Source: https://lawprofessors.typepad.com/whitecollarcrime_blog/rico/
Timestamp: 2019-04-22 20:28:35+00:00

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So it looks like there are several aspects to the allegations in Operation Varsity Blues 1) a college entrance exam cheating scheme; 2) a college recruitment scheme; and 3) a tax fraud conspiracy.
Some of the individuals (4) are charged by Information - a clear indication that they have reached an agreement with the government. We see two cooperating witnesses mentioned in the documents. The crimes alleged in the Information include charges of racketeering conspiracy, money laundering conspiracy, conspiracy to defraud the US, mail and wire fraud and obstruction of justice. Twelve others face indictment on a charge of racketeering conspiracy. The remaining individuals have criminal complaints against them of either conspiracy to commit mail fraud and honest services mail fraud or conspiracy to commit mail and wire fraud. The affidavit for one of the criminal complaints is over 200 pages long (see here). There are also forfeiture allegations for some of the accused individuals. It will be interesting to see how many of the criminal complaints turn into Informations (requires waivers by the defense) as opposed to Indictments in the next for weeks.
The prosecutorial power of using conspiracy and picking one's venue is emphasized here as the cases are being brought in the District of Massachusetts, although the majority of those accused of criminal activity are not from that jurisdiction. The ACT is headquartered in Iowa City and the Educational Testing Service for the SAT is in New York and New Jersey.
Likewise the prosecutorial power of granting cooperation status appears likely as some of the cases have references to CW-1 and CW-2. Prosecutors get to decide who gets the cooperation status and who gets the cooperator's testimony against them.
The alleged fraud appears to be massive, and one has to wonder how this could have occurred- but compromised college related entrance exams are not something new. Just today the Central District of California filed a 26-count Indictment with charges of conspiracy of false passport, and aggravated identity theft, against defendants for allegedly "using false passports" to take TOEFL (English proficiency) exams for others. (see here). It may be tougher to detect some issues of fraud outside the United States, but internally this should not be happening. Will the verification processes used with college entrance exams be re-evaluated? Or were they the ones who detected fraud?
As an educator, I am wondering how the students fared in college. Were the alleged improper scores an accurate prediction of their college abilities? Could the value of these tests become an issue should someone go to trial?
How many students were improperly admitted to a college, taking a seat of a student who might have had this opportunity? And if the admitted students were not aware of what their parents had done, one can only imagine the hurt they are feeling right now. So you have issues related to both the admitted students and those who may have been borderline but denied at these institutions.
Likewise, the parents who are accused of this activity were attempting to assist their children, and it is likely that the damage caused is even greater right now. As is so often the case, especially in white collar cases, the collateral consequences can be significant.
And should the collateral consequences to the families who may have committed these acts be considered if determining the plea offers and later sentences that might occur here.
Many of those accused are probably trying to decide how best to handle these charges - plead not guilty and go to trial, or reach a quick agreement with the government. With tapes and other supporting evidence the decisions will likely be examined against possible cross-examination against cooperating witnesses who were involved in multiple cases. How much sympathy will a parent trying to assist their children receive, and will it surpass criticism against privilege. And there are also legal questions to examine here - is this the intended use of mail and wire fraud, is conspiracy too broad a crime here, and was this a "wheel-and-spoke' conspiracy? But what is the risk of making such challenges?
The colleges and universities also need to reflect on the allegations here. What kind of compliance programs did they have in place to root out such conduct from individuals involved in sports activities on campus, and what now needs to be done to make certain that this doesn't occur in the future. Perhaps there is nothing they can do, but if the allegations prove true, it should be examined.
There will be much to learn from what happened today. It was a sad day for many people.
Yes, The Supreme Court's opinion here looks at whether RICO has extraterritorial application in the civil context. And in that regard it limits its extraterritorial application. But there is some important language in this opinion for both civil and criminal practitioners, especially since much of RICO is premised on a criminal statute, and all of RICO is located in Title 18, the Criminal Code.
