Lakonia Management Ltd. v. Meriwether

OPINION AND ORDER

This action arises out of the near-collapse in September 1998 of the initially heralded, and now infamous, Long Term Capital Hedge Funds (the “LTC Funds” *543 or “Funds”). Plaintiff Lakonia Management Limited (“Lakonia”) is a former investor in the Funds. Plaintiff alleges that defendants — individuals, partnerships and corporations associated with the Funds 1 — violated sections 1962(b) and 1962(d) of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(b), (d), by engaging in a fraudulent scheme to gain control of the Funds and to “squeeze out” plaintiff and other investors for insufficient consideration. In addition to its federal RICO claims, plaintiff asserts related state law claims for breach of fiduciary duty.

Defendants now move, pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6) and 9(b), to dismiss plaintiffs First Amended Complaint (“Complaint”) for lack of standing, for failure to state a claim upon which relief may be granted and for failure to plead fraud with particularity. For the reasons that follow, defendants’ motions are granted in their entirety. 2

I. Legal Standard

Dismissal of a complaint for failure to state a claim pursuant to Rule 12(b)(6) is proper only where “it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim that would entitle [it] to relief.” Harris v. City of N.Y., 186 F.3d 243, 247 (2d Cir.1999). “The task of the court in ruling on a Rule 12(b)(6) motion is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.” Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998) (internal quotations omitted). Thus, to properly rule on such a motion, the court must accept as true all material facts alleged in the complaint and draw all reasonable inferences in the nonmovant’s favor. See Harris, 186 F.3d at 247. Nevertheless, “[a] complaint which consists of conclusory allegations unsupported by factual assertions fails even the liberal standard of Rule 12(b)(6).” De Jesus v. Sears, Roebuck & Co., 87 F.3d 65, 70 (2d Cir.1996) (internal quotations omitted).

In deciding a Rule 12(b)(6) motion, the district court must generally limit itself to facts stated in the complaint, documents attached to the complaint as exhibits or documents incorporated in the complaint by reference. See Dangler v. New York City Off Track Betting Corp., 193 F.3d 130, 138 (2d Cir.1999). However, courts may also consider matters of public record, see Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 75 (2d Cir.1998), cert. denied, 525 U.S. 1103, 119 S.Ct. 868, 142 L.Ed.2d 770 (1999), as well as “documents either in plaintiffl’s] possession or of which plaintiff! ] had knowledge and relied on in bringing suit”, Brass v. American Film Techs., Inc., 987 F.2d 142, 150 (2d Cir.1993). See also Cortee Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir.1991) (finding that on motion to dismiss, district courts may consider documents of which plaintiff had actual notice and which were integral to its claim even though those documents were not referred to or incorporated in the complaint).

Rule 9(b) sets forth additional pleading requirements with respect to alle *544 gations of fraud. Rule 9(b) requires that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” But, under Rule 9(b), “[m]alice, intent, knowledge and other condition of mind of a person may be averred generally.” Rule 9(b) “applies to civil RICO claims for which fraud is the predicate illegal act.” Moore v. PaineWebber, Inc., 189 F.3d 165, 172 (2d Cir.1999). 3

II. Background

The facts and allegations set forth below are drawn from the Complaint and Plaintiffs Amended RICO Statement (“RICO Stmt.”). 4 They are presumed true for purposes of resolving defendants’ motions.

A. Parties

1. Meriwether and the Fund Defendants

Defendant Meriwether is a recognized expert in sophisticated investment strategies. Complaint ¶ 36. In 1993, Meriwether, joined by a group of nine similarly renowned financiers, started the LTC Funds. Id. ¶¶ 34, 36. 5

The Funds were composed of various domestic and foreign corporate entities. Id. ¶ 34. These entities operated through a bi-level master fund/feeder fund structure as follows. Investors purchased shares in one of several feeder funds. Id. The feeder funds in turn invested substantially all of their assets in a single master fund — defendant LTC Portfolio 6 — which *545 utilized the capital to make sophisticated and highly-leveraged investments. Id. ¶¶ 2, B3-36. 7

Defendant LTC Management, a Delaware limited partnership, served as investment manager of LTC Portfolio. Id. ¶¶ 15, 35. As investment manager, LTC Management had complete investment authority over the assets of LTC Portfolio. Id. ¶ 35. Meriwether and his nine colleagues were limited partners and principals of LTC Management. Id. ¶ 36. Thus, Meriwether and his colleagues (collectively, the “Principals”) effectively controlled the investment of LTC Portfolio’s assets. Id.

