RICO Law, Powerful Tool In '80s, Takes Back Seat In New Scandals
BY CHRISTINA WISE
INVESTOR'S BUSINESS DAILY
The RICO Act was created to bring down the likes of Vito Corleone. But in the more than 30 years since its passage, it's been used against anything from Major League Baseball to HMOs.
So should it be used against today's corporate crooks? Experts agree it's a potent weapon, but it's also expensive and unwieldy.
"By using RICO, criminal prosecutors have a tougher case because it's more difficult to put together all the predicate acts," said Ellwood Oakley, an associate professor of law and ethics at Robinson College at Georgia State University. "But if they can do it, they can get the big sentences."
The Racketeering Influenced and Corrupt Organizations Act can be applied to those who break certain sections of the U.S. Code, including mail and wire fraud.
That means a company issuing fake financials may be showing a "pattern of racketeering activity."
Some recent corporate frauds could well fall under RICO, says Jeff Grell, a Minnesota attorney and RICO expert.
"There have been RICO cases based on a lot less," said Grell, who teaches a RICO course at the University of Minnesota Law School.
RICO has teeth, including prison terms of up to 20 years and the forfeiture of any ill-gotten booty. It also calls for fines of up to two times any ill-gotten profit.
Narrow Path
Once a criminal case is proved, a civil case under RICO can result in triple damages.
Oakley says while the RICO statue may ultimately be used to combat some corporate corruption, prosecutors first may opt to use narrower securities fraud laws.
"I think they want to keep it plain vanilla to get some convictions first," Oakley said. "That's the same reason we haven't seen an indictment in the Enron case; it's so complicated they want to get their ducks in a row first."
Grell agrees.
"More often than not there are just cheaper ways to go," Grell said.
For example, though assets in successful RICO cases must be forfeited, the SEC also has the power to make lawbreakers disgorge.
In addition, many state and federal statutes are geared specifically toward securities fraud.
RICO cases are also tougher to prove. "When you talk about racketeering, the normal everyday person on the street is going to think of a mobster," said Grell.
"It's always a problem for a plaintiff's attorney or a prosecutor to get them (jurors) to buy that the person who engaged in mail fraud, who is a highly respected figure in the community and has never engaged in any serious acts of racketeering, is in fact a racketeer."
Grell says prosecutors and others are more likely to use some of the laws that have emerged in the wake of Enron, WorldCom, Adelphia and others.
"If it's criminal, I'm sure the prosecutors won't use RICO because they won't need to," Grell said. "If they've got a law specifically tailored to their needs, they're going to use it rather than trying to stretch RICO around a case."
Civil attorneys, on the other hand, are more likely to tack on a RICO complaint to their lawsuit. "I think they're waiting for all the free discovery that comes out in congressional hearings to see how far the scandals go," he said.
Oakley echoes the idea.
"You can rest assured that for all those senior executives that are out there with indictments in their hands, there are plaintiff's lawyers out there licking their chops so they can pile in with RICO," Oakley said.
Since the insider trading scandals of the late 1980s, however, court rulings and Congress have curbed civil complaints somewhat.
In 1995, Congress passed the Private Securities Litigation Reform Act. The law prohibited plaintiffs from using RICO - and its provision for triple damages - in a civil case unless the person or company had been criminally convicted.
The 1995 PSLA also said that even in non-RICO securities cases, auditors and other secondary participants were liable only for a percentage of damages proportionate to their responsibility.
In addition, an earlier 1993 Supreme Court ruling gave some protection to the secondary players such as lawyers and accountants.
Probably the biggest issue facing plaintiffs is whether there'll be enough assets left - especially after the government gets through.
"It's a question of whether there are going to be any assets left," said William Shepherd, a former Miami prosecutor and an attorney with Richman Greer in West Palm Beach, Fla. Shepherd teaches an ethics class at the Robert H. Smith School of Business at the University of Maryland. The class involves taking students to federal prisons to interview white-collar criminals. |