There has been much confusion as to whether one should look at the predicate acts or the enterprise in determining extraterritoriality and the Court provides significant guidance here.
In deciding RICO's extraterritorial application, the Court divides it into two issues: a) "do RICO's substantive prohibitions, contained in sec. 1962, apply to conduct, that occurs in foreign countries;" b) "does RICO's private cause of action, contained in sec 1964(c) apply to injuries that are suffered in foreign countries?" It is this first issue that one needs to examine for criminal cases.
The Court reaffirms in statutory construction the premise that there is "presumption against extraterritoriality."
The Court describes the two-step process - "Morrison and Kiobel reflect a two-step framework for analyzing extraterritoriality issues. At the first step, we ask whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially. We must ask this question regardless of whether the statute in question regulates conduct, affords relief, or merely confers jurisdiction. If the statute is not extraterritorial, then at the second step we determine whether the case involves a domestic application of the statute, and we do this by looking to the statute’s 'focus.' If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad; but if the conduct relevant to the focus occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U. S. territory."
With respect to 1962 (b) and (c) the Court states, "[w]e therefore conclude that RICO applies to some foreign racketeering activity. A violation of sec. 1962 may be based on a pattern of racketeering that includes predicate offenses committed abroad, provided that each of those offenses violates a predicate statute that is itself extraterritorial."
With respect to 1962(a) the Court states, "arguably sec 1962(a) extends only to domestic uses of the income."
In dicta, with respect to 1962(d), the conspiracy section, the Court states, "[w]e therefore decline to reach this issue, and assume without deciding that sec 1962(d)'s extraterritoriality tracks that of the provision underlying the alleged conspiracy."
The Court is less focused on whether the enterprise element is domestically based. But it does note that "[e]nterprises whose activities lack that anchor to U.S. commerce cannot sustain a RICO conviction."
The language in this case provides important guidance for criminal practitioners on the extraterritoriality of RICO, and clearly it provides strong arguments that not all of RICO applies abroad.
In a major blow to the government, the U.S. Court of Appeals for the Sixth Circuit has reversed the convictions of each and every defendant in U.S. v. Douglas C. Adams, et al. This was a high-profile RICO public corruption prosecution (premised on an alleged vote-buying scheme) brought by the U.S. Attorney's Office for the Eastern District of Kentucky. The Sixth Circuit vacated and remanded based on the following evidentiary errors: 1) admitting testimony from three cooperators regarding their drug-dealing activities with some of the defendants, which activities occurred 10 years prior to the alleged vote-buying scheme; 2) admitting an Inside Edition video that also discussed drug-dealing activities in the community; 3) admitting evidence of witness intimidation that could not be tied to any of the defendants; 4) the trial court's making of unprompted, substantive changes to the government's tape transcripts; 5) permitting use before the jury of the inaccurate transcripts that resulted from the unprompted changes; 6) admitting un-redacted, and highly prejudicial, versions of state election records which contained statements implicating the defendants in vote-buying schemes. This appears to be a case of government overkill in the presentation of its evidence, as the Sixth Circuit had no problem affirming the sufficiency of the evidence. The unanimous panel opinion was written by Judge Karen Nelson Moore. John Kline, Trevor Wells, and Jason Barclay argued the case for Appellants. With them on the various briefs were: Larry Mackey, Marty Pinales, Candace Crouse, Kent Westberry, Elizabeth Hughes, Jerry Gilbert, Robert Abell, Scott White, and Russ Baldani. Congratulations to all.
The Third Circuit Court of Appeals reversed and remanded a district court's dismissal of a RICO indictment against an attorney and others. (See Opinion - U.S. v. Bergrin here) RICO is clearly a complicated statute and the court's decision presents an extremely thorough review of many aspects of the law in this area. Typically, RICO is one of the few topics that need a few days of classes in order to truly understand its depth and breadth. The Supreme Court's continually allowance for RICO to be read broadly, brings it to an even higher level. Areas that continually plague readers/students is what constitutes a sufficient "enterprise" and when do you have a "pattern of racketeering activity." Justice Scalia in HJ Inc. criticizes the test of "continuity plus relationship" as set forth by the Court, as he says that this is "as helpful to the conduct of their affairs as 'life is a fountain.'"