Defendant LTC V, a Cayman Islands limited liability company, was one of the several feeder funds that invested in LTC Portfolio, Id. ¶¶ 13, 34, 37. Only those investors with a net worth of $10 million or greater were eligible to purchase shares in LTC V. Id. ¶ 37. Meriwether was a director of LTC V. Id. ¶ 13.

2. The Bank Defendants

Prior to the events of September 1998 which are described in detail below, the Bank Defendants were primarily creditors of the LTC Funds. Id. ¶ 45. As set forth supra Part II.A.1., the Funds’ investment strategy was based upon extensive use of borrowed funds and other forms of leverage. See also Offering Memorandum, Ex. A to Hersch Deck, at 10. The Bank Defendants provided the financing necessary to pursue such a strategy on terms highly favorable to the Funds. Complaint ¶¶ 46, 48.

For example, according to the Complaint, creditors typically require debtors to post collateral worth slightly more than the amount loaned. Id. ¶ 46. This extra collateral is known as a “haircut.” Id. Plaintiff alleges that, on many occasions, the Bank Defendants loaned money to the Funds without requiring the Funds to provide “haircuts”. Id.

In addition to their role as creditors, the Bank Defendants sometimes acted as counterparties for the Funds in derivative contracts such as futures, swaps and options. Id. ¶47. And, one of the Bank Defendants—Merrill Lynch—invested $22 million in the Funds through a deferred compensation plan. Id. ¶ 49. Finally, the Complaint alleges that the Bank Defendants “competed” with the Funds because those defendants “were, and are, heavily involved in financial markets as brokers for customers, as traders for their own proprietary accounts and/or as market makers for various securities also traded by [the Funds].” Id.

3. Plaintiff

In 1994, plaintiff Lakonia invested $50,039,887 in LTC V through a private offering of LTC V securities. Id. ¶ 38. 8 The Offering Memorandum for those securities made clear that investment in LTC V was a high-risk financial venture and warned potential purchasers that returns would be both volatile and uncertain. Offering Memorandum, Ex. A to Hersch *546 Decl. 9 Specifically, the Offering Memorandum stated:

Investment in [LTC V] entails a high degree of risk and is suitable only for sophisticated investors for whom an investment in [LTC V] does not represent a complete investment program and who fully understand and are capable of bearing the risks of an investment in [LTC V].... There can be no assurance that [LTC Portfolio] will be able to achieve its investment objective or that investors will receive a return of their capital, and investment results may vary substantially on a quarterly or annual basis.

Id. at 40.

The Offering Memorandum informed prospective purchasers that shares of LTC V were not registered under domestic or foreign securities laws, and that there was no public market for shares of LTC V. Id. at (i). In addition, the Offering Memorandum stated that LTC V had authority to mandatorily redeem “all or any part of a Shareholder’s Shares at any time and for any reason, in its sole and absolute discretion.” Id. at 9. Any mandatory redemption would be at the then-current net asset value per share. Id. 10 Finally, the Offering Memorandum disclosed that the Principals would initially invest an aggregate of at least $100 million in LTC Portfolio — -as distinct from LTC V. Id. at 2.

B. Operation of the Funds from 1994 through August 1998

Pursuant to its investment strategy, LTC Management leveraged the assets of LTC Portfolio, taking on “huge” amounts of debt. Complaint ¶ 42. For example, in 1996, LTC Portfolio’s leverage ratio was approximately 30 to 1. Id. That is, LTC Portfolio carried $30 of debt for every $1 of available capital. Id.

