Insurance Company would be entitled to treble damages. The retroactive recision of the treble damages provision raises constitutional questions in that it is a taking of property without just compensation or due process of law. But more importantly, it raises questions of fundamental fairness in that we, and the Directors of Insurance for Rhode Island and North Carolina, have expended considerable time, money, and energy prosecuting lawsuits we had every legal reason to believe we were entitled to maintain.

To take away the treble damages now would be to raise the specter that we have expended money that could have been distributed to the creditors of these liquidation estates. also threatens to vitiate the positive regulatory influence these suits have had.

It

In sum, the amendment we have proposed, which clarifies the standing of the Liquidator of an insurance company to bring a treble damages RICO suit is both consistent with H.R. 4923 as it is currently written, as well as being in the interest of

insurance consumers throughout contain none of the adverse

this country.

effects that

The se suits

motivated this

overwhelmingly

proposed amendment, and they have had an positive effect on the insurance industry. These suits are not motivated by greed or rapaciousness. Instead, a treble damages RICO suit brought by the liquidator of an insolvent insurance

company is meant to insure that every man, woman, child,

charitable organization, business, or corporation can purchase affordable insurance with the satisfaction of knowing that the insurance they purchase will indeed be worth something, and that if the people in the insurance industry violate this trust, the proper regulatory authorities have an effective means of punishing wrongdoers and deterring others who are tempted to break the law.

Thank you for your time.

Mr. BURKE. As to the comments with respect to prior convictions, I think that at this time we can address that a little bit because again in the history of this Reserve Insurance Co.-let's take a look at prior convictions.

If, for example, the insurance director, as the court-appointed liquidator of Reserve Insurance Co., had to depend on a prior conviction by the Justice Department of the officers and directors and the accountant involved, and the reinsurance officers, you would never have a civil RICO action in this case.

One of the major reasons—and I don't mean to cast aspersions on the Justice Department, not by a long shot, but what I am saying is that they have a burden of proving these allegations beyond a reasonable doubt. That isn't what our burden is. To bring about an indictment and a conviction of all these officers and directors and all of these partners in the accounting firms who were involved, and the reinsurance companies, would be an extremely large undertaking.

Mr. CONYERS. It is too big a burden.

Mr. BURKE. So if these bills contain a prior conviction limitation, it is effectively taking away an enforcement tool from the Insurance Department.

With those comments, I appreciate your time, Mr. Chairman.

I am here to answer whatever questions I can respond to. We have been with this litigation a good 7 or 8 years, and so whatever benefits we can give to you, that is what we are here to do.

Mr. CONYERS. Well, thank you very much. I will have a few questions.

Attorney Pam Gilbert has been working on this as long as anybody I know in Washington. Her staying power has been enormous across the years on this subject, while she has worked on other equally complex subjects-maybe even more complex subjects, she might argue.

We are glad to have you here today to give us your perhaps final view for the subcommittee record of where all this has settled down to.

Ms. GILBERT. Thank you, Mr. Chairman.

STATEMENT OF PAMELA GILBERT, ESQ., U.S. PUBLIC INTEREST RESEARCH GROUP AND PUBLIC CITIZEN'S CONGRESS WATCH, WASHINGTON, DC

Ms. GILBERT. Mr. Chairman, I also appreciate the opportunity to be here before you and Mr. Edwards this morning to discuss the proposals that, as you have said, have matured quite a bit over the last few years.

I am here on behalf of the United States Public Interest Research Group, which is the national lobbying office for State consumer advocacy organizations, and Public Citizen's Congress Watch, a nonprofit consumer and environmental organization.

Civil RICO is an important tool in the fight against rampant white-collar crime and we believe that now is not the time to weaken it. H.R. 4923, we believe, takes the wrong approach to revision of RICO because it reduces wholesale the availability of multiple damages, grants special industry exemptions for the securities

and commodities industries and it applies its provisions retroactively.

H.R. 4920-your bill, Mr. Chairman-in contrast, takes a far preferable approach by allowing many more victims greater than actual damages, eliminating special treatment for the securities and commodities industries and applying its provisions prospectively only.

At the outset I would like to state our position on one of the major social problems that civil RICO helps to address: Whitecollar crime. It is not merely an assault on ethics or social esthetics; it imposes costs on consumers and the economy as a whole.

