legislation was so "draconian" that it would "dry up the nation's underwriting business and that 'grass' would grow on Wall

Street." D. Ratner Securities Regulation 80 (1982). Mr. Justice Frankfurter--then a professor and one of the leading spokesmen for the securities acts--put it well:

The leading financial law firms who have been
systematically carrying on a campaign against [the
Securities Act of 1933] have been seeking--now that
they and their financial clients have come out of their
storm cellar of fear--not to improve but to chloroform
the Act. They evidently assume that the public is
unaware of the sources of the issues that represent the
boldest abuses of fiduciary responsibility. J.
Seligman, The Transformation of Wall Street 79 (1983).

History repeats itself. Apparently, too, little has changed since. See, e.g., N.Y. Times, Feb. 13, 1987, col. 1, p. 1 (3 leading brokers arrested on charges of multi-million dollar insider trading). If anything, federal law needs to be strengthened, not weakened.

8.1 Myth: Since Law Enforcement Agencies Can be Depended Upon to Prosecute the Real Malefactors, Private Enforcement Mechanisms Are Not Needed.

See Oversight at 310 (remarks of Ray J. Grover, American Institute of Certified Public Accountants) (appendix):

It is baseless to assert that the targets of the
private Civil RICO cases that private lawyers have
brought in the absence of prior convictions would have
been prosecuted if only federal and state prosecutors
had more resources.

8.2 Fact: Law Enforcement Can Not Do the Whole Job.

If this myth were true, it would justify the repeal of the antitrust statutes, which also contain a private multiple damage

claim for relief. Yet the antitrust acts have been termed "the Magna Charta of free enterprise." United States v. Topco Associations, Inc., 405 U.S. 596, 610 (1972). They "are as important to the preservation of economic freedom and our freeenterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms." Id. There, the private "treble-damages remedy [is needed] precisely for the purpose

...

of encouraging private challenges to antitrust violations." Reiter v. Sonotone Corp., 442 U.S. 330, 344 (1979) (emphasis in original). Such "private antitrust litigation is one of the surest weapons for effective enforcement of the antitrust laws." Leh v. General Petroleum Corp., 382 U.S. 54, 59 (1965) (quoting Minnesota Mining & Manufacturing Co. v. New Jersey Wood Finishing Co, 381 U.S. 311, 318 (1965)). In fact, between 1960 and 1980, of the 22,585 civil and criminal cases brought under the antitrust provisions by the government or private parties, 84% were instituted by private plaintiffs. U.S. Department of Justice Source Book of Criminal Justice Statistics 431 (1981). Such private suits "provide a significant supplement to the limited resources available to the Department of Justice" to enforce the antitrust statutes. Reiter, 442 U.S. at 344. Sedima, 105 S.Ct. at 3284 (RICO designed "to fill prosecutorial gaps").

See

Like the antitrust laws, RICO creates "a private enforcement mechanism that

...

deter[s] violators and compensation to the victims

...

provide[s] ample

Blue Shield of Virginia et al

v. McCready, 457 U.S. 465, 472 (1982). See Sedima, 105 S.Ct. at 3284; Alcorn County, Miss. v. U.S. Interstate Supplies, 731 F.2d 1160, 1165 (5th Cir. 1984) (Congress intended RICO's treble damage action to "provide strong incentives to civil litigants ... in deterring racketeering ..."). RICO's treble damage

...

provisions were "intended by Congress to encourage private enforcement of the laws on which RICO is predicated."

Id.

Accordingly, RICO and the antitrust statutes are well integrated. "There are three possible kinds of force which a firm can resort violence (or threat of it), deception, or market power." C. Kaysen & D. Turner, Antitrust Policy 17 (1959). RICO focuses on

to:

As the antitrust

the first two; antitrust focuses on the third. laws seek to maintain economic freedom in the market place, so RICO seeks to promote integrity in the market place.