From late winter 1994 through spring 1998, LTC Management’s strategy worked well. Id. ¶ 43. Investors earned profits of 20% in 1994; 43% in 1995; 41% in 1996 and 17% in 1997. Id. By fall 1997, the reported capital of LTC Portfolio was approximately $7 billion. Id. ¶ 44. Similarly, by November 30, 1997, the value of Lakonia’s investment in LTC V had increased from $50,039,887 to $137,931,042— a profit of $87,891,155. RICO Stmt, at 77.

In December 1997, after determining that $7 billion was too much capital for the available investment opportunities, the Funds redeemed $2.5 billion worth of shares to investors. Complaint ¶ 44; RICO Stmt, at 77. 11 Pursuant to this *547 mandatory redemption, Lakonia received $55,571,546 — the full amount of its original investment plus approximately $5.5 million. RICO Stmt, at 77. Following the mandatory redemption, Lakonia retained a substantial investment in LTC V. Id. On July 31, 1998, the value of Lakonia’s remaining investment was $72,768,929. Id.

C. Impact of Russian Financial Crisis

On August 17,1998, Russia devalued the ruble and declared a debt moratorium. Complaint ¶51. Russia’s actions precipitated an international financial crisis. Id. ¶¶ 51, 52.

Among other things, the Russian debt moratorium sparked a “flight to quality” by investors; that is, investors sought safe, high-quality investments and avoided risk. Id. ¶ 52. The Complaint alleges that this flight to quality caused,

credit risk spreads and liquidity premiums [to rise] sharply in markets around the world. The size, persistence, and pervasiveness of the widening of risk spreads represented an extreme deviation from the risk management models employed by the [LTC Funds], which were based on assumptions that did not take into account such dramatic circumstances but rather were historical in nature. As a result, the [LTC Funds] (and other market participants) suffered losses in individual markets that greatly exceeded what conventional (so called value at risk) models, estimated during more stable periods, suggested were probable.

Id. The flight to quality “also resulted in a substantial reduction in the liquidity of many markets, which made it difficult for the [LTC Funds] to reduce exposure quickly without incurring further (‘fire sale’) losses — particularly given the large positions it held in certain markets.” Id. At the same time, the Funds were finding it difficult to raise capital or to obtain additional financing. Id. ¶ 54. By the end of August 1998, LTC Portfolio’s available capital was $2.3 billion compared to $4.7 billion in December 1997 — a loss of equity totaling more than fifty percent. Id. ¶ 53.

In early September 1998, the Bank Defendants modified their previously favorable credit arrangements with the Funds. Id. ¶ 57. For example, the Complaint charges that “certain Bank Defendants required [LTC Portfolio] to collateralize not only current but future risk.” Id. Other Bank Defendants, in their role as counter-parties to LTC Portfolio in derivative contracts, sought “as much collateral as possible from the [F]unds through the daily margining process, refusing previously extended intra day credits and in many cases seeking to apply possible liquidation values to market-to-market valuations.” Id. In plain language, the Bank Defendants effectively raised the margin percentage requirements imposed on the Funds, further straining the Funds’ available cash flow. Id. ¶¶ 57-58.

D. Recapitalizing the Funds

Faced with the possibility that they would be unable to meet margin and collateral payments due at the end of September, the Funds employed defendant Goldman Sachs to find investors willing to infuse the failing venture with additional capital. Id. ¶ 58. On September 18, 1998, after trying unsuccessfully to raise additional capital for the Funds, Goldman Sachs telephoned William J. McDonough, President of the Federal Reserve Bank of New York (the “Federal Reserve”). Id. ¶ 60. Goldman Sachs informed McDon-ough that the Funds were “in dire straits, such that they might not be able to continue operations the following week.” Id. Two days later, representatives from the Federal Reserve and the Treasury traveled to the Connecticut offices of LTC Management to review the Funds’ books *548 and records. Id. According to the Complaint, the government representatives were “shocked by the volume in off-balance sheet trading activity” which “far exceeded the on-balance sheet assets of the [F]unds and massively exceeded the [F]unds remaining capital.” Id.

