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pared statement that he had no contact with civil RICO and was merely making a statement on behalf of his association.

But I think we can go through our own record.

Mr. GEKAS. We will invite Ralph to join us.

Mr. CONYERS. I was hoping someone would do that.

Mr. NADER. NGPU.

Mr. GEKAS. Yes.

Mr. CONYERS. I would like to now recognize Mr. Edwards.

Mr. EDWARDS. I have no questions, Mr. Chairman. I want to thank Mr. Nader very much for a very, very helpful statement. Mr. CONYERS. Mr. Fish.

Mr. Fish. Thank you, Mr. Chairman. Mr. Nader, I am new to this issue and returned to this subcommittee after an absence, I think, of a dozen years. Frankly, I am a little confused. I would like to discuss the issue that probably you have been involved in, whether or not this now is a broader interpretation than was originally contemplated, broader interpretation has been given to this statute.

Second, whether there are adequate remedies beyond civil RICO, I start with the Sedema case. This was the result of a very distinguished court of appeals in my State that came out with reading the same statute and found an interpretation that required prior criminal conviction beyond that caused by the phones, standards that go way beyond the Boucher-Metzenbaum legislation.

This was a 5-4 decision and with respect to the breadth of the RICO statute the majority of the court stated it is true the private civil actions under the statute are being brought against, almost solely against such defendants rather than against archetypical, intimidating mobsters. Yet this defect, if defect itself is intent in the statute as written and its correction must lie with Congress. It is not for the judiciary to eliminate the private action situations where Congress has provided it simply because plaintiffs are not taking advantage of it in its more difficult applications.

The opinion goes on, we, nonetheless, recognize that in its private civil version, RICO is evolving into something quite different from the original conception of its enactors-that is the majority opinion.

Now, what also interests me is the minority. The minority in the Supreme Court-four justices with a dissent written by Justice Thurgood Marshall, included Justice Brennan, Justice Blackman, and Justice Powell.

When you add to the fact that our former colleague and very distinguished appellate judge, Abner Mikva, has testified before this subcommittee that the judicial interpretation is far too broad, I would think that this line up of jurists would be people that you and I would find more affinity for than those who wrote the majority in this Sedema case. So that causes me to wonder.

Second, I have been told that the statute was on the books for almost a decade before its current use was discovered. That is the first question. As regards the remedies, RICO has been used, I am told, in stockholders derivative suits, mergers, acquisitions, labor disputes, employment discrimination, wrongful death, personal injury, libel and slander and in routine commercial fraud and contract cases.

Don't we have existing Federal and State statutes that provide specific remedies for all these kinds of cases? I am referring to the SEC Act, the Clayton Act, NLRB Act, title 7 of the Civil Rights Act and State based causes of action for breach of contract, fraud, libel, slander, wrongful death and personal injury?

Mr. NADER. Well, the unique enabling aspect of RICO is the combination of treble damages with attorneys fees and costs as a Federal remedy in fraud cases. I think that fills a big gap that can't be replaced by a variety of existing statutes.

Second, the discovery of RICO being late is not unusual for the bar. We once had a seminar where we had to introduce the most magnuson warranty law which had been passed by this Congress 12 years ago, to members of the bar who had not realized it existed for auto defect cases.

We had to have the seminar which in fact in effect 5 or 6 years after passage of the law, brought them into notice of the most Magnuson Act. Many Federal attorney fees laws are still very little used by attorneys. I think that contradicts the stereotype you have a bunch of hoards of legal sharks trying to find every remedy in every nook and cranny of every Federal statute-there are 120 Federal statutes in this country with attorney fees provisions effecting civil rights, the public lands, odometers, and many of them are very little used.

As far as the interpretation, if you are a strict constructionist and believe in judicial restraint, you just go to the wording of the statute which does not restrict RICO to organizing underground racketeering type cases. It is interesting to know that the Supreme Court, without the benefit of some of its more liberal judges, ruled that these cases were legitimate under RICO.

I would favor if it wouldn't jeopardize RICO and even more explicit broadening and precision to the behavior that is to be interdicted by civil RICO. But I am afraid that given the tax on RICO, if we open it up for further clarification in terms of new kinds of fraud being included, such as environmental abuse, then it would be subject to attack in terms of treble damages and attorneys costs. But as far as, as long as, the Supreme Court has ruled that these cases are OK, we certainly will go with that. They do fight over legislative history and I can give you quotes where people on the floor say this doesn't just relate to mobsters and so forth. But I think the RICO act itself could stand strengthening.

If it goes through the process, though, it will also be weakened because of the controversy swirling around it. So you go with what is.

Mr. FISH. Thank you, Mr. Chairman.

Mr. CONYERS. We want to say we appreciate your coming here and spending this unusual length of time before the Criminal Justice Subcommittee. We deeply appreciate it.

Mr. NADER. Thank you, Mr. Chairman. I would like to insert just a few pages for the record to elaborate my testimony.

[Information was not received by time of printing. When received, may be reviewed in subcommittee files.]

Mr. CONYERS. The subcommittee stands adjourned.

[Whereupon, at 11:20 a.m., the subcommittee adjourned, to reconvene subject to the call of the Chair.]

RICO REFORM

THURSDAY, DECEMBER 3, 1987

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON CRIMINAL JUSTICE,

COMMITTEE ON THE JUDICIARY,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:20 a.m., in room 2337, Rayburn House Office Building, Hon. John Conyers, Jr. (chairman of the subcommittee) presiding.

Present: Representatives Conyers, Edwards, Boucher, and Gekas. Staff present: Thomas W. Hutchison, counsel; Ron Stroman, assistant counsel; Raymond V. Smietanka, associate counsel; and Rosalind Jackson, clerk.

Mr. CONYERS. Good morning. The Subcommittee on Criminal Justice will come to order.

We will continue hearings on H.R. 3240 and H.R. 2983, bills to amend chapter 96, title 18, U.S. Code [RICO]. Today, we will hear from four very distinguished witnesses including the General Counsel, Commodity Futures Trading Commission; the assistant securities commissioner of the Colorado Division of Securities, Denver, CO, on behalf of the North American Securities Administrators Association; the deputy general counsel of SIPC; and Attorney Ted Eppenstein, of New York. We are delighted to have our colleagues, Mr. Gekas and Mr. Boucher, as we continue the hearings on RICO examining its impact today on securities fraud. We finally got to this day. I think it is a very important hearing.

Congress enacted RICO because it was convinced that the widespread and sophisticated forms of fraud coupled with enormous potential profits required a tough, innovative approach for prosecuting white-collar crime. The need for such an approach is evident by widespread business fraud. The Department of Justice recently reported that fraud accounts for losses exceeding $200 billion each. year. Over the past 2 years, 200 individuals and 55 corporations have been convicted for defense contracting fraud for a wide range of charges including kickbacks, overcharge, false claims, and the like.

Securities fraud is estimated to cost up to $50 billion each year. Insurance fraud is approximately $14 billion annually, while up to 50 percent of all bank failures are thought to be due to bank fraud. These losses represent long-term trends that neither traditional criminal nor civil sanctions have thus far been able to reverse.

RICO effectively deters corporate fraud by authorizing treble damages. It encourages remedial litigation by private plaintiffs to supplement activities of Federal prosecutors by providing for attor

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