Lately, the Justice Department has been cracking down on stops in securities and commodities fraud cases, bringing into play the biggest weapon in its arsenal against white-collar crime.
But as federal prosecutors become less hesitant to use that ultimate weapon, the Racketeer Influenced and Corrupt Organizations Act, known as RICO, several lawyers are raising questions about fairness, especially if the law is so vague that prosecutors can enforce it. arbitrarily whenever they want.
The debate was prompted by the recent use of RICO in criminal cases that bear little resemblance to what is typically considered organized crime.
In New York, six defendants in the Princeton/Newport Limited Partners trial were recently convicted of racketeering for concealing ownership of securities to create false tax losses. Until a couple of years ago, these violations had never been prosecuted, let alone as extortion crimes. Under the law’s severe penalties, the defendants face more than 40 years in prison each, and if a judge rules as expected, they will be forced to forfeit nearly $20 million, most of which the government admits that they come from purely legitimate activities.
Additionally, commodity traders in Chicago were recently charged with felony charges for trading practices that allegedly defrauded customers. It is also a type of activity that had previously been managed almost entirely through civil penalties and was never the subject of racketeering charges.
Among other pending cases is the 98-count indictment of former Drexel Burnham Lambert Inc. junk bond chief Michael Milken. Meanwhile, a federal appeals court in New York has upheld the racketeering conviction of the owner of a gas station chain for failing to pay the required amount of New York state sales tax, a rape that wasn’t even a state crime at the time. who committed it
Vaguely worded
Prosecutors and legal experts say the government’s victory in the Princeton/Newport case, combined with recent Supreme Court decisions upholding a broad interpretation of RICO, will almost certainly mean an even broader use of the law.
But a growing number of legal scholars, some of them former prosecutors, say the law is so vaguely worded that almost any federal crime that involves more than one violation of the law can be considered a racketeering case .
Stephen Gillers, a law professor at New York University, says, “I think that, on the face of it, the RICO statute gives the prosecutor too much power.” Because it allows the government to threaten defendants with financial ruin and many years in prison, “it’s sort of the white-collar equivalent of capital punishment.”
The main criticisms are:
– RICO is so loosely worded that almost any case involving email or telephone use and involving at least two violations within a 10-year period, even relatively trivial crimes, can be prosecuted as a “pattern of “extortionist activity”. .”
– The penalties are so harsh that they can be very disproportionate to the seriousness of the crime. Critics have likened the use of RICO to using a sledgehammer to squash a mosquito. The law carries sentences of 20 years in prison for each racketeering count, and requires the defendant to relinquish his entire interest in the “extortionist enterprise,” even though only an insignificant fraction of the money came from activities illegal
– RICO provides for the freezing of assets before trial, raising the possibility that companies or individuals accused of RICO violations could go bankrupt before even going to trial. Attorneys for the Princeton/Newport defendants claim the company was forced out of business before the trial because millions of dollars in assets were frozen.
Former federal prosecutor Gerard E. Lynch, now a Columbia University law professor who has written extensively on RICO, calls the statute “incredibly vague and amorphous.” He says it should be repealed. “The statute is so vague and open-ended that nothing properly distinguishes RICO from any other type of case,” says Lynch. “It’s just a matter of who (the prosecutor) doesn’t like.”
Potential for abuse
The expansion of RICO’s use coincides with prosecutors’ crackdown on the securities industry, which in the mid-1980s appeared rife with insider trading and other violations of securities laws.
Prosecutors such as Bruce Baird, head of the U.S. Attorney’s Securities Fraud Unit in Manhattan, which brought the Princeton/Newport case, admit there is potential for abuse. But they say the cases brought so far have been adequate. They dismiss the criticisms as loud complaints from prosperous business executives who have suddenly found they are not exempt from the criminal justice system. Additionally, Baird and others argue that there are safeguards to prevent RICO abuses, particularly the requirement that the Washington Department of Justice approve each RICO case brought by a local US attorney.