By September 21, the Funds’ liquidity situation had deteriorated further. Id. ¶ 61. That evening, defendants Goldman Sachs, J.P. Morgan and Merrill Lynch met with Peter Fisher of the Federal Reserve to discuss various options for salvaging the Funds. Id. ¶ 62. The meeting continued the following day with the added participation of President McDonough and defendant UBS AG. Id. ¶ 63.

The group of commercial banks and government representatives focused primarily on a salvage option called the “consortium approach.” Id. ¶ 64. Under the consortium approach, a group of the Funds’ major creditors — namely, the thirteen Bank Defendants — would recapitalize LTC Portfolio by investing $3.6 billion in a newly created feeder fund and a newly created limited liability company (collectively, the “New Funds”). Id. ¶¶ 64, 70. The New Funds would then invest their combined $3.6 billion in LTC Portfolio in exchange for (i) a 90% interest in the assets of LTC Portfolio; and (ii) operational control of LTC Management. Id. ¶¶ 64, 70. The original investors in LTC Portfolio 12 would retain an aggregate 10% interest in the master fund. Id. ¶¶ 64, 70.

On September 23, Warren Buffet, American International Group and Goldman Sachs contacted McDonough and made a joint offer to purchase 100% of the Funds for $250 million in cash (the “Buffet Offer”). Id. ¶ 66. Pursuant to the Buffet Offer, the original investors in LTC Portfolio would no longer have any equity interest in the master fund. Id. Instead, the original investors, and in turn their shareholders, would receive an aggregate cash-out payment of $250 million. Id. Meanwhile, the Funds’ new owners — Buffet, American International Group and Goldman Sachs — would infuse LTC Portfolio with $4 billion and then “gradually liquidate at what Buffet thought could be a decent profit.” Id. Buffet requested that the Funds respond to his Offer within 1.5 hours. Id.

McDonough contacted Meriwether via telephone and informed him of the Buffet Offer. Id. ¶ 67. 13 Meriwether told McDonough that the Buffet Offer was not feasible because Meriwether did not have authority to sell 100% of the Funds. Id. However, Meriwether did not obtain an independent legal opinion regarding his ability to sell 100% of the Funds. Id. Nor did Meriwether (i) attempt to negotiate the terms of the Buffet Offer; (ii) contact the other Principals to discuss the Buffet Offer; or (iii) conduct due diligence for purposes of comparing the Buffet Offer with the consortium approach. Id.

One day later, on September 24, the Bank Defendants formalized their consortium offer and collectively invested $3.6 billion in the New Funds as described above. Id. ¶¶ 68, 70. The New Funds in turn invested $3.6 billion in LTC Portfolio in exchange for a 90% equity stake in LTC Portfolio and operational control of LTC Management. Id. ¶¶ 64, 70. The remaining 10% equity stake was held by the original investors in LTC Portfolio, including LTC V. Id. ¶ 64.

E. Recovery of the Funds and Redemption of Investors

Following the Bank Defendants’ recapitalization, the financial health of the Funds greatly improved. Id. ¶ 78. By February 26, 1999, LTC Portfolio had earned returns of more than 20%. Id. By March 30, *549 1999, the Funds’ risk dropped by more than 50%, and the value of LTC Portfolio’s assets increased to $5 billion. Id. The Bank Defendants announced that, as a result of the reduction in risk and an increase in the value of LTC Portfolio’s net assets, they anticipated returning some capital to investors during the second half of 1999. Id.

