Mr. CONYERS. Yes, I am positive. That is his wife. Mr. EDWARDS. Well, my wife is not named Mr. CONYERS. Oh. Well. Mr. Eppenstein alleges that the other Eppenstein is his wife, and we would like to invite her to the witness table. Excuse me for not inviting you both up at the same time. Mr. EPPENSTEIN. Shall I vacate? Mr. CONYERS. No, you can both stay there. Mrs. EPPENSTEIN. I haven't been sworn, but I would simply like to thank the committee for the opportunity of submitting the written testimony which I had a large part in. Mr. CONYERS. Well, thank you very, very much for coming. We are deeply indebted to you, not just for your appearance before the subcommittee, but what you are doing in our Federal courts and in the system. We deeply appreciate it and I hope we will enjoy your continued research and experience as we move along in the legislative field. Mrs. EPPENSTEIN. Thank you. Mr. CONYERS. Thank you very much. Glad that you brought Mr. and Mrs. McMahon here. We are very pleased to have you in the hearing room. We will take a short recess for a recorded vote that is now pending, and we will start back very quickly. [Recess.] Mr. CONYERS. The subcommittee will come to order. Mr. Don, would you join us here, please. [Witness sworn.] Mr. CONYERS. Thank you, sir. Come forward, and thank you very much for your courtesy and patience. Mr. Don has previously served as trial attorney with the U.S. Securities and Exchange Commission. He is now deputy general counsel for the Securities Investor Protection Corp. here in Washington. Your entire statement will be incorporated in the record, and you might want to describe the nature of the organization here in addition to the summary that you present to us in connection with your testimony here today. STATEMENT OF MICHAEL E. DON, DEPUTY GENERAL COUNSEL AND SECRETARY, SECURITIES INVESTOR PROTECTION CORP., WASHINGTON, DC Mr. DON. I will be glad to do that. Thank you, Mr. Chairman. I am here today to testify in opposition to any change in RICO which would adversely affect the ability of SIPC and the trustees appointed under the Securities Investor Protection Act to utilize RICO to fight fraud in the securities markets. SIPC is a unique organization. It is not a Federal agency, because the Federal statute which established it says it is not a Federal agency, but we have many attributes of Federal entities. We have a one billion dollar line of credit with the Federal Treasury. We are subject to substantial oversight and supervision by the Securities We have the authority to promulgate rules which, when approved by the Securities and Exchange Commission, have the force and effect of law. We have a seven-member board of directors, five of whom are appointed by the President on the advice and consent of the Senate; and two appointed from among the employees of the Federal Reserve Board and the Treasury Department. We have been aptly, I think, referred to as the FDIC of the securities industry in that when a stock broker goes bankrupt we provide protection to people who have left their cash and securities with the stock broker. Stock brokers go bankrupt for a number of reasons, but certainy one of the principal reasons is fraud. Sometimes the fraud is merely stealing by one individual-that can be small stealing, it can be large stealing. In one case one individual managed to steal $39 million from a brokerage firm and its customers. But that is not what we are concerned about RICO for. We are concerned about RICO for the pervasive fraud that sometimes occurs. We try to use RICO judiciously. There have been 200 customer protection proceedings since SIPC was established in 1970; and in only six instances involving nine of those proceedings have SIPC or SIPC trustees brought RICO actions. We have done so in an attempt to combat the type of fraud that has caused loss not to just a few customers but that has actually brought about the collapse of one or more brokerage firms-the type of fraud that threatens public confidence in the securities markets themselves. A case in point, and I suppose it is a horror story, though a little bit different from the horror stories told by Mr. Eppenstein, is the case entitled SIPC v. Vigman, which is now pending in the Federal district court in Los Angeles. In that case, SIPC and the trustees for two bankrupt brokerage houses-one located in California and one located in Florida-have alleged numerous violations of the antifraud provisions of the securities laws and of RICO by various individual and corporate defendants. We have alleged that the defendants carried out an ongoing pattern of concerted activities to manipulate and artificially inflate the prices of various securities. We have alleged that that manipulative scheme began in 1964 and continued until it resulted in the collapse of the