U.S. RICO Law Can’t Be Applied Abroad, Madoff Judge Says

(Updates with court rulings in second paragraph.)

Sept. 7 (Bloomberg) -- A U.S. judge who is reviewing the Bernard Madoff trustee’s $59 billion anti-racketeering lawsuit against Italy’s UniCredit SpA and Austrian Sonja Kohn said “it is now settled law that RICO cannot be applied extraterritorially.”

U.S. District Judge Jed Rakoff, explaining an earlier decision to take over consideration of the issue from a bankruptcy judge, said he would determine “the precise contours” of the Racketeer Influenced and Corrupt Organizations Act and how it was used by the liquidator of Madoff’s firm, Irving Picard.

Rakoff will take into account recent rulings by higher courts that RICO doesn’t apply to actions that mainly involve foreign actors and foreign acts, he said in a court filing yesterday in Manhattan.

“The court agrees with UniCredit that this relatively new doctrine will require significant interpretation of RICO,” Rakoff said.

Picard named UniCredit and its Bank Austria unit in a December complaint against Bank Medici AG founder Kohn and dozens of other Austrian and Italian parties. He alleged they were part of an international “illegal scheme” masterminded by Kohn to feed money to Madoff’s Ponzi scheme. The trustee demanded $19.6 billion -- his estimate at the time of all principal lost by Madoff investors -- while using RICO to seek triple the amount.

‘Hollow’ Claims

UniCredit in July asked Rakoff to dismiss Picard’s “hollow” racketeering claims, saying 49 of the 57 parties accused of racketeering were foreign, and Picard’s suit focused on actions abroad. Bank Austria said it was “under a cloud” because of Picard’s “mammoth” claims, almost equal to one- sixth of Austria’s gross domestic product.

Picard has denied his suit is extraterritorial, saying the “illegal scheme” was hatched in New York and injured the New York-based Madoff estate. A proposed new complaint against UniCredit would add 23 defendants and “newly discovered information regarding the wrongdoing,” he said last month.

The case is Picard v. Kohn, 11-cv-01181, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Stephen Farr, Christopher Scinta

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.