This Third Circuit decision to reinstate the indictment comes on the heels of the Supreme Court's 2009 decision in Boyle (see here), where the Court held that RICO association-in-fact enterprises require an "ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages, but no - "an instruction framed in this precise language is not necessary."The Court held that an association-in-fact enterprise needs to have "three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." At the time the Boyle decision came down, I blogged that the decision would be "very helpful for government prosecutions in that it allows RICO cases to be brought with the jury being told a minimal amount of what is required for a RICO enterprise."
This Third Circuit decision confirms that the government will have an easier time in presenting RICO cases. Whether the defendant and others will be convicted in this case remains to be seen, but for now it is clear that the breadth of RICO will allow this matter to move forward.
"I wanted to begin by reaching out to law professors who might be interested in signing on to a amicus brief in support of a petition for writ of certiorari. Max Huffman(Indiana) and I are writing an amicus brief in the case British American Tobacco v. United States. The cert. petition is part of a massive case brought by the U.S. against the tobacco companies. Various cert. petitions have been filed, including a government petition seeking recovery of a $280 billion disgorgement award. Details about the underlying case can be found on SCOTUSblog.
"The amicus brief that we are writing is on a narrow issue focused on how a court should interpret the geographic reach of federal law (the extraterritoriality question). The brief is being submitted to encourage the Court to grant certiorari and review the decision of the D.C. Circuit. The brief clarifies the history and application of the effects test and shows how that history bears upon the proper interpretation of whether Congress intended a statute to reach extraterritorial conduct. The brief does not take a position on the underlying merits: the federal government's use of RICO to prevent and restrain an alleged scheme to deceive American consumers about the health risks of smoking.
"If you are a law professor who would consider signing on to the amicus brief, please email me at aparrish@swlaw.edu, and I can send you a draft. A draft will be completed Monday, and we hope to finalize within the next week or so (it's on a tight filing deadline). Because the effects test applies in a number of contexts (antitrust, securities, trademark, labor law, environmental law, criminal law etc.), the D.C. Circuit's decision, if left to stand, could have far-reaching implications. Legal commentators have also lamented the doctrinal incoherence in how courts approach legislative jurisdiction. This would be a good opportunity for the Court to clarify what is now a confused area of law. More information about the case and the amicus brief is included below.
"The petitioner's cert petition implicates the question of whether RICO applies to the overseas conduct of foreign corporations. The D.C. Circuit did not directly address whether Congress intended RICO to apply extraterritorially -- an issue on which the lower courts are divided. Instead, it found: (1) that when domestic effects are felt in the United States, regulation of foreign conduct of a foreign corporation does not implicate extraterritorial jurisdiction; and (2) that it need not decide whether RICO applies extraterritorially so long as the foreign conduct has substantial effects in the United States. Because the D.C. Circuit found a domestic effect, it presumed that Congress intended RICO to regulate abroad. The case raises interesting questions about the role of the presumption against extraterritoriality and the effects test. It implicates at least a three-way circuit split on how the courts determine legislative (prescriptive jurisdiction).
"The amicus brief attempts to show how the D.C. Circuit's opinion has added confusion to the existing circuit split. It also suggests that the D.C. Circuit erred by disregarding the presumption against extraterritoriality. The brief argues that the effects test sets the outer limits, under international law, of Congress's legislative jurisdiction, but does not serve as a canon of construction that overrides the presumption against extraterritoriality. The brief highlights how assuming legislation applies extraterritoriality can cause harm and undermine the meaningful development of international law.
