Eleventh Circuit Clarifies Pleading Standard for Fraud, Declines to Apply PSLRA Bar to RICO Claim, and Supreme Court Denies Certiorari

A federal appellate decision provided significant guidance on a frequently disputed issue in transnational litigation: the pleading standards and substantive law governing fraud, RICO, and conspiracy claims.  In 2025, the U.S. Court of Appeals for the Eleventh Circuit, in an 82-page opinion, reversed a district court order that dismissed a lawsuit involving one of the largest financial frauds ever for failing to state such claims.  See Otto Candies LLC v. Citigroup Inc., 137 F.4th 1158 (11th Cir. 2025).  The Eleventh Circuit did so because the district court improperly applied the heightened “strong inference” standard for pleading knowledge from securities fraud cases to common-law fraud claims, and failed to credit plaintiffs’ detailed allegations of defendant’s misrepresentations and plaintiffs’ reliance thereon.

            The Eleventh Circuit also clarified that the Private Securities Litigation Reform Act (PSLRA) does not bar a claim under the Racketeer Influenced and Corrupt Organizations Act (RICO) based on plaintiffs “holding” (not selling) a security because that is not “actionable” as securities fraud.  In January 2026, the U.S. Supreme Court denied defendant’s petition for certiorari on that issue.  The case, in which Quinn Emanuel represents the plaintiffs, has important implications both for plaintiffs seeking to bring cross-border disputes in the United States, and for defendants seeking to dismiss those lawsuits.

Several courts have recently cited the decision’s analysis favorably.

            “Otto Candies is a perfect illustration of the difference between these facts and a real RICO conspiracy,” the court said in Halabi v. Mega Bank (WL 2187832, at *20, S.D. Fla., Apr. 27, 2026).

            And in Nyawara v. Interstaff, Inc., WL 1999277, at *8 (S.D. Tex. July 10, 2026), the court quoted Otto Candies in denying dismissal where “Rule 9(b)’s pleading standards should be relaxed … to aid those alleging prolonged multi-act schemes … if the plaintiff alleges at least some examples to lay a complete foundation for the rest of his allegations.”

Overview

Plaintiffs suing for fraud in federal court must satisfy the heightened pleading standard of Federal Rule of Civil Procedure 9(b).  To meet that standard, plaintiffs must allege, among other things, (1) the “precise statements” made; (2) the “time, place, and person responsible” for the statements; and (3) the “manner in which these statements misled” plaintiffs (i.e., reliance)—collectively known as the “who, what, when, where, and how” of fraud.  Id. at 1178.  Though Rule 9(b) requires more particularity than the normal Rule 8(a) standard, its application “must not abrogate the concept of notice pleading”—that defendants have been “made aware” of the circumstances for which they will have to “prepare a defense” at trial.  Id.  Moreover, the “conditions of a person’s mind,” including knowledge, “may be alleged generally.”  Id. (quoting Rule 9(b)).

            Plaintiffs suing under the civil provisions of RICO must plausibly allege, among other things, that defendants (1) engaged in a “pattern” of racketeering activity (i.e., continuity) (2) that included at least two “predicate acts” of racketeering.  Id. at 1196.  Plaintiffs can establish a RICO conspiracy by showing that defendants “agreed to the overall objective of the conspiracy.”  Id. at 1201.  Plaintiffs need not offer direct evidence of a RICO agreement; it may be inferred from the “conduct of the alleged participants” or from “circumstantial evidence of a scheme.”  Id. at 1201-02.

            The plaintiffs in the Otto Candies case are former creditors of Oceanografía, a now-bankrupt Mexican company that provided maintenance and transportation services to Pemex, Mexico’s state-owned oil and gas monopoly.  Plaintiffs allege that Citigroup established a credit facility within its Mexican subsidiary Banamex to provide cash advances to Oceanografía, and loaned the company billions of dollars knowing the advances were based in part on forged Pemex work orders.  When the fraud was exposed in 2014, Oceanografía declared bankruptcy and plaintiffs—comprised of 14 groups of shipping companies, investment funds, and a bank—lost over $1 billion.  Before the Eleventh Circuit’s recent reversal, in 2020, it reversed the district court’s order dismissing the case in favor of Mexico as a more convenient location for the lawsuit (i.e., forum non conveniens).  963 F.3d 1331 (11th Cir. 2020).