In 1986 the Justice Department estimated that white-collar crime cost victims and society over $200 billion. Civil RICO is one of the consumer's best remedies against white-collar crime and other forms of sophisticated criminal behavior.

First, by providing for recovery of attorney's fees, it enables victims who otherwise would not be able to hire an attorney, to bring their case to court. Second, civil RICO provides automatic treble damages.

These damages serve as a deterrent as well as a compensatory function. Without treble damages, the possible punishment for engaging in financial crime, if the malefactor is caught, would be merely returning what was taken. Economic criminals will not be deterred unless penalties are far greater than actual damages, since the chance of detection and punishment is so low in sophisticated criminal activities.

Third, the existence of a Federal forum provides necessary procedural benefits to victims of multi-State, systemic criminal behavior. Proposals to dilute civil RICO must be weighed against the absence of an evidence of a pattern of abuse that would justify weakening its provisions. In fact, as Chairman Conyers pointed out earlier this morning, the record shows more a drizzle than a flood of lawsuits. Courts are rigorously dismissing frivolous or nonmeritorious claims. Not only do civil RICO suits amount to only one-half of 1 percent of the yearly Federal docket, but cases that are filed must withstand an increasingly rigorous definition of pattern in order to survive. A study of reported civil RICO cases for 1985 and 1986 shows half did not survive a motion to dismiss.

In short, we are unsure whether there is anything wrong with civil RICO that is not being adequately addressed by the courts. However, if RICO does need amending, the amendment should not so weaken the statute as to diminish its effectiveness at combating crime.

Unfortunately, we believe that H.R. 4923 would do just that. Let me review a few of the provisions that we object to most strenuously.

The core of the bill and the fundamental flaw is the reduction and elimination of treble damages in cases of egregious ongoing criminal fraud. This reduction to actual damages applies to all businesses, large or small, tax-exempt organizations, mutual funds, other institutions, and to individual victims of crime other than consumer crime. Since institutional plaintiffs are best-equipped to bring RICO suits, they should not be discouraged from doing so by being limited to recovering actual damages.

In addition, small businesses that have been victimized should be able to seek multiple damages, since the disparity in power and resources between a small business and a large conglomerate is often as great as the gulf between an individual plaintiff and a business defendant.

Unlike businesses and other institutions, H.R. 4923 does enable individuals to recover punitive awards up to double their actual damages, but only in very limited circumstances.

First, the individual must have been victimized in a consumer transaction. Individuals who have been victimized in some capacity other than as consumers, for example, as employees, do not have the ability to receive more than actual damages.

The recent Ashland Oil case in which the whistleblowers sued and recovered treble damages under RICO from Ashland Oil would have been relegated to actual damages had this bill been law.

Second, even where the individual is suing over a fraudulent consumer transaction, in order to receive punitive damages, the consumer plaintiff must prove, by "clear and convincing evidence" that the defendant acted in "conscious and wanton disregard of the consequences to the plaintiff of the defendant's conduct.

This standard must be proved after the plaintiff has gone through the grueling process of proving their RICO case. We believe this standard may make it exceedingly difficult, if not impossible, for many plaintiffs to recover any more than actual damages. This is especially true since most cases are settled before trial. I would like to address also the securities and commodities exchange. Under H.R. 4923, all plaintiffs are limited to actual damages plus attorneys' fees when State or Federal securities or commodities laws make available a remedy for the type of behavior on which their claim is based.

Few industries are as undeserving of a blanket exemption from law enforcement as the securities industry. Yet, under the bill nearly all defendants whose crimes fall under any securities law are exempted from damages beyond actual damages, no matter how egregious their conduct has been nor how bad the harm.

One exception is made to this rule for securities cases, and that is in insider trading cases. Here, however, many defendants will be relieved of liability because business plaintiffs will continue to be restricted to actual damages plus attorneys' fees.

This is unfair to those honest businesses that have been harmed and it further weakens private law enforcement. We note that legislation is currently being considered by the House of Representatives which would amend the Insider Trading Sanctions Act by, among other things, expanding the authority of the SEC to impose civil penalties for insider trading violations.

We would urge Congress not to weaken the remedies against insider trading that currently exist under RICO, at least until Congress has fully considered proposals to strengthen those remedies under the securities laws.

Commodities and telemarketing fraud also is widespread, costing the public up to a billion dollars a year. Commodities fraud is perpetrated by, "legitimate firms" that are registered with the Commodity Futures Trading Commission, but also commodities fraud is