STATEMENT OF H. LADDIE MONTAGUE, JR., ESQUIRE 1622 LOCUST STREET I am thankful for the opportunity to present my views to this honorable Committee concerning proposed Bills H.R. 4920 and H.R. 4923, proposed amendments to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. $1961 et. seq. My comments will not be premised on the abstract, but on my twenty-five years of experience in private practice litigating complex protracted cases in the federal court system, mostly involving either antitrust violations or business frauds, and mostly but not entirely on behalf of plaintiffs. My views are based upon the perception that we are now experiencing an environment in the market place where business ethics are often disgarded in lieu of greed and that persons who abide by business ethics are economically injured by those who do not. We see as every day occurrences bribery, fraudulent investment manipulation, fraudulent misrepresentations as to products, bankruptcy fraud and other business frauds. The RICO statute, with its treble damage provision, is an incentive for private enforcement against such conduct and is a deterrent to For effective private enforcement under RICO, incentives are necessary. Private litigation involving business fraud is extremely difficult, highly expensive and very risky. Proof of the pattern of predicate acts usually must come from the defendants or hostile third parties. Particularly in business frauds, the tracing of the financial maneuvers by defendants, whether it be kickbacks and laundering of monies, insider trading or the like, is very difficult. The perpetrators are usually sophisticated and take whatever steps they can to cover their tracks. Normally, defendants have greater resources than their victims and are represented by large and skilled law firms with resources to match. Thus, to undertake to prosecute a private claim for RICO is to undertake a very high risk. If private is desired, incentives for private enforcement enforcement required. Treble damages provides that incentive. are The proposed amendments were no doubt fostered by cries that private plaintiffs were abusing the statute in alleging RICO violations. Assuming arguendo that there are some abuses, the answer is not to de-treble RICO or increase the burden of proof, taking away the incentive for private enforcement. It has never been a wise decision to throw the baby out with the bath water. To the extent a RICO violation has been committed, it should be subjected to the threat of treble damages. I have been counsel in a case begun in May, 1983, which alleges a civil RICO violation and which I believe points out some of the inequities and undesirable features of HR 4920 and HR 4923. I represent the Trustee in Bankruptcy of a corporation - (Frigitemp) who alleges that the corporation was forced to pay kickbacks to two key officers of a major shipbuilding company (Quincy Shipbuilding, a Division of General Dynamics) in order to be awarded subcontracts, that millions of dollars were embezzled from Frigitemp through phoney invoices and that those millions of dollars were laundered through a series of foreign bank accounts the last of which were in Switzerland. When the Trustee in Bankruptcy first began investigating rumors of this scheme in 1980, he alleges that he was deceived by the scheme's perpetrators, through perjury and other means, into believing that no kickbacks had been paid, that the only wrongdoing was intracorporate and as a result, the Trustee gave a release to the shipbuilding company and its two key executives. The Trustee in Bankruptcy thereafter discovered the kickbacks and commenced a RICO action. See Bernstein, Trustee in Bankruptcy v. IDT, et al., 638 F.Supp. 916 (S.D.N.Y. 1986). Trustee commenced suit, the two key Dynamics were indicted along with officers. The indictment, among other things, alleged a RICO violation. The two General Dynamics executives (Messrs. Veliotis and Gilliland) fled the country, and remain fugitives from justice, having never been tried. One former Frigitemp officer Four months after the executives of General two former Frigitemp pled guilty; the other (Davis) was tried and convicted of a RICO violation, which conviction was affirmed on appeal. 767 F.2d 1025 (2d Cir. 1985). The United States also commenced a civil suit against the same criminal defendants. Subsequently, as a result of discovery obtained in the Trustee's case (which was set forth in publicly filed briefs), the Government included the shipbuilder, General Dyanmics, as a defendant in its civil suit, which is still pending. The Trustee in Bankruptcy's suit is also still pending. It was ready for trial in June, 1987, but due to the untimely death of the presiding judge, Hon. Edwin Weinfeld (S.D.N.Y.), the case has not yet been tried. I allude to the above case scenario in the context of certain of the proposed amendments presented in H.R. 4920 and H.R. 4923 to illustrate that their application is unjust and undesirable, whether applied prospectively or retroactively. A. Now for specific comments: It Is Arbitrary To Allow The Government To Sue The Bernstein v. I.D.T. case is a perfect example of the arbitrariness of the proposed amendments. Bernstein has alleged 20-973 0 89 - 24 basically the same conduct under RICO as the United States has in its civil suit, yet the United States is rightfully able to recover treble damages under a burden of proof of "preponderance of the evidence". Bernstein will only recover single damages unless he qualifies under the various grounds for "double damages" but only if he proves his case by "clear and convincing evidence". Thus with the same party defendants and the same allegations of illegal conduct, the private plaintiff has a lesser incentive to litigate and a higher burden of proof. in the Bernstein case, it was the discovery by the private plaintiff that influenced the United States to add General Yet Dynamics as a defendant. Why should the private plaintiff be disadvantaged? Why should not the private plaintiff have an incentive to enforce RICO? B. of this It Is Arbitrary To Allow A Private Plaintiff Again, the Bernstein case exemplifies the arbitrariness provision. In Bernstein, two defendants who were indicted fled the country, remain fugitives from justice and have never been tried. The one defendant who was tried was convicted of participating with the two fugitives from justice in a racketeering enterprise. See U.S. v. Davis, 767 F.2d 1025 (2d Cir. 1985). Why should fugitives from justice profit from their |