So, tell me you told me you empathize with me. Please, how do we explain this to the average citizen who's saying if there's 1 percent recovery of $200 billion every year, why should we have a policy of restricting?

Racketeering is such an onerous term for legitimate businesses to carry. Let's change the name. Mistake.

The S&L's now, we've come up with a price tag, and I know somebody is going to say $150 billion. Not so. It's over $200 billion. Mr. HUGHES. The gentleman's time has expired.

Mr. CONYERS. OK. Can I finish the question, Mr. Chairman?
Mr. HUGHES. Go ahead.

Mr. CONYERS. So here we are confronted with the most incredible, massive, illegal white-collar activity that has been uncovered, the insider trading, the great firms, with their funding mechanism, some going toward trial, some not, and here not only are we going to restrict it, but just let's make sure nobody gets caught, guys. Let's make it retroactive to the cases that are pending in the court right now. And a couple of you say, "Well, you know, we don't have any position on retroactivity. I mean, that's-hey, it's up to you guys. You want retroactivity, or you don't want retroactivity. Whatever you do doesn't matter.'

Do you know how many hundreds of millions of dollars worth of potential liability is in the pipeline as we discuss this question over which you government officials have no position? Well, I'm glad you sympathize with my position.

I'm going to try to get this matter more clearly understood because I think we've got a very large public question here. And I would like all of you to join with me as we think our way through this problem. This is an enormous public policy question. And that's why I'm going to forward you materials, and hopefully elicit some response from you.

Mr. HUGHES. The gentleman's time has expired.

The gentleman from Florida, Mr. McCollum.

Mr. MCCOLLUM. I have no questions, thank you.

Mr. HUGHES. I want to thank the panel very, very much for their contribution. We appreciate your willingness to come and testify today, and you've been very helpful to us. We thank you.

Our next panel consists of Mr. Jed S. Rakoff, Mr. Ronald Goldstock, Mr. G. Robert Blakey, and Mr. Barry Direnfeld. If they'll come forward to the witness table, we'd appreciate it.

Our first panelist on this panel is Mr. Jed S. Rakoff, who is a litigation partner with the firm of Mudge, Rose, Guthrie, Alexander & Ferdon, with particular expertise in white-collar criminal defense and civil RICO litigation.

Mr. Rakoff has been a law clerk to Abraham Friedman of the U.S. Court of Appeals and a member of the U.S. attorneys' office in the Southern District of New York, where he was chief of business and securities frauds prosecutions. Mr. Rakoff has written extensively on RICO and related criminal law issues.

Our second panelist is Mr. Ronald Goldstock, who is the director of the New York State Organized Crime Task Force. Prior to this position, he was Acting Inspector General at the U.S. Department of Labor, director of the Cornell Institute of Organized Crime, and an assistant district attorney for New York County. Mr. Goldstock

also has been published extensively on organized crime and whitecollar crime.

Our third member is Prof. G. Robert Blakey, who is a professor of law at Notre Dame University. Prior to this position, he was the chief counsel to the House Select Committee on Assassinations, professor of law at Cornell Law School, chief counsel, Subcommittee on Criminal Laws and Procedures of the U.S. Senate, and Special Attorney, Organized Crime and Racketeering Section of the U.S. Department of Justice. Professor Blakey has produced numerous articles on RICO and other criminal matters.

Our last member of the panel is Mr. Barry Direnfeld, who is a senior partner in the law firm of Rivkin, Radler, Dunne & Bayh. Prior to this, he was chief counsel and staff director for the Senate Judiciary Subcommittee on Antitrust, Monopolies and Business Rights, and the Subcommittee on Citizens and Shareholders Rights and Remedies, as well as chief legislative counsel to Senator Metzenbaum. He also was a teaching fellow at Harvard University's JFK Institute of Politics.

Gentlemen, we welcome you here today on behalf of the Subcommittee on Crime. All of your prepared statements will be made a part of the record, and we hope you can summarize for us. Why don't we begin with you, Mr. Rakoff.

