What Is Racketeering? What Does It Take To Be A Racketeer?
It does not take much these days. Most people are very surprised to learn what racketeering is or is not and what is involved with it. It is usually something legally that we attach to something else because of the legal definitions. To be a racketeer, you must commit a pattern of racketeering activity. So, we are going to discuss what a pattern of racketeering activity is and we are going to discuss, if you are a racketeer, what happens civilly and criminally. It has both civil aspects and criminal aspects. There is a federal racketeering statute and there is a state racketeering statute. Virtually every state has a racketeering statute. The federal racketeering statute is called RICO. That stands for Racketeering Influenced & Corrupt Organizations Act.
It was passed in the 1960s. Now, the Colorado Act, which I will use for some of my examples today along with the federal act, the Colorado Act has an acronym of COCCA (Colorado Organized Crime Control Act). In the 1960s after RICO was passed and litigation was started, people who were accused of it said, “I am not Mafia. This act was designed for the Mafioso and for really bad things like kidnapping and murder and extortion and interstate kidnapping along with a variety of things that are nasty”. It took 10 years for the Supreme Court to clear up that the racketeering statutes were far or broader than just meaning Mafioso. In the end, the US Supreme Court said, “Congress defined racketeering and racketeering activity and pattern of racketeering conduct. They defined it in the statute and we are bound by the words used by Congress”.
It turns out that people who never thought themselves as “Racketeers” found now that they could be a racketeer under these definitions. So, that is where we begin. So, I am going to draw on both the federal statute and the state statute. We are going to jump into each a little bit but then I am going to bring us right back out down to the things that I most frequently use when I bring a racketeering claim. A racketeering activity, federally, means any act or threat involving all kinds of things. Now, the long list of such activity starts with acts involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter or dealing in a controlled substance or listed chemical as defined in the controlled substances act as drug dealing, which is chargeable under state law and punishable by imprisonment for more than one year. It also means any act for which you could be indicted criminally under any of numerous provisions of the United States code. The list is over a page long.
The list includes theft from interstate shipments, embezzlement from pension and welfare funds, extortion of credit transactions, fraud and related activity, whatever that is, in connection with identification documents, fraud and related activity in connection with access, devices, transmission of gambling information and now we get to my favorites under United States Code Title 18, Section 1341, Mail Fraud, and section 1341 Wire Fraud. The list includes things like reproduction of naturalization or citizenship papers, offenses relating to the sale of naturalization or citizenship papers, false statements in the application and use of passport, the economic espionage and theft of trade secrets, activity relating to engaging in money transactions and property derived from specified unlawful activity.
White slave traffic is also in the list. I do not see here black or brown slave trafficking in the list in this statute but one has to dive deeper. Other offenses relating to biological weapons, chemical weapons, and nuclear material. There is another activity in the list that I like to use. That is fraud in the sale of securities. It generally excludes securities are a solely open market on a national exchange or a regional exchange with some exceptions perhaps if you are gaining control of the company by it. Any act which is indictable under Currency & Foreign Transaction Reporting Act, money laundering, all kinds of things. So, it covers all kinds of activity. Let’s talk about fraud by wire and fraud by mail because these two items and securities fraud is what I most frequently see and encounter. This is attendant to someone engaging in fraudulent activity in some manner. When someone commits a fraud, usually it is not a one-time act.
It seems, at least in my experience and the people I go after and get recoveries from, to be a habitual act, a repeated act. So, when I go to United States Code §1543 Fraud By Wire, Radio Or Television; it states:
- Whosoever having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years or both.
This must be very serious: 20 years, if convicted criminally.
The federal RICO statute and state statutes have both a criminal component and a civil component. The civil component makes available a private right of action if you have been affected by this. We do not have to have a criminal conviction. When I read these definitions a little earlier to you, I said the wrongful acts are indictable, meaning they could be indicted. It does not mean I have to have been indicted or that I have to have been convicted or that I had pled guilty or I had to get a no-lo plea or any of that. It means it could have happened. To be convicted criminally, of course, takes a burden of proof of beyond a reasonable doubt. But that is not the case on the civil side. Under the federal statute on the civil side, I just have to prove you violated that criminal statute by a preponderance of the evidence, a feather’s weight of difference in the evidence. So, if it looks like fire, smells like fire and there is a lot of smoke, guess what, there is probably fire. Just a feather’s weight of difference in the evidence is all that is needed.