Pleading Standard for Defendant’s Knowledge of Fraud

The requirements for pleading common-law fraud under Rule 9(b) and securities fraud under the PSLRA differ.  137 F.4th at 1178.  The PSLRA mandates that private plaintiffs allege facts supporting a “strong inference” of a defendant’s knowledge (i.e., scienter) when pleading securities fraud, heightening the pleading standard.  Id.  Some federal district courts, including the U.S. District Court for the Southern District of Florida here, extended the PSLRA’s pleading standard to claims of aiding-and-abetting fraud under Florida law.  Id. at 1179 (citing 2023 WL 6418135, at *7 (S.D. Fla. Aug. 25, 2023)).

            The Eleventh Circuit held that those courts “have gotten it wrong” and reiterated that for common-law fraud claims, “Rule 9(b) does not require a plaintiff to allege specific facts related to the defendant’s state of mind,” and “knowledge may be alleged generally.”  Id.  The court stated that its approach “comports with the text of Rule 9(b) and recognizes that a plaintiff rarely will be able to plead a defendant’s actual state of mind—particularly before it has access to discovery.”  Id. at 1179-80.  The court also noted its standard matches those of seven of eight other circuits to rule on the issue, including the Fifth, Ninth, and D.C. Circuits, with the outlier in the Second Circuit, which required plaintiffs to allege a strong inference of fraudulent intent even before the PSLRA’s passage.  Id. at 1180 n.9.

            Analyzing plaintiffs’ claims de novo under the proper pleading standard, the Eleventh Circuit held that the complaint alleged generally that Citigroup knew of the fraud.  Id. at 1180.  The court noted plaintiffs’ allegations that Citigroup employees and agents knew about the fraud, which may be attributed to Citigroup, and that Citigroup does not dispute that Banamex and Citibank employees acted as its agents.  Id.  Indeed, the court highlighted the allegations that plaintiffs received letters, emails, and business cards with a joint Banamex-Citigroup logo, and that a Citigroup managing director entered into a secret contract with Oceanografía that outsourced to it the task of authenticating the documents in support of its own cash-advance requests.  Id. at 1173-74, 1180-81.  The court also noted that the employees’ actions were not “entirely adverse” to Citigroup given the interest payments that Citigroup received from the cash-advance fraud.  Id. at 1181.

            The Eleventh Circuit further took issue with the district court’s overly critical analysis of plaintiffs’ allegations regarding (1) Citigroup’s statement that it fired an employee it believed was “directly involved” in the fraud (characterizing the district court’s interpretation against Citigroup’s criminal involvement as a “rather fine distinction” and “quite flimsy”); (2) the Mexican authorities’ finding that several Citigroup employees were criminally responsible for the fraud (characterizing the district court’s assessment that Mexican and U.S. law differ as “beside the point”); and (3) the large discrepancies between the cash advances and the underlying Pemex contracts.  Id. at 1181-82.  The court therefore concluded, “Citigroup is one of the world’s most sophisticated financial institutions, and it strains credulity to conclude that, assuming the plaintiffs’ allegations are true, Citigroup lacked awareness of [Oceanografía’s] activities.”  Id. at 1182.  The Eleventh Circuit later denied Citigroup’s petition for en banc review of this issue.

Particularity of Fraud Allegations

            As noted above, in addition to knowledge, a fraud claim requires plaintiffs to allege, as relevant here, the specific misrepresentations Citigroup made to plaintiffs and how the misrepresentations informed plaintiffs’ decisions to lease ships, invest, or loan money to Oceanografía.  The district court found that plaintiffs did not allege misrepresentations in detail or how plaintiffs relied on the misrepresentations to their detriment.  However, the Eleventh Circuit found that the complaint alleged numerous examples of Citigroup’s direct misrepresentations to several plaintiffs (e.g., Citigroup was working with Oceanografía to “cover” the debt owed to creditors) and misrepresentations by Citigroup’s agents to other plaintiffs (e.g., a Banamex employee promised that a plaintiff would encounter “no problem” receiving payments from Oceanografía), including by summarizing the misrepresentations in a “succinct way” that was “clear to understand” through charts that plaintiffs attached to the complaint.  Id. at 1186-87. 