Assistant Attorney General Steven S. Trott had this to say before the Senate Judiciary Committee about RICO's private

enforcement mechanism:

[I]n gauging the overall deterrent value of auxiliary
enforcement by private plaintiffs, the deterrence
provided by the mere threat of private suits must be
added to the deterrence supplied by the suits that are
actually filed. Furthermore, as the federal
government's enforcement efforts continue to weaken
organized crime and dispel the myth of invulnerability
that has long surrounded and protected its members,
private plaintiffs may become more willing to pursue
RICO's attractive civil remedies in organized crime
contexts. It should be remembered, too, that civil
RICO has significant deterrent potential when used by
institutional plaintiffs, such as units of state and
local governments, which are not likely to be
intimidated at the prospect of suing organized crime
members. Finally, civil RICO's utility against
continuous large-scale criminality not involving
traditional organized crime elements should be kept in

mind. These considerations suggest that private civil
RICO enforcement in area of the organized criminality
may have had a greater deterrent impact than is
commonly recognized, and that both the threat and the
actuality of private enforcement might be expected to
produce even greater deterrence in the future.
Oversight at 140-41.

Public enforcement with its principal reliance on the criminal law cannot be relied upon to do the whole job of policing fraud. As Justice Jackson observed, "the criminal law has long proved futile to reach the subtler kinds of fraud at all, and able to reach grosser fraud, only rarely." R. Jackson, The Struggle for Judicial Supremacy 152 (Vintage 1941). We must, in short, be candid about the limitations of the criminal justice system in the white collar crime area. Resources available for

investigation and prosecution are scarce. The common law criminal trial is ponderous. The cases are complex.

Offenders

will be most often treated as "first offenders" even if they had actually engaged in a pattern of behavior over a substantial period of time. A few convictions will yield only a minimal deterrent effect. J. Conklin, Illegal But Not Criminal: Business Crime in America 129 (1977) rightly concluded:

[T]he criminal justice system treats business offenders
with leniency. Prosecution is uncommon, conviction is
rare, and harsh sentences almost non-existent. At
most, a businessman or corporation is fined; few
individuals are imprisoned and those who are serve very
short sentences. Many reasons exist for this leniency.
The wealth and prestige of businessmen, their influence
over the media, the trend towards more lenient
punishment for all offenders, the complexity and
invisibility of many business crimes, the existence of
regulatory agencies and inspectors who seek compliance
with the law rather than punishment of violators all
help explain why the criminal justice system rarely
deals harshly with businessmen. This failure to punish

business offenders may encourage feelings of mistrust
toward community morality, and general social
disorganization in the general population. Discrimina-
tory justice may also provide lower class and working
class individuals with justifications for their own
violation of the law, and it may provide political
radicals with a desire to replace a corrupt system in
which equal justice is little more than a spoken ideal.
(citations omitted).

Public agencies, moreover, will never be funded at adequate levels. The funding of the Securities and Exchange Commission, for example, has increased since 1979, but its staffing has decreased, and its pending investigations are down. Yet the number of shares traded on the New York Stock Exchange has shot up 300% since 1977; the number of first time registrants has increased by 260%. See generally Statistics on SEC's Enforcement Program, GAO Report Mar. 25, 1985. Even among legitimate brokerage firms, the incentive structure for commissions encourages a fraud known as "churning," trading stock without regard for investment objectives. Similarly, the futures industry in the United States has grown tremendously in recent years. The 139.9 million futures contracts traded in 1983 represents a level of trading activity 15 times greater than that reached in 1968. The value of contracts traded exceeds $5 trillion a year.

Nevertheless, the resources of the Commodities Futures Trading Commission have remained relatively constant. Some would suggest that the industry is a scandal waiting to happen, for the Commission "is thoroughly out-gunned in the ongoing battle against commodity fraud." S. Rep. No. 97-495, 97th Cong., 2d Sess. 10 (1983). In addition, the accounting