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OSRECOVERY, INC. v. ONE GROUPE INTERNATIONAL

August 1, 2005.

OSRECOVERY, INC., et al., Plaintiffs,
v.
ONE GROUPE INTERNATIONAL, INC., et al., Defendants.



The opinion of the court was delivered by: LEWIS KAPLAN, District Judge

MEMORANDUM OPINION

The case is before the Court on a motion by defendant Latvian Economic Commercial Bank ("Lateko") for summary judgment dismissing the complaint.

  Facts

  Plaintiffs are former investors in an alleged scheme involving the sale of a non-existent gold-backed Internet currency ("OSGold") and the operation of a massive Ponzi scheme disguised as a high-yield investment program ("OSOpps"). They allege that Lateko contributed to the scheme by providing certain key defendants with anonymous debit cards, which the defendants in turn distributed to OSGold and OSOpps account holders. The debit cards allegedly were linked to Lateko bank accounts controlled by the defendants, giving the defendants access to cardholders' funds.*fn1 The facts are described in greater detail in the Court's opinion on Lateko's motion to dismiss, familiarity with which is assumed.*fn2 Following that ruling, plaintiffs' remaining claims against Lateko are for violations of Sections 1962(c) and (d) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"),*fn3 aiding and abetting common law fraud, and imposition of a constructive trust.

  Discussion

  A. Causation Under RICO

  Lateko first argues that plaintiffs who did not possess and fund one of its debit cards and lose money as a result cannot establish that the alleged RICO violations caused their losses.*fn4 It contends that plaintiffs' RICO allegations against it "revolve around the bank's debit cards and the plaintiffs' possession and/or use of such cards."*fn5

  Plaintiffs argue principally that Lateko's alleged RICO violations caused the losses of all plaintiffs, even those who did not hold a debit card, in that Lateko (1) lent credibility to the scheme by participating and (2) prevented authorities from discovering the fraud sooner by helping to conceal it.*fn6 Neither theory is sound or supported by the evidence.*fn7 Nevertheless, oral argument revealed that there is a more substantial theory.

  Under the mail and wire fraud statutes, use of the mails or wires in furtherance of a scheme to defraud to which the defendant is a party is attributable to that defendant, even if the mailing or use of the wires was made by someone else, as long as the use was reasonably foreseeable.*fn8 Here, plaintiffs allege that Lateko and its co-defendants committed predicate acts of mail and wire fraud by using "the Internet, the mails, and interstate wires and telephones, in order to solicit depositors and investors, maintain depositor and investor confidence in the system, and collect depositor and investor money."*fn9 Included among Lateko's co-defendants are the core defendants who allegedly orchestrated the OSGold/OSOpps scheme and whose culpability, for purposes of this motion, has not been disputed. If the predicate acts of mail and wire fraud committed by these defendants caused the injuries of all plaintiffs who lost money in the scheme, and if these acts are attributable to Lateko under the mail and wire fraud statutes, then Lateko's alleged RICO violations arguably caused the injuries of any plaintiffs who lost money in the scheme, regardless of whether or not they held debit cards.*fn10

  Lateko seeks summary judgment solely on the basis that plaintiffs cannot establish causation or damages. Its causation argument assumes that the only predicate acts attributable to it are those relating to debit cards. It does not on this motion challenge plaintiffs' allegations that its co-defendants committed the alleged predicate acts of mail and wire fraud, that those acts caused plaintiffs' losses, that they were reasonably foreseeable, and that Lateko was a participant in the underlying fraudulent scheme. Accordingly, Lateko has failed to show that there is no triable issue of fact as to the causation element of plaintiffs' RICO claims.*fn11

  Lateko counters by reference to a footnote in the Court's opinion on its motion to dismiss, where the Court wrote:
"Although the intricacies of the tiered account system are not apparent at this stage, the Complaint alleges that money was deposited into sub-accounts only after an OSGold account holder exchanged OSGold into hard currency. It follows that a plaintiff who never exchanged OSGold into hard currency never would have had funds deposited into the Lateko tiered account system. If this was the case, then Lateko's alleged predicate acts would not have caused that plaintiff's losses. Lateko's conduct arguably would have caused the losses only of those plaintiffs whose funds entered the tiered account system and were lost as a result."*fn12
To be sure, this observation supports Lateko's position. The problem, however, is that the point discussed above — viz., that mailings and wire communications by others in a scheme that included Lateko were predicate acts by Lateko — did not arise in connection with Lateko's motion to dismiss. It has arisen now. It requires denial of Lateko's motion.

  B. Sufficiency of Damages Evidence

  Lateko moves for summary judgment dismissing the RICO and aiding and abetting claims of plaintiffs who have produced no documentary evidence, or insufficient documentary evidence, of damages. It urges the Court to adopt a per se rule that damages must be established through documentary evidence. But none of the authorities it relies upon supports such a rule, and several courts have concluded otherwise.*fn13 Moreover, plaintiffs have come forward with evidence of damages in the form of their answers to interrogatories, and such materials may be relied upon to ...


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