In a letter dated June 17, 1999, Meri-wether notified plaintiff and “the original 1994 investors” 14 that their shares would be mandatorily redeemed “in the near future.” Id. ¶80. On July 6, 1999, the “Funds eliminated the interests of all of its outside investors, 15 including the plaintiff, by redeeming their interests with a $300 million redemption payment.” Id. ¶81. 16 Pursuant to the redemption, Lakonia received $8,157,879. RICO Stmt, at 77. 17 Thus, Lakonia ultimately recouped $63,-728,925 — a 27% return on its original investment of $50,039,887. Id. Also on July 6, the Funds made a $1 billion payment to the Bank Defendants. Complaint ¶ 81. The payment represented a return of 27.5% of the Bank Defendants’ $3.6 billion investment in the Funds. Id.

On July 13, exactly one week after the redemption, plaintiff filed its initial complaint. Plaintiff filed its Amended Complaint on November 3,1999.

F. Allegations of the Complaint

The gravamen of the Complaint is that, under the guise of salvaging the distressed Funds, the Bank Defendants conspired with each other and with Meriwether to gain control of the Funds and to eliminate plaintiff and other shareholders for a fraction of the value they would have otherwise received. The Complaint sets forth four claims for relief.

Claim I charges the Bank Defendants with racketeering activity—mail and wire fraud—in violation of § 1962(b) of RICO, 18 U.S.C. § 1962(b). Specifically, Claim I alleges that the Bank Defendants purposefully exacerbated the effects of the Russian financial crisis by “dramatically reversing]” their previously favorable credit arrangements with the Funds and by “encouraging fear and concern in the market about the possibility that [the Funds] were in danger of abruptly collapsing in the very near-term.” Complaint ¶¶ 57, 59. According to plaintiff, as a result of this alleged scheme, the Bank Defendants were able to buy out the Funds at a depressed price and to then profit handsomely once the artificial crisis was eliminated. Id. ¶¶ 72(d), 82, 94.

Under a similar theory, Claim II charges that the Bank Defendants conspired with Meriwether to engage in racketeering activity in violation of § 1962(d) of RICO, 18 U.S.C. § 1962(d).

Claim III alleges that Meriwether and the Fund Defendants breached their fiduciary duties to plaintiff by, among other things, improperly accepting the Bank De *550 fendants’ consortium offer without procuring an independent fairness „ opinion or seriously considering the Buffet Offer. Complaint ¶¶ 69, ' 76. Claim IV charges the Bank Defendants with aiding, abetting and inducing Meriwether to breach his fiduciary duties to plaintiff. Id. ¶¶ 114-17.

Pursuant to these claims, plaintiff seeks treble damages, attorneys’ fees and costs. Id. at 34.

III. Discussion

Despite the complexity of the events and financial transactions underlying this litigation, resolution of the pending motions is relatively straightforward. Defendants attack the sufficiency of plaintiffs Complaint on numerous grounds, two of which — lack of standing under RICO and failure to adequately allege fraud for purposes of RICO — are dispositive. 18

A. Claims I & II: RICO

RICO creates a civil cause of action for “[a]ny person injured in his [or her] business or property by reason of a violation of section 1962.” 18 U.S.C. § 1964(c). As set forth above, plaintiff alleges violations of § 1962(b) and § 1962(d). Section 1962(b) provides:

It shall be unlawful for any person through a pattern of racketeering .activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in our control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.

18 U.S.C. § 1962(b). “Racketeering activity” includes, among other things, mail fraud and wire fraud. See 18 U.S.C. § 1961(1) (setting forth an exhaustive list of racketeering activities). To plead a ‘■pattern of racketeering activity”, plaintiff must establish that each defendant committed at least two acts of racketeering— or two “predicate acts” — within a ten-year period. See 18 U.S.C. § 1961(5). 19

The second RICO provision at issue here, § 1962(d), makes it “unlawful for any person to conspire to violate” any of the substantive provisions of § 1962. See 18 U.S.C. § 1962(d). Plaintiff has charged the Bank Defendants and Meriwether with conspiring to violate § 1962(b).

Before turning to a discussion of the sufficiency of plaintiffs claims under §§ 1962(b) and (d), I first address the threshold issue of whether, plaintiff has standing to assert those claims.

