Limit Use of RICO Law
WASHINGTON (AP) - The Supreme Court refused to bar use
of a federal anti-racketeering law against outside professionals accused of
conspiring with a business client to commit fraud even if they did not help
manage or operate the business.
The justices, acting without comment
Monday, let stand a federal appeals court ruling that gave a broad scope to
the conspiracy provisions of the Racketeer Influenced and Corrupt
court's ruling in January left a law firm and investment banking
firm potentially liable to investors who were defrauded out of millions of
dollars by a now-bankrupt Indianapolis company.
Firstmark Corporation is a holding company
whose subsidiaries engaged in various financial services. Beginning in the
mid-1980s, the financially shaky Firstmark allegedly sought to conceal its
condition by increasing the margin between the quantity of notes sold to
investors and those redeemed by investors.
As explained by the 7th U.S. Circuit Court
of Appeals, those involved in the scheme ``are alleged to have deceived
investors into purchasing new notes, rolling over current notes or
otherwise refraining from redeeming their notes.
``The result was an ever-growing pyramid
of debt that forced Firstmark into bankruptcy in 1988,'' the appeals court
said, with investors owed $57 million.
Many investors sued Firstmark and others -
including the underwriting firm Raffensperger, Hughes & Co. and the
Indianapolis law Barnes & Thornburg that had done work for
A federal trial judge
threw out the case against those two defendants, relying on a 1993 Supreme Court decision.
In it, the nation's highest court said the
RICO law cannot be used to sue outside professionals if they did not help
manage or operate an allegedly fraudulent business. The law, aimed
primarily at fighting mobsters, has both criminal and civil provisions. It
is considered a potent legal weapon because, unlike federal securities
anti-fraud laws, it offers successful plaintiffs triple damages.
The 7th Circuit court, however, reinstated
both firms as defendants and ruled that the 1993 Supreme Court decision
does not govern allegations against outside professionals filed under
RICO's conspiracy provisions.
be liable under those provisions, the appeals court said, ``one must
knowingly agree to perform services of a kind which facilitate the
activities of those who are operating the enterprise in an illegal
Its decision said an
illegal conspiracy ``is an agreement, not to operate or manage the
enterprise, but personally to facilitate the activities of those who
In the appeal acted on
Monday, lawyers for the law firm and underwriting firm said the 7th Circuit
court's ruling allows all RICO plaintiffs to circumvent the
liability limitation the Supreme Court imposed in 1993. ``It creates
civil and criminal liability where Congress has not imposed it,''
the appeal said.
The case is
Raffensperger, Hughes & Co. v. Brouwer, 99-1637.
For the appeals court ruling in Brouwer v.
Raffensperger, Hughes & Co.: http://www.uscourts.gov/links.html
and click on 7th Circuit.
The above was sent to
JAIL by Attorney Laura Burton, who says, "Ron, I'm seeing a
beautiful RICO case against the State Bar of Georgia. If I put this together, do
you have some legal minds to review it and advise? Laura
Attorney Burton is heading up our Georgia JAIL Chapter along with Kimberley
Brown. I ask those attorneys following JAIL, if you are in a position to
give Laura the assistance she needs in reviewing her RICO complaint against the
State Bar of Georgia, she many be reached at ljburtonjd@.... Our
thanks in advance.
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