STATEMENT OF JED S. RAKOFF, ESQ., MUDGE, ROSE, GUTHRIE, ALEXANDER & FERDON, NEW YORK CITY

Mr. RAKOFF. Thank you, Mr. Chairman. Given the lateness of the hour, I'm going to try to be very brief in summarizing my statement. I think that it's perhaps appropriate for me to point out at the outset that I believe I'm probably the only attorney in this room who has served in every capacity that one can as an attorney in RICO cases.

I was a prosecutor many years, and chief of the white-collar prosecutions in the Southern District of New York at a time when we were already beginning to use RICO, albeit much more sparingly than now.

I've been a defense attorney in criminal cases. I've represented both plaintiffs and defendants in civil RICO, although, needless to say, not in the same law suit, and I've also represented defendants in Government civil RICO cases.

I have, from that perspective, from all those perspectives, reached the belief that RICO is a seriously flawed statute and needs some reform, including those embodied in this bill.

I know that this committee is already aware of many of the flaws, and I'm not going to repeat what other witnesses have said. I do think that generically speaking those flaws include, in effect, stacking the deck in favor of the protagonist in a RICO lawsuit.

RICO is able to do that because it allows relatively noncriminal or minor criminal activity to be blown up into these major great RICO lawsuits. Major activity can also fit under RICO, but a great many minor actions-we heard from Congressman Sawyer, contract actions, minor torts-things of that kind can all be turned into RICO actions.

A second thing that follows from that flaw is that relatively local controversies can be made into Federal lawsuits, and we've discussed that, and the committee has heard testimony about that already.

I would make reference, however, to one of the cases that was discussed earlier this morning in this regard, and that's the Loco case. If you had listened to the folks from Suffolk County, you would have gotten the idea that what was established here was a massive fraud on millions of rate payers, and therefore it's a good idea to have RICO cover that kind of a situation.

But what in fact happened there was that the chief judge who heard the case, together with the jury, threw out the verdict and said this was not a RICO case at all.

What he said, and I think it's worth quoting, even though it's only a couple of sentences is, "Prior to the trial, the court, based on RICO precedence, was of the view that the Federal RICO statute took precedence over State rate regulating policy.”

What the trial proved was that RICO cannot and should not be applied in a case such as this to permit a Federal jury in a civil case to second guess the ratemaking authority of the State. And it goes on at some length to show that this wasn't a fraud case at all. This was really a controversy over ratemaking and doesn't belong under RICO. And that's where the case stands right now-the verdict having been thrown out, and it's on appeal to the court of appeals.

I might add that I have some familiarity with that case because one of my partners was tangentially involved, and I know about the presentations that were made to the law enforcement authorities there by the county of Suffolk.

I think the only fair inference is that the U.S. attorney for the Eastern District of New York and other law enforcement authorities concluded that this was not criminal activity. That's why they didn't go forward, not from any lack of resources or anything of that kind, but simply because, contrary to the allegations in that case, it was not criminal activity.

But those conclusions that there was not a criminal case, and, more importantly, Chief Judge Weinstein's decision that there was not even a civil case here, came only after years of litigation, millions of dollars spent on discovery, and you can imagine that it was not surprising that some of the lesser defendants in that case settled out rather than pay those exorbitant costs. And that's an example, I think, of the kind of abuse that RICO can be put to.

I offer in my prepared statement a few suggestions as to how I think the bill before this committee might be improved, and I'll just mention one or two.

One is, I think that you can't sensibly have it both ways with respect to securities fraud. Either securities fraud should be eliminated altogether from the coverage of RICO, as the SEC, in effect, is recommending, or it should be included as the general matter. But I think singling out insider trading for inclusion is shortsighted.

Right now, that's the great fraud of the moment, and everyone forgets about other kinds of securities frauds that have occurred that have been just as large in monetary terms and every other kind of term that you want to talk about.