1. RICO Standing

It is a well-settled principle of corporate law that “[a]n action to redress injuries to a corporation cannot be maintained by a shareholder in his [or her] own name but must be brought in the name of the corporation through a derivative action.” Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1101 (2d Cir.1988) (internal quotations omitted). This principle applies with equal force to civil RICO claims. See id.; see also Manson v. Stacescu, 11 F.3d 1127, 1131 (2d Cir.1993) (“A shareholder generally does not have standing to bring an individual action under RICO to redress injuries to the corporation in which he owns stock.”).

In the context of RICO, the direct/derivative dichotomy is often characterized as an issue of proximate cause. As set forth above, § 1964(c) provides a cause of action under RICO for any person “injured in his [or her] business or property *551 by reason of a violation of section 1962.” See 18 U.S.C. § 1964(c). This language limits standing “to plaintiffs whose injuries were caused proximately by the RICO predicate acts.” Manson, 11 F.3d at 1130 (citing Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992)). “A central element of proximate cause is a showing of some direct relation between the injury asserted and the injurious conduct alleged.” Id. (internal quotations omitted). Where the shareholder’s injury “is derivative of injury to the corporation, the shareholder’s injury is not related directly to the defendant’s injurious conduct.” Id. at 1131; see also Department of Econ. Dev. v. Arthur Andersen & Co., 924 F.Supp. 449, 464 (S.D.N.Y.1996). Thus, plaintiff may only assert claims under RICO if the injury it alleges is direct and not merely derivative of injury suffered by LTC V. 20

a. Derivative versus Direct Injury

An action is derivative “if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock or property without any severance or distribution among individual holders.” Nordberg v. Lord, Day & Lord, 107 F.R.D. 692, 697 (S.D.N.Y.1985) (internal quotations omitted). A decrease in value of a holder’s shares which “merely reflects the decrease in value of the firm as a result of the alleged illegal conduct” is derivation rather than direct in nature and cannot confer individual standing under RICO. See Rand v. Anaconda-Ericsson, Inc., 794 F.2d 843, 849 (2d Cir.1986) (quoting Warren v. Manufacturers Nat’l Bank of Detroit, 759 F.2d 542, 544 (6th Cir.1985) for proposition that, in RICO context, “ ‘[d]i-munition [sic] in value of the corporate assets is insufficient direct harm to give the shareholder standing to sue in [its] own right.’ ”).

Similarly, a shareholder cannot assert individual standing under RICO where all the shareholders of a corporation have experienced the same injury. See Manson, 11 F.3d at 1131-32. Unless the injury sustained by a shareholder “is separate and distinct from that sustained by other shareholders”, the claim asserted is derivative and must be brought by or on behalf of the corporation. Id. at 1131; see also, Nordberg, 107 F.R.D. at 698 (“ ‘It is only where the injury sustained to one’s stock is peculiar to him alone, and does not fall alike upon other stockholders, that one can recover as an individual.’ ”). 21

*552 b. Nature of Plaintiffs Alleged Injury

Plaintiff contends that it has pleaded direct injury by

alleging that (a) defendants wrongfully stripped away 90% of the equity interests of the outside shareholders for grossly insufficient consideration; and (b) those shareholders who were Principals (including defendant Meriwether) received better treatment than the outside shareholders because the outside investors were redeemed against their will at an inadequate price, while the Principals and Bank Defendants retained their existing interest and the potential upside involved.

Pl.0pp. at 13; see also Complaint ¶¶ 5, 55, 72(d), 82, 97, 105. Neither of these allegations is sufficient to demonstrate direct harm to plaintiff. Rather, the injury plaintiff alleges is wholly derivative of injury purportedly suffered by LTC V.

