Articles Posted in Civil RICO

My last article, dated Jan. 25, visited the RICO pleadings requirement in light of the class action RICO lawsuit filed against Harvey Weinstein. The Weinstein RICO action is brought under the most popular section—Section 1962(c). In the article, I discussed the stringent requirements of pleading and proving civil RICO claims and outlined some of the obstacles for plaintiffs.

The complexity with RICO (the Racketeer Influenced and Corrupt Organizations Act), however, does not end there. Almost all RICO lawsuits filed are brought under Section 1962(c) (note: violation under Section 1962(d) relating to conspiracy to violate a substantive section is routinely asserted whenever there is a violation of a substantive section). But, what about Sections (a) and (b)? Why are these sections rarely used? Is it because these sections are generally inapplicable? While the specificity of Sections 1962(a) and (b) compared to the breadth of Section 1962(c) is a reason these sections are not commonly used, it is also because they are more difficult to understand, and often misunderstood. In effect, these sections have become virtually forgotten. While many lawyers have an understanding—ranging from basic to advance—of Section (c), far fewer understand (a) and (b).

Pleading and Proving a RICO Violation Under Section 1962(a)— Investment of Income

Section 1962(a) is primarily concerned with money laundering activity. This section makes it unlawful for “any person who has received any income derived … from a pattern of racketeering activity … to use or invest … any part of such income … in acquisition of an interest in … any enterprise ….” Here, the RICO enterprise is the “prize” of the racketeers whereas the RICO enterprise is the “instrument” of the racketeers under Section 1962(c).

Section 1962(a) prohibits investing any income derived from a pattern of racketeering activity to acquire any interest in an enterprise. The section prohibits a person from using “dirty money,” for instance, to buy a membership interest in a legitimate business. As stated above, money laundering is typically the most common goal of the racketeers under this section. By investing dirty money into a legitimate business and, in turn, using the business to write checks to themselves (or affiliates), the racketeers complete the money laundering cycle.

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In the January 25, 2018 edition of The Legal Intelligencer, Edward Kang, Managing Member of Kang Haggerty, writes on How RICO Plays a Role in the World of Harvey Weinstein and #MeToo.

Overcoming Obstacles

Who in civil litigation does not love a good RICO claim? Its boundaries are seemingly endless, and in the case of Harvey Weinstein—perhaps one of the most vilified defendants on the planet right now—there is the possibility of catastrophic implications, as if being the face of an entire movement (#MeToo) is not bad enough.

Civil claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sections 1961-1968 (RICO Act), are highly desirable for plaintiffs and their attorneys because, if successful, they provide for treble damages, plus attorney fees and costs of litigation. Very few plaintiffs succeed on a RICO claim, however, so the decision to file one should not be made lightly. Many plaintiffs fail during the pleadings stage, and their claims are dismissed under Rule 12(b)(6). For defendants, like Weinstein, the possible implications of RICO can be disastrous. This potential implication is why defendants of civil RICO claims are eager to settle if the claim survives a motion to dismiss and shows a strong likelihood of surviving a motion for summary judgment. For example, in 2016, Trump University did just that—it settled a civil RICO suit for $25 million, which paled compared to its potential exposure of $170 million.

Background

The RICO Act was passed in 1970 as part of the Organized Crime Control Act of 1970 to combat large organized crime operations led by the American Mafia and their growing infiltration of legitimate businesses and organizations. Although the RICO Act was drafted to bring down gangsters, it is certainly not limited to that purpose and has evolved into a mechanism to confront business fraud and corruption over the last half-century. This is evidenced by the recent high-profile civil RICO lawsuit filed against Harvey Weinstein.

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