            The Eleventh Circuit also found that plaintiffs adequately alleged Citigroup’s liability for third party misrepresentations and omissions that Citigroup contributed to and knew would be distributed to plaintiffs.  Id. at 1188.  For example, an Oceanografía investor presentation given to plaintiffs with Citigroup’s logo on the slides stated that Oceanografía “engages in recourse factoring with Mexican banks to minimize days receivable and ensure sufficient liquidity.”  Id. at 1191.  Other investor materials pledged that bondholders would be “protected” through Banamex’s role as a trust “fiduciary.”  Id. at 1192.  Yet Citigroup omitted mention of the mounting problems with the cash-advance facility and the shakiness of Oceanografía’s finances in those materials despite having “full access” to the relevant information, and never updated the bond documents despite Citibank serving as trustee of a bond offering.  Id.

            The Eleventh Circuit referred to these examples as “classic illustrations of fraud” because Citigroup had “superior knowledge” yet failed to disclose information that was “not discoverable by ordinary observation.”  Id. at 1190.  The court also emphasized plaintiffs’ reliance on Citigroup as a “highly regarded international bank” for its “purported neutrality as a third-party, expertise and professionalism” and “intimate knowledge of [Oceanografía’s] financial condition.”  Id.  The court therefore found that plaintiffs alleged a “mosaic of fraud” that the district court “ignored” through its “oversight,” and did “not see how the plaintiffs could have pleaded their fraud claims with greater specificity.”  Id. at 1187, 1193.

            The Eleventh Circuit also found that each plaintiff adequately pleaded how they relied on the misrepresentations and omissions to conduct business with or invest in Oceanografía.  Id. at 1194.  The court highlighted plaintiffs’ allegations of Banamex and Citibank employees’ misrepresentations to plaintiffs, causing plaintiffs to continue providing services, restructure a loan, or retain bonds instead of ending their business relationship with Oceanografía.  Id.  The court also found that plaintiffs’ allegations that they reviewed (as opposed to read) materials were sufficient since there are no “magic words” to plead reliance, characterizing Citigroup’s arguments as “verbal gymnastics.”  Id. at 1195.  The court further found that there is no higher standard for pleading reliance based on “holding” (not selling) an investment, and that plaintiffs’ reliance was justified since the fraud evaded detection by U.S. and Mexican financial regulators for years.  Id.

PSLRA Bar on RICO Claims

The district court dismissed plaintiffs’ RICO claim for the same reason it dismissed plaintiffs’ fraud claim: plaintiffs supposedly provided “no details about the specific misrepresentations that they relied on.”  Id. at 1197.  The Eleventh Circuit found that was error for the reasons above.  Id.  However, the court remanded the RICO claim to the district court because the district court did not analyze whether plaintiffs sufficiently pleaded the elements of a RICO claim.  Id.  Still, the Eleventh Circuit gave the district court guidance on remand, finding that neither of Citigroup’s alternative arguments to dismiss plaintiffs’ RICO claim based on the PSLRA bar and RICO continuity was persuasive.  Id.

            First, Citigroup argued that the “predicate acts” underlying plaintiffs’ RICO claim constitute fraud in the purchase or sale of securities, which cannot form the basis of a RICO claim under the PSLRA.  Id. (citing 18 U.S.C. § 1964(c)).  The Eleventh Circuit found that several plaintiffs leased vessels or loaned money to Oceanografía, which did not involve securities fraud.  Id.  Even for the bondholder plaintiffs, the court noted that the Supreme Court found that “holding” an investment does not offer grounds to sue under federal securities laws, so it was unclear why the PSLRA would bar those claims.  Id. at 1197-98.  The court therefore “decline[d] Citigroup’s invitation to weaponize the PSLRA bar at the pleading stage in a case where the allegations have little to do with securities fraud in the first place.”  Id. at 1198.

            Citigroup filed a petition for certiorari with the Supreme Court regarding the PSLRA’s application to the bondholders’ RICO claim.  Citigroup argued that the PSLRA targets “conduct” actionable as securities fraud by anyone, including the Securities and Exchange Commission (which can sue on behalf of investors who held securities), and the Eleventh Circuit misconstrued the statute by focusing on the particular plaintiffs.  Cert. Pet., 2025 WL 2856170, at 11-19 (Sept. 30, 2025).  Citigroup cited authority from other circuits in support of its position.  Id. at 20-24.  Citigroup also stated that the issue was important for American businesses and risked undermining constraints on securities and RICO lawsuits.  Id. at 24-27.  The U.S. Chamber of Commerce and other entities submitted amici briefs in support of Citigroup’s petition.