two broker-dealers in July 1981. Along the way there are scattered the corpses of other brokerdealers who were brought down by this manipulative scheme. The cost of those two liquidation proceedings to SIPC has been in excess of $11 million. The cost in lost public confidence in the securities markets just can't be calculated. We believe that RICO can be a significant tool in redressing and preventing the damage that people bent on fraud cause to the securities markets and to people who are legitimately participating in them. SIPC's statutory mission is to maintain and increase investor confidence in the securities markets. RICO aids us in that mission. Any lessening of the ability of SIPC and its trustees to use RICO will lessen SIPC's ability to carry out its mission and will send the wrong signal, especially in these days, to perpetrators of fraud and to the public in general. I would like to make just one additional comment, and that is that no matter what changes are made in RICO, please, as far as SIPC is concerned, do not make them retroactive. We have pending lawsuits, and making those changes retroactive would just pull the rug out from under us. Thank you, Mr. Chairman. [The prepared statement of Mr. Don follows:] STATEMENT OF MICHAEL E. DON, DEPUTY GENERAL COUNSEL AND SECRETARY, SECURITIES INVESTOR PROTECTION CORPORATION, BEFORE THE SUBCOMMITTEE ON CRIMINAL JUSTICE OF THE HOUSE COMMITTEE ON THE JUDICIARY CONCERNING THE CIVIL DAMAGE PROVISIONS OF RICO DECEMBER 3, 1987 Chairman Conyers and Members of the Subcommittee: I am here today to testify on legislation to amend the civil damage provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO") chapter of title 18, United States Code. This testimony addresses only proposed amendments of the civil damage provisions of RICO, contained in H.R. 3240 and H.R. 2983. SIPC Prior to the enactment of the Securities Investor Protection Act of 1970 (15 U.S.C. $78aaa et seq.) ("SIPA"), stockbroker bankruptcies were conducted in accordance with section 60e of the former Bankruptcy Act, 11 U.S.C. $96e (repealed). During the late 1960's the securities industry encountered a period of financial difficulties. 1/ To bolster public investor confidence. Congress broadly analogized to the Federal corporations that ensure savings and demand deposits2/ and enacted a new program which was jointly sponsored by the securities industry and the Securities and Exchange Commission ("Commission"). The several purposes of that program were stated thusly: 1/ S. Rep. No. 91-1218, 91st Cong., 2d Sess. 3 (1970) ("Senate Report"); see also H.R. Rep. No. 91-1613, 91st Cong., 2d Sess. (1970) ("House Report"). 2/ Senate Report at 4. 3/ House Report at 28: Hearings on S. 2348, S. 3988, S. 3989 Before the Subcomm. on Securities of the Senate Comm. on Banking and Currency, 91st Cong., 2d Sess. 12 (1970). Hearings on H. R. 13308. H.R. 17585, H.R. 18081, H.R. 18109, H.R. 18458 Before the Subcomm. on Commerce and Finance of the House Comm. on Interstate and Foreign Commerce, 91st Cong., 2d Sess. 330 (1970). These hearings will hereinafter be cited as "Senate Hearings" and "Ilouse Ilearings." -2 "... to protect individual investors from financial hardship: to SIPA accomplished these purposes essentially by two methods. First, it enhanced the dealers and to impose on the self-regulatory organizations requirements for the financial examination of their members.7/ Second, it established the Securities Investor Protection Corporation ("SIPC") which it empowered, among other things, to commence proceedings for the liquidation of its members whose financial condition posed the threat of loss to their customers. Referring to the several aims of SIPA, the United States Supreme Court has stated: "The Act apportions responsibility for these tasks among the SEC, the securities industry self-regulatory organizations, and SIPC...." SIPC v. Barbour, 421 U.S. 412, 415-416 (1975). SIPC's Nexus to the Federal Government 8/ SIPC was conceived and established as a private, non-profit, membership corporation which would work within the regulatory and self-regulatory structure of 6/ "Self-regulatory organizations" consist of national securities exchanges and the National Association of Securities Dealers, Inc. 7/ SIPA section 78(f). Similarly SIPC is given responsibility to work with the self-regulatory organizations toward the standardization of their examining procedures and the development of procedures for the early detection of approaching financial difficulty of SIPC members. Section 78iii(e). 8/ Senate Hearings at 231-233, 271-272: Пlouse Hearings at 199 et seq.. 365. See also House Report at 11-13. 9/ SIPA sections 78ccc(a) and 78ddd. A particularly good statement of SIPC's role in the self-regulatory structure is contained in the House Report at 11-12. |