27

See

Indeed, in light of Ohio's experience with the failure of E.S.M. Government Securities, Inc., including a paid-for false audit report, and the repercussions it caused in the savings and loan industry and on the gold market, no one ought seriously to contend that such fraud is a "garden variety" problem, which may be "weeded out" with business-as-usual legal techniques. Chicago Tribune, Jan. 27, 1987, col. 1, p. 2 (estimated $315 million loss in E.S.M. scandal). In addition, the collapse of the E.S.M. Company led to the insolvency of Home State Savings Bank in Ohio and the shutdown of 69 privately insured thrift institutions. Subsequently, the accounting firm of Grant Thornton reached a $22.5 million settlement with the American Savings and Loan Association, which lost $55.3 million; it also reached a $50 million settlement with 17 municipal governments, which sued under RICO. N.Y. Times, Sept. 17, 1986, col. 6, p. 48. Without RICO, it is doubtful that such a favorable settlement could have been obtained for at least some of the victims.

11.1 Myth: Private Civil RICO Might not Lend Itself to Sensible A Construction, Since It was an Ill-Designed Afterthought to a Criminal Statute.

See, e.q., P.M.F. Services v. Grady, 681 F. Supp. 549, 55586 (N.D. Ill. 1988) (Shadur, J.):

[Civil RICO] was a late edition, spot-welded

to an already fully-structured criminal statute .

11.2 Fact: Private Civil RICO was Part of the Design of The Statute from the Beginning.

P.M.F. Services was written by Judge Milton Shadur. His views of the legislative history of Civil RICO, which were first expressed in Kaushal v. State Bank of India, 556 F. Supp. 576, 581-84 (N.D. Ill. 1983), were followed by the Second Circuit in Sedima S.P.L.F. v. Imrex Co., 741 F.2d 482, 488-90 (2d Cir. 1984) ("endorsed"), rev'd. 473 U.S. 479 (1985). Their "precedential is [now in] considerable doubt Supreme Court's total rejection of from... [Shadur's] historical analysis of... RICO 11 in Sedima. Religious Technology Center v. Wollersheim, 796 F.2d 1076, 1081 (9th Cir. 1986), cert. denied, 107 S. Ct. 1336 (1987). They are also plainly wrong.

value however,
[because of] the
conclusions drawn

the

In 1967, the President's Commission on Law Enforcement and Administration of Justice recommended the adoption of antitrust type remedies to control sophisticated forms of crime. Challenge of Crime in a Free Society, 208 (1967). Bills were introduced in the Senate and House; they included the private enforcement provisions. See, e.g., S.2048, 90th Cong., 1st Sess. (1967); 113

28

Cong. Rec. 17,999 (1967). The American Bar Association testified in the Senate in favor of the treble damage remedy. Senate Hearing 259 (statement) 556 report) (1969). The President, at that time, added his favorable voice for the treble damage remedy. Id. at 449. The Senate passed the bill, of course, with only express government criminal and civil relief, but it is likely a private claim for relief for actual damages would have been implied in the statute based on 1970 jurisprudence. Compare J.I. Case Co. v. Borak, 377 U.S. 426, 433 (1964) (private remedy implied under § 27 of Securities Act of 1934) with Merrill Lynch Pierce Fenner & Smith v. Curran, 456 U.S. 353, 378 (1982) (jurisprudence at time of legislation not later governs implications). Nevertheless, when the Bar Association testified in the House (House Hearings 543-44) that the private enforcement mechanism should be added back, it was restored to the bill, accepted by the Senate, and signed by the President. Contrary to Judge Shadur's conclusion in P.M.F. Services, RICO is not, in short, a criminal statute with an ill-designed treble damage afterthought. See Iannelli v. United States, 420 U.S. 770, 786-89 (1975) ("a carefully crafted piece of legislation"); 116 Cong. Rec. 35, 204 (1970) (remarks of Rep. Robert McClory) ("no single measure received more thorough consideration"). Right from the beginning, Senator Roman Hruska, one of RICO's principal sponsors, recognized that its "criminal provision . . [was] intended primarily as an adjunct to the civil provision," which he "consider[ed] [one of] the more important features" of the bill. 115 Cong. Rec. 6993-94 (1960); 115 Cong. Rec. 602 (1970) (remarks of Sen. Hruska) ("the principal value of this legislation may well be found to exist in its civil provisions"). See also Agency Holding Corp. v. Malley-Duff & Associates, Inc., 107 S. ct. 2759, 2764 (1987) ("private attorneys general [for] a serious national problem for which public prosecutorial resources are deemed inadequate");

Shearson/American Express Inc. v. McMahon, 107 S. Ct. 2332, 2345 (1987) ("vigorous incentives for plaintiffs to pursue RICO claims"); Sedima, 473 U.S. at 493 ("private attorney general provisions designed to fill prosecutorial gaps"). Judge

Shadur is just flatly wrong.

Judge Shadur's views on RICO, too, are often reversed or rejected by the Seventh Circuit, which knows his work best. See, e.g., United States v. Yonan, 623 F. Supp. 881, 883-86 (N.D. Ill. 1985) (construction of "associated with"), rev'd., 800 F.2d 164, 167-68 (7th Cir. 1986), cert. denied, 479 U.S. 1055 (1987); Northern Trust Banks/O'Hare V. Inryco, 615 F. Supp. 828, 831 (N.D. Ill. 1985) (single scheme "construction of pattern"), rejected by Morgan v. Bank of Waukegan, 804 F.2d 970, 973-77 (7th Cir. 1986) (reversing 615 F. Supp. 836) (Shadur, J.). Judge Shadur's single scheme decision on "pattern" was unanimously rejected by the Supreme Court in H.J. Inc. v. North Western Bell Telephone Co., 5 Civil RICO Report No. 5 (June 27, 1989). Typically, Judge Shadur's analyses are not only wrong, but also

29

superficial. Compare, P.M.F. Services, 681 F. Supp. 549, 555 n.15 ("no other private civil cause f action [other than RICO] embedded in the body of federal statutes labeled "'Crimes and Criminal Procedure'") with 18 U.S.C. § 2520 (recovery of civil damage for unlawful wire tapping).

IV. Conclusion.

N.Y.

The President told the Nation on February 6, 1989, that "unconscionable risk-taking, fraud and outright criminality [were] factors" that led to the savings and loan crisis. Times, Feb. 7, 1989, p. 31, col. 1. He promised that the Government would "seek out and punish those that have committed wrongdoing in the management of [the] failed institutions." Id. He would, he said, as a "solemn pledge," make "every effort to recover assets diverted from these institutions and to place behind bars those who had caused losses through criminal behavior." Id.

It is interesting now, however, to read the President's lips, since his Administration announced its position on RICO Reform.

But it is difficult to accept its position of a general roll-back for the rights of victims of crime!

It is difficult, too, to accept, without substantial modification, the provisions of the RICO Reform Act of 1989.

G. Robert Blakey
Notre Dame Law School
July 20, 1989

6

H.R. 1046 "represents the general approach to RICO reform that we have come to prefer. . ." Testimony of Department of Justice, Subcommittee on Crime, House Committee on Judiciary (May 4, 1989).

In 1970, Congress enacted the Organized Crime Control Act, Title IX of which is known as The Racketeer Influenced and Corrupt Organizations Statute or "RICO" (18 U.S.C. 1961 et seq.). RICO prohibited "enterprise criminality", that is, "patterns" of "racketeering",

including:

(1) violence,

(2) the provision of illegal goods and services,
(3) corruption in government, or unions, and
(4) criminal fraud,

by, through, or against various kinds of "entities."

Licit entities include corporations, partnerships, unions and governmental entities. Illicit entities include organized crime and violent crime groups.

In addition to criminal sanctions, the statute authorized governmental civil suits and a treble damage claim for relief with counsel fees for injury to business or property for victims of RICO violations.

RICO Reform Proposals

Various proposals to reform RICO have been made in the past several Congressional sessions. Some reflected an effort to strengthen the statute. See H.R. 4920 100th Cong. (Conyers-Edwards); H.R. 3240 100th Cong. (Conyers-Edwards). Other reflected an effort to circumscribe it, particularly in the area of private civil litigation. See S. 1523, 100th Cong. (Metzenbaum); H.R. 2983 100th Cong. (Boucher); H.R. 4923 100th Cong. (Boucher).

S.1523, sponsored by Senator Howard Metzenbaum, was reported, as amended, by the Senate Judiciary Committee to the full Senate on May 24, 1988. S. Rep. No. 100-458, 100th Cong., 2nd Sess. (1988) When it was introduced, it was similar to H.R. 2983.

H.R. 4923, sponsored by Congressman Rick Boucher, was introduced on June 28, 1988. It was identical to S. 1523, as reported by the Senate Judiciary Committee.

H.R. 4920 was introduced by Congressmen John Conyers and Don Edwards on June 28, 1988. It was similar in structure to S. 1523, as reported, but it also reflects many of the provisions of H.R. 3240.

s. 2793, 100th Cong. (Senator Biden and others) would have created a new federal anticorruption statute, applicable to Federal, state, and local corruption.

None of this proposed legislation passed in the 100th Congress.

The RICO Reform Act of 1989 (S.439/H.R. 1046) was introduced in February 23, 1989, by Senator Dennis DeConcini and Congressman Rick Boucher.