"Max Huffman and I have previously written about these issues. Max's excellent article on the Foreign Trade Antitrust Improvements Act can be found here. I have written two pieces on international law, the effects test, and extraterritoriality. They can be found here and here."
In a 7-2 decision, the Supreme Court held that yes - RICO association-in-fact enterprises require an "ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages, but no - "an instruction framed in this precise language is not necessary." (Boyle v. United States). In the first part of the decision, the Court looks are three questions - "First, must an association-in-fact enterprise have a 'structure'? Second, must the structure be 'ascertainable'? Third, must the 'structure' go 'beyond that inherent in the pattern of racketeering activity' in which its members engage?" The decision relies heavily on Turkette.
The Court held that an association-in-fact enterprise needs to have "three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose." But despite the Court stating that these three features are needed, it does not require that the jury be told many specifics. The Court found that the instruction given "properly conveyed the point [ ] made in Turkette, that proof of a pattern of racketeering activity may be sufficient in a particular case to permit a jury to infer the existence of an association-in-fact enterprise.
Such a group need not have a hierarchical structure or a "chain of command"; decisions may be made on an ad hoc basis and by any number of methods—by majority vote, consensus, a show of strength, etc. Members of the group need not have fixed roles; different members may perform different roles at different times. The group need not have a name, regular meetings, dues, established rules and regulations, disciplinary procedures, or induction or initiation ceremonies. While the group must function as a continuing unit and remain in existence long enough to pursue a course of conduct, nothing in RICO exempts an enterprise whose associates engage in spurts of activity punctuated by periods of quiescence.
It is easy to envision situations in which proof that individuals engaged in a pattern of racketeering activity would not establish the existence of an enterprise. For example, suppose that several individuals, independently and without coordination, engaged in a pattern of crimes listed as RICO predicates—for example, bribery or extortion.Proof of these patterns would not be enough to show that the individuals were members of an enterprise.
A two-person dissent (Stevens and Breyer) offers a more limited and structured view of what should be included within the word "enterprise." They state that "Congress intended the term 'enterprise' as it is used in [RICO] to refer only to business-like entities that have an existence apart from the predicate acts committed by their employees or associates."
"This Court should reverse and hold definitively that a RICO enterprise requires structure apart from a random association of individuals to commit crime. RICO did not and could not create a federal felony for “a pattern of racketeering activity.” If an alleged RICO enterprise need not have structure, then the statute’s explicit enterprise requirement is meaningless."
For background and commentary on this issue, see the prior post here.
Brian Leiter on his blog links to the May 28, 2008 appointment of Alan Michaels as Interim Dean at Ohio State. Michael's appointment results from Dean Nancy Rogers stepping down as dean to serve as the Interim Ohio Attorney General. It reminded me that Dean Michaels, who teaches white collar crime, has a link to a thoughtful podcast on his webpage that discusses the RICO decision - Wilkie, Charles, et al. v. Robbins, Harvey. Check it out here.
Although the Racketeer Influenced and Corrupt Organization Act (RICO), enacted in 1970, was focused on organized crime, its use in the white collar sphere is common. One finds RICO charges in many corruption and fraud prosecutions. The United States Supreme Court recently accepted on certiorari a RICO case that will hopefully resolve one of the nagging issues that pervades this area of the law. The Court, in the case of Boyle v. United States, will look at the issue: "does proof of an association-in-fact enterprise under the Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. §§ 1962 (c) - (d), require at least some showing of an ascertainable structure beyond that inherent in the pattern of racketeering activity in which it engages?"
The federal circuits have been all across the board on what is required for a 1961(4) enterprise. If it is a legal structure, person, or corporation, the process is easy. In this regard prosecutors have used an Office of a Governor, Prosecutor’s Office and other entities as the enterprise for a RICO prosecution.
Less clear is when the prosecution is premised upon "any union or group of individuals associated in fact although not a legal entity."
The Second Circuit has permitted prosecutions that have an "association-in-fact" form of enterprise that merely uses the predicate acts. Other circuits have required some "ascertainable structure." In some cases they require that the ascertainable structure be "distinct from the pattern of racketeering," with other cases looking at whether it is "an on-going structure."
Hopefully, the Supreme Court will offer some guidance on how to interpret this aspect of the RICO statute.
Since its passage in 1970, the Court has been reluctant to restrict the reach of the RICO Act. And although the statute has long left its initial roots as a tool to combat organized crime to become a statute that is regularly used by both prosecutors and civil litigants in common cases of fraud, the Court has reigned it in.
Even when interstate commerce was restricted in Lopez, the Court came back in the Robertson decision and held that RICO had an alternative way of proceeding - either "engaged in" or "substantially affect" interstate commence.
The two key cases that restricted RICO, H.J. Inc. v. Northwestern Bell Telephone Co. and Reves v. Earnst & Young, both were interpreting the statutory language.
The Court has ruled in several cases to restrict the constantly expanding mail fraud statute. Mail fraud is a commonly used predicate offense in RICO.
Although the Court often refers to common law concepts when discussing fraud statutes, it won't help the party being subjected to a RICO claim as the Court firmly notes that "Congress chose to make mail fraud, not common-law fraud, the predicate act for a RICO violation."
The Court sends a clear message to Congress that if you don't like this decision, then its up to you to correct it. And Congress may want to consider this challenge as this decision opens the door to increased civil litigation using RICO.
U.S. District Court Judge Amy St. Eve. narrowed the jury pool to twenty, from which a twelve-person jury with six alternates will be chosen to hear opening arguments on March 19 in the conspiracy, securities fraud, and RICO prosecution of Lord Conrad Black and three former senior executives of Hollinger International (now Sun-Times Media Group). The jury will have a blue-collar tint, according to an article in Canadian Business (here). Black's three co-defendants are John Boultbee, Hollinger's former CFO, former executive vice president Peter Atkinson, and former general counsel Mark Kipnis, and they have been largely ignored in the media's focus on Black. It will be interesting to see if they will present a united front at trial, and whether any (or all) will testify. While Black is reputed to have a rather imperial manner, little is known about the other three defendants, who may be able to connect with the jury better than the former CEO.
While Patrick J. Fitzgerald is busy prosecuting I. Lewis "Scooter" Libby, his office back home in Chicago filed its brief in the case U.S. v Ryan. Former Governor Ryan had been convicted of fraud and other charges (see here). The brief responds to defense claims including arguments that "[t]he district court properly dismissed two jurors and replaced them with alternates," the mail fraud "honest services" provision was not vague, and that the RICO charge was proper. In the last argument, the government claims that the State of Illinois can be a proper RICO Enterprise. Although this last point has been held acceptable by other courts, it raises interesting federalism concerns that may at some point be addressed by higher courts.
Former Illinois Governor George Ryan was sentenced to serve 6 and one-half years in federal prison for his convictions on corruption and RICO charges following a seven-month trial. The charges related to conduct when Ryan was the Illinois Secretary of State and involved gifts related to the issuance of drivers licenses and other government contracts. A number of former aides have been convicted, and Ryan received the same sentence as his top aide. The government sought a sentence within the Guidelines range of 8-10 years, and the defense argued for a 30-month sentence due to Ryan's poor health. Although U.S. District Judge Rebecca Pallmeyer did not impose the sentence called for by the Sentencing Guidelines, the term of imprisonment is significant and means that Ryan will not be released until he is at least 78 years old, assuming the conviction is upheld on appeal. A Chicago Tribune story (here) discusses the sentencing.
A judge of the Ontario Superior Court of Justice issued an order freezing the Canadian assets of Lord Conrad Black, former CEO of Hollinger International and a defendant (along with three other former Hollinger executives) in a federal court indictment charging fraud, conspiracy, and RICO related to transactions with the company. Black is out on a $20 million bond secured by a home in Florida and, more recently, $1 million in cash because of certain disclosure "problems" in his orignial bail application (see earlier post here). The order in the Ontario court arises from a civil suit in which Hollinger seeks repayment of approximately $700 million that it accuses Black of looting from the company, involving many of the same issues charged in the U.S. prosecution.
U.S. District Judge Gladys Kessler ruled in favor of the federal government in its massive RICO case against the tobacco companies alleging that they engaged in misleading conduct for decades as part of a broad conspiracy (U.S. v. Philip Morris USA, et al. here). The opinion may be nearly as dangerous to the environment as smoking, coming in at 1,653 pages, not counting the appendices, so that's a whole lot of trees. The table of contents alone is 29 pages, although there are only 58 footnotes.
[T]he Court is enjoining Defendants from further use of deceptive brand descriptors which implicitly or explicitly convey to the smoker and potential smoker that they are less hazardous to health than full flavor cigarettes, including the popular descriptors “low tar,” “light,” “ultra light,” “mild,” and “natural.” The Court is also ordering Defendants to issue corrective statements in major newspapers, on the three leading television networks, on cigarette “onserts,” and in retail displays, regarding (1) the adverse health effects of smoking; (2) the addictiveness of smoking and nicotine; (3) the lack of any significant health benefit from smoking “low tar,” “light,” “ultra light,” “mild,” and “natural” cigarettes; (4) Defendants’ manipulation of cigarette design and composition to ensure optimum nicotine delivery; and (5) the adverse health effects of exposure to secondhand smoke.
The Supreme Court reemphasized that private RICO claims must meet a fairly high standard of proximate causation if they will survive a motion to dismiss in its decision in Anza v. Ideal Steel (here). The civil cause of action granted under RICO is unique in federal law by providing private parties a means to recover treble damages plus attorney's fees for a claim based on conduct by defendants that can be shown to violate a variety of federal criminal laws, most importantly the mail and wire fraud statutes. The "catch-all" provision of RICO, Sec. 1962(c), arguably allows almost every business dispute to be turned into a RICO claim because the plaintiff only needs to show that the defendants conducted or participated in the conduct of the enterprise through a pattern of racketeering activity. Because the pattern requirement is fairly minimal -- only two illegal acts, one of which is within the past ten years -- a creative lawyer can make most contractual claims into possible RICO actions because there will be mailings, faxes, e-mails, and the like in most of them that can support a complaint.
The proper referent of the proximate-cause analysis is an alleged practice of conducting National’s business through a pattern of defrauding the State. To be sure, Ideal asserts it suffered its own harms when the Anzas failed to charge customers for the applicable sales tax. The cause of Ideal’s asserted harms, however, is a set of actions (offering lower prices) entirely distinct from the alleged RICO violation (defrauding the State).
Ideal accuses the Anzas of defrauding the State of New York out of a substantial amount of money. If the allegations are true, the State can be expected to pursue appropriate remedies. The adjudication of the State’s claims, moreover, would be relatively straightforward; while it may be difficult to determine facts such as the number of sales Ideal lost due to National’s tax practices, it is considerably easier to make the initial calculation of how much tax revenue the Anzas withheld from the State. There is no need to broaden the universe of actionable harms to permit RICO suits by parties who have been injured only indirectly.
The Court did not consider the application of the proximate cause analysis to a Sec. 1962(a) claim, which requires proof of different elements than Sec. 1962(c), and remanded the case to the Second Circuit to consider that claim.
In my view, the “antitrust” nature of the treble-damage provision’s source, taken together with both RICO’s basic objectives and important administrative concerns, implies that a cause is “indirect,” i.e., it is not a “proximate cause,” if the causal chain from forbidden act to the injury caused a competitor proceeds through a legitimate business’s ordinary competitive activity. To use a physical metaphor, ordinary competitive actions undertaken by the defendant competitor cut the direct causal link between the plaintiff competitor’s injuries and the forbidden acts.

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