First, it is undisputed that LTC V — not Lakonia— owned equity in LTC Portfolio. See Complaint ¶¶ 34, 37-38; Offering Memorandum, Ex. A to Hersch Decl.; LTC V Subscription, Ex. 1 to Chang Aff. 22 Thus, when the Bank Defendants invested $3.6 billion in LTC Portfolio, they “stripped away” or diluted 90% of the equity interests shared by LTC V and the other original investors in LTC Portfolio. The Bank Defendants’ recapitalization of LTC Portfolio could not have “stripped away” plaintiffs equity interests, because plaintiff had no equity interests in the master fund. Accordingly, any harm suffered by Lakonia as a result of the recapitalization is necessarily indirect; such harm “merely reflects the decrease in value of [LTC V] as a result of the alleged illegal conduct”, namely the Bank Defendants’ dilution of LTC V’s equity interest in the master fund. See Rand, 794 F.2d at 849; see also Nordberg, 107 F.R.D. at 698.

Second, plaintiffs claim that the Principals and Meriwether were treated differently than “outside investors who were redeemed against their will” is meaningless. The Complaint is devoid of any allegation that Meriwether or the Principals owned shares of LTC V. Similarly, there is no allegation that plaintiff was treated differently than any other shareholder of LTC V. Thus, because plaintiff suffered the same injury as all other shareholders of LTC V, it cannot assert individual standing under RICO. 23 See Manson, 11 *553 F.3d at 1131-32. 24

2. Failure to Allege Predicate Acts of Fraud

Assuming arguendo that plaintiff has standing to pursue its RICO claims, those claims suffer from an even more fundamental flaw: plaintiff fails to allege fraud under any standard, let alone the heightened pleading requirements of Rule 9(b).

a. Mail and Wire Fraud

Plaintiffs substantive RICO claim under § 1962(b) is premised upon the predicate acts of mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 1343. A plaintiff alleging mail and wire fraud must show “(1) the existence of a scheme to defraud, (2) defendant’s knowing or intentional participation in the scheme, and (3) the use of interstate mails or transmission facilities in furtherance of the scheme.” S.Q.K.F.C., Inc. v. Bell Atlantic Tricon Leasing Corp., 84 F.3d 629, 633 (2d Cir.1996).

The first element, a scheme to defraud, “requires fraudulent or deceptive means, such as material misrepresentation or concealment.” A. Terzi Prods., Inc. v. Theatrical Protective Union, 2 F.Supp.2d 485, 499 (S.D.N.Y.1998) (internal quotations omitted). As.the Second Circuit recently stated in Moore v. PaineWebber, Inc., 189 F.3d 165, 170 (2d Cir.1999), “For RICO liability to exist as a result of a violation of [the mail and wire fraud] statutes, the defendant must have made misrepresentations that are material to the harm caused to the victim.” Thus, to survive dismissal of its § 1962(b) claim, plaintiff must allege that the Bank Defendants 25 made material misrepresentations, concealed material information or otherwise engaged in deceptive or dishonest practices. 26

In addition, as set forth supra Part I, plaintiffs allegations of fraud must comply with the heightened pleading requirements of Rule 9(b). Id. at 173; S.Q.K.F.C., 84 F.3d at 634. “In the RICO context, Rule 9(b) calls for the complaint to ‘specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiffs contend the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements.’ ” Moore, 189 F.3d at 173 (quoting McLaughlin v. Anderson, 962 F.2d 187, 191 (2d Cir.1992)). 27

*554 In the instant case, plaintiff makes numerous conclusory — and rather dramatic — accusations regarding the Bank Defendants’ fraudulent scheme. However, not once in its 35-page Complaint or its 90-page RICO statement does plaintiff identify a misrepresentation, omission or any other deceptive act which would evidence such a scheme. This failure is fatal to plaintiffs substantive RICO claim.

b. The Bank Defendants’ Alleged Scheme

Plaintiff describes the Bank Defendants’ scheme to defraud as follows:

The [Bank] Defendants made deceptive statements to federal banking regulations which exaggerated the reported [Russian financial] crisis because the Banks did not reveal the extent to which [the Funds’] troubles were the result of unreasonable — indeed predatory- — activities by the Bank Defendants with respect to collateral and margin requirements and other credit restrictions. Similarly, deceptive statements concerning the nature of the crisis and the need for the bailout were issued by Meriwether and the [Fund Defendants] to their shareholders and the investing public. As a result of those predatory and deceptive acts, the Bank Defendants were able to obtain control of [the Funds]. In the course of that activity, they first usurped 90% of plaintiffs equity interest in [the Funds] at a grossly deficient price, and subsequently took the rest.