            In opposing the petition, Plaintiffs argued that (1) there was no decision to review because the Eleventh Circuit’s opinion did not suggest that any other plaintiff could bring a claim, (2) Citigroup did not make the SEC argument below so it was waived, and (3) there is no circuit precedent on whether the theoretical possibility of an SEC action alone suffices to trigger the PSLRA bar.  Opp. to Cert. Pet., 2025 WL 3543204, at 10-17 (Dec. 3, 2025).  Plaintiffs continued that this case would be a bad choice to address the issue because it was unlike the typical securities fraud case where plaintiffs challenge public statements for publicly traded securities, and it is at an interlocutory stage with further briefing on the RICO claim still pending before the district court that could moot the issue.  Id. at 17-19.  Plaintiffs lastly argued that Citigroup’s position failed on the merits because the text, context, and legislative history of the PSLRA bar contradict Citigroup’s argument that Congress intended to preclude RICO claims simply because someone else could have brought a securities fraud claim, particularly the strained, anomalous SEC claim Citigroup hypothesized.  Id. at 19-25.  In January 2026, the Supreme Court denied Citigroup’s petition.  Citigroup Inc. v. Otto Candies LLC, No. 25-391, 2026 WL 80015 (U.S. Jan. 12, 2026).

            Second, Citigroup argued that plaintiffs insufficiently pleaded a “pattern” of racketeering activity that continued for at least a year (i.e., closed-ended continuity).  137 F.4th at 1198.  The Eleventh Circuit found that Citigroup ignored allegations about the fraud from 2008 to 2013 based on an SEC investigation resulting in $4.75 million fine, including that Banamex lost $1 million via the cash-advance facility in 2009, Pemex refused to pay related invoices in 2010, and Citigroup fired an employee for receiving bribes from Oceanografía in 2012.  Id. (citing In re Citigroup Inc., Exchange Act Release No. 83858, 2018 WL 3913653, at *6 (Aug. 16, 2018)).

Conspiracy to Violate RICO

The district court found that because Citigroup lacked knowledge of the fraud, it could not have agreed to conspire with Oceanografía to defraud plaintiffs.  Id. at 1201.  The Eleventh Circuit found that conclusion regarding Citigroup’s knowledge wrong for the reasons above. 

            The Eleventh Circuit also found that plaintiffs pleaded ample circumstantial evidence of a RICO conspiracy, including Citigroup’s and Oceanografía’s extensive business relationship, mutual financial gain from the racketeering activity, and joint misrepresentations to plaintiffs.  Id. at 1202.  For example, during a meeting with a plaintiff at Oceanografía’s headquarters, its financial consultant summoned a Citigroup managing director from an adjoining room, making it appear he had an office within Oceanografía and was working there full-time, where he said Banamex “support[ed] Oceanografía’s finances” and not to worry because “all Oceanografía payments were coming through them.”  Id.

            The Eleventh Circuit added that even if plaintiffs’ substantive RICO claim was not viable, plaintiffs still could show a RICO conspiracy by alleging an agreement between Citigroup and Oceanografía and an underlying illegal act (e.g., wire fraud through an email), which was contrary to the district court’s ruling.  Id. at 1203.

Takeaways

The Eleventh Circuit’s decision reinforced the pleading standard in common-law fraud claims that a defendant’s knowledge of fraud may be alleged generally.  The decision also highlighted the level of detail necessary for fraud allegations, including for misrepresentations and omissions by third parties.  Lastly, the decision articulated that the PSLRA bar does not apply to RICO claims at the pleading stage where the allegations have little to do with securities fraud, and that plaintiffs can show a RICO conspiracy through circumstantial evidence and even if their substantive RICO claim is not viable.  In sum, plaintiffs seeking to bring cross-border disputes in the United States, and defendants seeking to dismiss those lawsuits, should carefully consider the implications of the pleading standards and substantive law governing fraud, RICO, and conspiracy claims, as articulated by this decision, on their case.

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David Needham, Of Counsel
davidneedham@quinnemanuel.com
+1 202-538-8142