not its

to them

the law, it is the fund which is victimized, investors, although the losses may be passed on nonetheless. The individual investors, the natural persons, lack standing to sue the racketeer because they were not injured in their business or property.

In the course of the RICO debate, many of the law's critics have argued that RICO was intended solely to combat the infiltration of legitimate businesses by "organized crime." We do not agree with that narrow construction, but even if arguendo this was the sole intent, even these detractors must agree that the natural person requirement is wholly contrary to the intent of RICO. Legitimate businesses would be denied the unique RICO remedy of treble (or punitive) damages, (even if infiltrated by traditional "Organized Criminal" elements!) if their victimization took the form of patterns of securities, mail or wire fraud. Pension funds victimized by patterns of criminal churning, banks victimized by felonious, fraudulent checking practices, corporations victimized by fiduciaries who systematically misappropriated inside information; they would all be without the RICO treble (or punitive) damages remedy.

V.

How can this fundamental retreat be justified? Certainly, the number of private civil RICO actions would be materially reduced, but at what cost? What policy consideration can be formulated to substantiate the change? If an individual invests $15,000 in a series of fraudulent oil ventures, he may seek punitive damages under H.R. 2983.

But, if that

individual invests instead, for reasons of safety and security, in an oil and gas mutual fund which in turn invests in those same ventures, punitive damages are unavailable. Where is the rationale?

in

It

RICO is intended to deter those who would engage concerted, patterned, premeditated, criminal conduct. stands to reason that the best means of achieving the goals of RICO are to make certain that those most able to pursue its remedies be afforded the opportunity. Institutional participants in the financial marketplace must not be denied the treble (or punitive) damages remedies of RICO for injuries resulting from patterns of indictable securities, mail or wire fraud.

The Securities Law Exclusion

Even if a natural person investor was injured by reason of

a pattern of indictable securities, mail or wire fraud, he would be barred from seeking punitive damages under proposed

section 1964 (H.R. 2983) if either state or federal securities law provides "...an express or implied remedy for the type of behavior on which the claim of the plaintiff is based...." It was likely the intention of the drafters of this provision to preclude those suing under securities laws from bootstrapping themselves into the treble damages provisions of RICO. However, many problems are presented by the proposed language.

The first concerns issues of standing. In commenting on the proposal as contained in H.R. 5445 in 1986, Congressman Boucher stated his belief that if behavior was generally within that proscribed by securities laws, punitive damages could not be sought. However, in commenting on the identical provision contained in his S. 1523, Senator Metzenbaum interpreted it to allow punitive damages suits under RICO, even if the type of behavior involved was covered by securities laws, as long as the plaintiff presently lacked standing to sue under those laws. These views are SO divergent that the potential impact of the bills if enacted cannot be accurately considered.

Under Congressman Boucher's view, some ridiculous results are possible. First, let us suppose that a Colorado resident is the victim of a pattern of indictable fraud involving franchises sold by a New York scam artist, and that neither

is possible that a New

Colorado, New York or federal securities laws provides a remedy for that type of behavior. Under the Boucher view, it Hampshire state securities law law containing a franchise fraud provision would preclude a RICO punitive damages suit because a state securities law provided

Should apply where fed law for law of jus place in which I has standing to bring action

remedy for that type of behavior. Proposed section 1964 (c)(3)(B)(ii) (H.R. 2983) does not specify which state's securities law and because the provision is stated in the negative, would likely be construed broadly, eliminating all such actions not clearly allowed.

Second, even if it were determined that sufficient contacts with a particular state were required, it must be recognized that white collar crime pattern offenses take place over time involving numerous transactions, states and participants. Let us suppose that a Florida-based scam involving vacation timeshare interests establishes a one salesman office in California. This salesman rips off a Connecticut resident. Let us further suppose that under Florida, Connecticut and federal law the timeshare interests are not considered securities, although they are securities under California law. Two years later, the salesman is nowhere to be found. When sued under RICO on a mail fraud theory, the defendant would scramble to establish that because a suit for securities fraud could have been brought in

California by our Connecticut plaintiff, the RICO action for

punitive damages is barred.

minimum contacts with the

Forum shopping for states with

transactions and expansive

"securities" definitions in their securities laws would result. In a bizarre twist on the norm, mail fraud defendants would argue emphatically that their scams did involve securities and that the plaintiff had standing to sue under securities law. This cannot be good law or policy.

If the proposal under H.R. 2983 is to remain, it must be clarified. If the goal is to limit those with federal securities law remedies to those traditional remedies, the proposal is grossly overbroad. If the goal is to bar any and all private civil RICO claims having to do with securities in any way, the proposal is inequitable and unjustified.

Under even Senator Metzenbaum's broader interpretation, the victim of a pattern of indictable securities fraud would have no greater recourse against a RICO defendant than he would have against him for selling an unregistered security, a strict liability offense. This is not deterrence.

This exclusion, if adopted, would be a concession to the securities industry of monumental proportions. Has Wall Street earned such a concession in the last few years?