PLOpp. at 17-18. Each of these charges is addressed in turn below.

(1) Credit Restrictions

At the heart of the purported scheme is plaintiffs allegation that “the Bank Defendants acted to artificially increase and exacerbate the ‘crisis’ atmosphere ... by dramatically reversing] their customary credit arrangements with [the Funds].” Complaint ¶ 57. According to the Complaint, “[previously flexible arrangements became rigid, and daily mark-to-market valuations for collateral calls became contentions, whereas in the past they had been cooperative.” Id. Plaintiff sets forth several examples of the Bank Defendants’ alleged credit modifications and contends that “[i]n very important respects, the new margins imposed represented extraordinary and arbitrary departures from normal credit standards in the industry.” Id.; see also supra Part II. C. The Complaint does not allege, however, that the Bank Defendants’ credit modifications violated corporate, banking or contract laws or were otherwise illegal in any way.

Despite plaintiffs arguments to the contrary, this Court is at a loss to understand how the Bank Defendants’ tightening of their credit arrangements with the Funds — however drastic — constitutes fraud. As set forth above, to survive dismissal plaintiff must identify and explain the conduct it claims was false and deceptive. See Moore, 189 F.3d at 173. Plaintiff cannot meet this requirement by asserting that the Bank Defendants “raised the margin percentage requirements imposed on [the Funds]”. Complaint ¶ 57. Although such conduct was arguably unjustified, extraordinary and harmful to the Funds, it was not in and of itself false or misleading. 28 Cf. A. Terzi Prods., 2 *555 F.Supp.2d at 500 (dismissing civil RICO claim for failure to plead a scheme to defraud because although defendants’ threats and abusive conduct “may have been wrongful, even reprehensible ... they were not deceptive”).

(2) Deceptive Statements

Plaintiffs claims regarding step two of the fraudulent scheme — namely, that the Bank Defendants made “deceptive statements” regarding the extent of the crisis to federal regulators, the Funds’ shareholders and the investing public — are similarly unavailing.

First, the Complaint’s sole allegation regarding deceptive statements made by the Bank Defendants to federal regulators is that

[i]n a series of communications with the Federal Reserve Bank ... and others, the Bank Defendants misrepresented the extent and true nature of the crisis by omitting to disclose that they had exceeded the bounds of recognized and appropriate margin and collateral requirements in their recent dealings with [the Funds]. This deception strongly encouraged the belief that the only way to salvage the situation was for the Banks themselves — who were the principle [sic] counterparties and trading competitors of [the Funds], and therefore had enormous incentive to know and control the contents of [the Funds’] portfolios — to obtain ownership and control of [the Funds] in return for a capital infusion.

Complaint ¶ 4. This bare and conclusory assertion falls far short of the pleading requirements set forth in Rule 9(b). Among other things, plaintiffs general reference to a “series of communications” fails to adequately identify those communications, let alone “the time, place, speaker or substance” of those communications. Old Republic Ins. Co. v. Hansa World Cargo Serv., Inc., 170 F.R.D. 361, 383 (S.D.N.Y.1997) (dismissing RICO claim where complaint did “not even remotely approach [Rule 9(b)’s] requirements for pleading mail and wire fraud as predicate acts”). Moreover, any allegation that the Bank Defendants concealed or misrepresented their credit modifications from the Federal Reserve is explicitly contradicted by plaintiffs admission that “three representatives of the Federal Reserve and one representative of the Treasury traveled to the Management Company’s headquarters to review [the Funds’] books and records.” Complaint ¶ 60. 29

Second, and similarly, the Complaint sets forth only a single allegation regarding deceptive statements issued by the Bank Defendants to the Funds’ shareholders and the investing public: