The Gambino family and Merrill Lynch, the Mafia and the Big Eight accounting firms. These groups aren't often mentioned in the same breath. But they have at least one thing in common: they've been accused of racketeering under the Racketeer Influenced and Corrupt Organizations Act (RICO).
No one is saying that legitimate businesses are committing mobsterlike crimes such as murder, extortion, and drug smuggling. But the breadth of the 1970 RICO law means that a pattern of white-collar crimes -- securities fraud, mail fraud, and wire fraud, for example -- is putting mainstream businesses in court or in the headlines as racketeers.
More and more of these civil RICO cases are piling up in federal courts.
During its first decade, the law was something of a sleeper. Then, at the same time that law enforcement agencies began using it to crack down on the mob's criminal activities, business lawyers began using the law in civil suits to seek triple damages for their clients.
Now, says a congressional aide, ``if you're a plaintiff's lawyer, it's almost rare not to bring a RICO case. You can get sued for malpractice [if you don't], because it's in the client's interest to get treble damages.''
The number of cases has escalated since the Supreme Court ruled in July that private plaintiffs may sue companies under RICO. Confusion over the law has spawned a thriving cottage industry, including newsletters on RICO decisions and seminars on how to prosecute or defend against the law.
Three bills to alter the law are pending in Congress; hearings will be held later this month.
Opponents of RICO say the threat of being charged with racketeering is being used as blackmail in ordinary business, labor, even marital and religious disputes. It smears the reputation of a legitimate business, they say, which is especially damaging to small and medium-size companies or to professionals like accountants and lawyers who depend on their good name for their livelihood. That's not what Congress intended, they say.
But others, including the lawyer who helped draft RICO, say this is precisely what Congress intended. When someone is defrauded out of his or her life savings, they argue, it little matters whether it was a mobster or an insurance salesman that did it.
``This is a clear piece of corporate interest pleading,'' says Russell Mokhiber of the Citizens Coalition to Support and Defend RICO. The law, he says, ``is a tough anticorporate crime law. . . . We haven't seen where this law is going, but already they want to take a meat cleaver to it.''
Civil RICO allows not just the government but ordinary businesses and citizens to sue someone. To bring a case, a plaintiff has to allege a ``pattern of racketeering,'' meaning two or more offenses in the previous 10 years. The threat of RICO -- especially the possibility of paying treble damages -- is one of the most effective clubs against white-collar crime, supporters of the law say.
RICO advocates say it's a consumer protection. They cite the case of hundreds of residents of Hampton Roads, Va. -- mainly elderly, handicapped, black, and financially unsophisticated -- who were defrauded by home-improvement contractors. According to testimony before the House Criminal Justice Subcommittee, salesmen at the Old Dominion Home Improvement Company would persuade them to buy improvements; often residents did not realize liens were being attached to their homes.
The group sued the Atlantic Permanent Federal Savings and Loan Association under RICO (Old Dominion had gone bankrupt by this time) and the case was settled last July. The judge said that if it had not been for the racketeering charges, the case probably would not have been settled.
But RICO is being used as blackmail, others say. It has pitted rabbi against rabbi (in a struggle for leadership in a synagogue). It has been used against the Federal Bureau of Investigation, against Lloyd's of London by an arsonist, and against a cable television company that was awarded a franchise by a competitor that lost.
Financial institutions are particularly vulnerable, says William Fitzpatrick, general counsel of the Securities Industry Association (SIA). If one customer alleges that a stockbroker has made three trades that are fraudulent, for example, the customer can claim that there's a pattern of racketeering and sue under RICO. The firm must then open its books for a 10-year period.
``It's a form of harassment,'' Mr. Fitzpatrick says. ``A business can't come to a grinding halt because of a lawsuit, so it settles out of court,'' even though the company may be innocent. RICO, he says, ``turns the whole litigating process on its head.''
According to an SIA survey of 145 securities firms, 410 of the 1,730 cases pending against them included RICO allegations. A special task force of the American Bar Association recently found that only 9 percent of the reported civil RICO cases involve allegations of criminal activity normally associated with professional criminals. The rest involve the kind of allegations that regularly arise in commercial or business litigation.
The controversy appears to line up the financial heavyweights against government prosecutors and citizens' organizations.
Lobbies for accounting firms, banks, thrifts, life insurance companies, manufacturers, securities firms, the AFL-CIO (and other labor unions) support a bill introduced by Rep. Frederick C. Boucher (D) of Virginia that would allow private parties to sue only after the defendant was convicted of the underlying offense.
Opposing the Boucher bill are less-monied groups like Congress Watch, the US Public Interest Research Group, and the Citizens Coalition to Support and Defend RICO. They are joined by the National Association of Attorneys General, the National District Attorneys Association, and the National Association of State Securities Commissioners, who fear the Boucher bill would hinder the fight against the Mafia.
But the corporate assault on RICO is hardly united. ``It's not the big guy vs. the little guy,'' a congressional aide says. ``It's giant corporation vs. giant corporation. It's IBM vs. Hitachi,'' he says, referring to IBM's suit over theft of computer secrets.
Two other bills to limit RICO have garnered less support. But some reform appears imminent.
``I don't see how they can escape making changes in the statute,'' predicts Laura A. Ginger, a professor of business law at Indiana University. ``They have to at least clear up what they meant originally.''