 865 F.2d 1370, 1382 (2d Cir.), cert. denied, 493 U.S. 811, 107 L. Ed. 2d 24, 110 S. Ct. 56 (1989) (en banc).

 Here, the alleged structure of the enterprise is clear from the Complaint. Although Sumitomo and Global were distinct legal entities, they opened joint accounts with Merrill Lynch, Morgan Stanley and Rudolf Wolff in Sumitomo's name, but as to which Global and Campbell had a power of attorney and played some role in the management of trading. In the Merrill Lynch account, the Global Defendants are alleged to have used Sumitomo's credit to make purchases. Through these joint accounts, as well as through their individual accounts, Sumitomo and Global are alleged to have coordinated their copper trading in an effort to manipulate prices. This is a sufficient allegation of a RICO enterprise.

 Additionally, to be subject to RICO liability, a defendant must have participated, directly or indirectly, in the operation or management of the enterprise. Reves v. Ernst & Young, 507 U.S. 170, 183, 122 L. Ed. 2d 525, 113 S. Ct. 1163 (1993). Liability is not limited to those primarily responsible for an enterprise's affairs, in upper management, or who occupy a formal position in the enterprise, but may attach even to "lower-rang participants in the enterprise who are under the direction of upper management." *fn1" Id. at 183-84. However, " some part in directing the enterprise's affairs is required." Id. at 184.

 Although Global Defendants contend that they merely acted at Sumitomo's behest, the Complaint alleges, at a minimum, "substantial assistance" on the part of the Global Defendants in the overall manipulation scheme. See Napoli v. United States, 45 F.3d 680, 683 (2d Cir.), cert. denied, 514 U.S. 1084 and 514 U.S. 1134 (1995). Global Defendants are alleged to have coordinated their trading activities and public statements with Sumitomo and, at least, of acting under the direction of Sumitomo by purchasing copper exchange contracts through the joint accounts. At this early stage, these allegations are sufficient to satisfy Reves.

 Contrary to the Global Defendants suggestion, allegations of the existence of a RICO enterprise must meet only the "notice pleading" requirements of Fed R. Civ. Pro. 8. Trustees of Plumbers Nat'l Pension Fund v. Transworld Mech., Inc., 886 F. Supp. 1134, 1144-45 (S.D.N.Y. 1995); Azurite Corp. v. Amster & Co., 730 F. Supp. 571 (S.D.N.Y. 1990). At this time, nothing more is required of Plaintiffs.

 B. Sufficiency of Mail and Wire Fraud Allegations

 Under RICO, a "pattern of racketeering activity" consists of "at least two acts of racketeering activity" within a ten year period. See 18 U.S.C. § 1961(5); Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n.14, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985); McLaughlin v. Anderson, 962 F.2d 187, 190 (2d Cir. 1992). Among the predicate acts enumerated in § 1961 (1) are any acts of mail fraud indictable under the federal mail fraud statute, 18 U.S.C. § 1341, and any acts of wire fraud ...


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