“The criticisms of RICO are identical to the criticisms of conspiracy statutes and mail fraud statutes that have been leveled for 50 years or more,” Baird said. “What you’ve seen with all the histrionics from the defense attorneys and the editorial attacks is an effort to curtail (RICO), to get some kind of special treatment for white-collar defendants.”
RICO became law as part of the Organized Crime Control Act of 1970. The main motivation was the perceived failure of law enforcement to put criminal organizations out of business, despite numerous cases filed against individuals RICO would allow prosecutors to bring cases against more people associated with criminal enterprises, and the forfeiture provisions would be so severe that they would theoretically put the organizations out of business.
In arguing, however, that under RICO the punishment can be draconian, Lynch and others point to a case in New York against Oscar Porcelli, the gas station owner in the RICO sales tax case.
He was found guilty of failing to pay the proper amount of state sales tax at 12 of the gas stations he owned. The appeals court upheld his conviction, even though at the time he filed the false state tax returns, the violation was not a criminal offense. The appeals court said it felt compelled to uphold the conviction because of the “extraordinarily broad exploitation of RICO.”
Porcelli’s lawyers continue to appeal the financial penalty imposed on him: $4.75 million, the amount of sales tax and penalties he owed, as well as the total forfeiture of 34 corporations he owned , including real estate and construction companies worth several times that amount.
In a Supreme Court decision in June, four justices raised the possibility that RICO’s criminal provisions were so vague that if the right case is made, the court could declare the law unconstitutional.
It’s called Powerful Tool
Congress, however, has not followed the judges’ path. Although amendments to the law’s civil provisions are being considered, Rep. William J. Hughes (D.-NJ), chairman of the House Crime Subcommittee, says there is virtually no support for amending the criminal side of RICO. Hughes said in an interview that he favors changing the law to make it less vague. But he said his colleagues in the House won’t go. Hughes said his attitude is “Why support something that can be perceived as weak in racism?”
Federal prosecutors like RICO because it gives them jurisdiction over more cases and provides a powerful tool to pressure defendants to cooperate with investigations. The law’s harsh penalties also provide what many prosecutors believe is appropriate punishment in white-collar cases, the kind of cases for which defendants sometimes got off easy.
RICO’s effectiveness as a tool to elicit guilty pleas and cooperation from defendants appears to have been demonstrated by Drexel’s decision to plead guilty to six lesser charges this year, rather than face a RICO charge .
Jed S. Rakoff, a former federal prosecutor who is now a defense attorney and has written articles about RICO for legal publications, says Congress never intended RICO to be used in cases like Princeton/Newport, in which most of the charges dealt with an agreement to buy and repurchase securities to claim false tax losses. “Existing tax and securities laws were not only more than adequate to handle the particular type of crimes that the jury has now found were committed,” Rakoff said. “They were drafted with these types of crimes in mind.”
Questioned intention
Rakoff added: “When Congress drew up RICO, they had a very different picture in their minds. They were thinking about large organized crime conspiracies involving mob families and business infiltration through extortion.”
The original intent of Congress in passing the law is the subject of some dispute. G. Robert Blakey, a law professor who as congressional committee counsel in the 1960s played a major role in crafting the law, has long argued that Congress did want the law extended far beyond the ordinary definitions of extortion and organized crime. And the Supreme Court, for the most part, has strongly confirmed this view.
But Lynch, in a comprehensive study of the original intent of Congress published in the Columbia University Law Review in 1987, found that most members of Congress believed they were adopting something much narrower than RICO has become.
If anything, the debate looks set to continue as prosecutors, spurred on by favorable court decisions, continue to test the limits of the law. “The jury’s verdict in Princeton/Newport,” said prosecutor Baird, “is a strong statement that the statute appropriately targets not only mobsters and drug dealers, but white-collar criminals who also commit crimes out of greed “.
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