I think that the SEC is perfectly right in stating that the weapons for dealing with this are best in the SEC and in the other existing legislation already on the books, and that RICO is a very poorly designed weapon for dealing with it.

But my more modest point is I don't think you can have it both ways. I think that it is sensible either to cut it out altogether, or to include it altogether, but not to try to make distinctions between different kinds of securities frauds.

I think that a very important improvement might be to make clear that RICO does not supersede or override well established bodies of existing Federal law. I'm thinking particularly here not only of securities laws, but also of labor laws.

There is perhaps no other area of the law where, before RICO, the entire area was given to Federal agencies. And where Federal laws didn't apply, State laws applied. But there was never a suggestion that some general law of applicability, whether it's State or Federal, like RICO could override the very careful balances that have been worked out by Congress and by the various Federal labor agencies to deal with labor disputes.

In many strike situations, the employer is bringing a RICO action and trying to get around the mechanism of the Federal labor laws by use of the RICO statute.

I think that's a great perversion of the law, but I think, more generally, that if Congress has decided, as I believe it has in the past, that the labor relations of this country should be carefully regulated according to laws that Congress specifically designed to deal with those matters, that we shouldn't allow RICO to act as some kind of back door through which those policies are undercut. And that would apply as well, I think, in many securities cases and in many other areas of law where Congress has highly specific legislation.

The last one of the suggestions that I make—I make about six, and I'm not going to bore you with them all in these brief remarks, but I did join in the views expressed by some of the folks earlier that many of the abuses under RICO could be eliminated by eliminating mail and wire fraud.

These are statutes that have been stretched in criminal cases where you had, as everyone has said so often, at least the moderating influence of prosecutorial discretion to make sure that they wouldn't be applied in trivial cases. So that the statutes have reached broadly, but they've reached important criminal conduct in the criminal side.

Now, suddenly, a plaintiff's lawyer, and I've acted as a plaintiff's lawyer as well as a defense lawyer, is told, "Well, make what you can with these statutes." And as a plaintiff's lawyer, you're not concerned with balancing public policy interests or anything of the kind; you're just concerned with getting the maximum recovery for your client. And so you take advantage of this very stretched law to apply it to your situation. In many cases, those are situations that were not the kind that any prosecutor would ever go after. Thank you very much.

Mr. HUGHES. Thank you, Mr. Rakoff.

[The prepared statement of Mr. Rakoff follows:]

SUMMARY OF STATEMENT

OF JED S. RAKOFF, ESQ.

REGARDING H.R. 1046 BEFORE SUBCOMMITTEE ON CRIME OF HOUSE
JUDICIARY COMMITTEE

RICO's numerous flaws include: (i) "stacking the deck" in favor of protagonists by permitting huge and disproportionate penalties to be predicated upon frequently trivial offenses, thus coercing unfair settlements and unreliable plea-bargains; (ii) altering established allocations of power and authority by enabling essentially local controversies to be brought into federal court, providing escape from limitations imposed under pre-existing specialized bodies of federal law and jurisdiction, and providing private parties with the effective power to apply and interpret criminal laws; and (iii) infringing First Amendment rights by permitting allegations that the exercise of free speech and petition is extortionate under RICO and by tarring innocent persons through guilt by association.

While H.R. 1046 takes some modest steps toward correcting these flaws, it could be improved by (1) avoiding adding further complexities to an already complex statute (e.g., eliminating special provisions for "insider trading"); (2) dispensing with the retention of the treble damages remedy for certain governmental agencies, which do not need it; (3) avoiding the use of additional vague terms (such as implied malice) and resisting the Supreme Court's invitation to further define the intractable term "pattern"; (4) adding mechanisms for judicial screening of RICO complaints and indictments at the moment of filing, including intitial evidentiary statements in civil cases and judicial enforcement of Justice Department guidelines in criminal cases; (5) eliminating mail and wire fraud as predicate acts; and (6) subordinating RICO to preexisting bodies of specialized federal law or to preexisting state jurisdiction.