For the state statute. at least in Colorado, we must show a middle ground of clear and convincing evidence, less than beyond a reasonable doubt, but more than the feather’s weight of difference.
Say I send an email to you, and that is part of our dealings about the money you are going to send me or the investment you are going to make or whatever it is that is going on. Guess what? That is a wire into interstate commerce. If I am communicating about our dealings on Facebook or Twitter or cellphone calls or an SMS text message, they are all wire transmissions in interstate commerce. To move the money, if I wire-transfer it through my bank, that too is a wire in interstate commerce unless you get carried away and say, “We are both in one state, so it’s not interstate”. Well, there is a body of case law that covers that and says, “Yes, but you used instrumentalities of interstate commerce to effectuate the scheme and so, we are still going to come after you”. Now, you can start to see how easy it is to get caught up in racketeering.
Let’s talk about mail fraud, 18 United States Code §1341. There is nothing new about any of this stuff. The statute says:
- Whosoever having devised or intending to devise any scheme or artifice to a defraud or for obtaining money or property by means of false or fraudulent pretenses, representations or promises or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited in any manner or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, or causes any such matter to be knowingly delivered by mail to such carrier… shall be fined under this title in prison not more than 20 years, or both.
This covers the use of snail mail and it also covers FedEx, UPS and similar private carriers. So, if I actually sent you something, the chances are pretty good I used such carrier or the post office. If I am doing it as part of something that is fraudulent in some way, you will implicate this mail fraud statute.
So, doing it once does not get you there. You must show in general a pattern of racketeering conduct. The definitions are a little different under the federal statute and the state statute. Federal statute says a pattern of racketeering activity requires at least two acts of racketeering activity and that is enough is enough or sending two emails as part of one transaction is enough, one of which occurred after the effective date of this law and the last of which occurred within 10 years excluding any period of imprisonment in case you were not out here engaging in racketeering activity after the commission of a prior act of racketeering activity. In other words, the time you are in jail will be excluded as you were on proverbial vacation for a while at government expense and then came back, then we will adjust the time. So, that is a federal definition.
The state definition of pattern of racketeering activity means engaging in at least two acts of racketeering activity, which are related to the conduct of the enterprise at least one of such acts occurred after July 1, 1981; every state is a little different and if the last of such acts occurred within 10 years excluding any period of imprisonment after a prior act of racketeering activity.
Now, we heard the word “enterprise”. So, what is an Enterprise? Because what is legal is to commit these acts as part of a pattern of racketeering activity. People usually do it through their interaction with an enterprise. An enterprise includes any individual, partnership, corporation, association or other legal entity and any union or group of individuals associated in fact although not a legal entity.
Well, it is also illegal under these acts to engage in a conspiracy to violate these acts. A conspiracy, in general terms, means an agreement between two or more people to commit an illegal act. That is one of the broader definitions. So we can get people who do not look like they are all part of the same organization but because they act in concert with each other to a common end or they have benefits or a variety of relationships with each other, we say you are part of an enterprise designed to rip people off through performing these Predicate Acts. That is what we call this whole list of violations I have been discussing, they are called Predicate Acts. One of the fun parts of assembling and prosecuting one of these cases is that the plaintiff and the prostitution has great leeway in how they define the enterprise because it is often not clear in the beginning and it takes a lot of discovery and there is very liberal discovery because of the nature of the claims and the nature of the factual inquiry. So, I have to show a pattern of racketeering activity. The prohibited activities become a little different.
The prohibited activities, in general, are along these lines. It is unlawful for any person who knowingly has received any proceeds derived directly or indirectly from a pattern of racketeering activity or through the collection of an unlawful debt to use or invest, whether directly or indirectly, any part of such proceeds, or the proceeds derived from the investment or use thereof (i.e., like the children and the grandchildren of your illegal investment) in the acquisition of any title to, or any right, interest or equity in, real property or in the establishment or operation of any enterprise. It is unlawful for any person, through a pattern of racketeering activity to knowingly acquire or maintain, directly or indirectly, any interest in or control of any enterprise or real property. I am working on a case right now that is becoming international racketeering case. It did not start out that way but it is now.
In this case, are up to some 50 entities in the enterprise and we are in the process of collapsing them all down to just a tiny little group. So, it is also unlawful for any person employed by or associated with, any enterprise to knowingly conduct or participate, directly or indirectly, in such enterprise through a pattern of racketeering activity. It is unlawful for any person to conspire or endeavor to violate any of these provisions I have been talking about. So, there is more detail; but in general, for an introduction to the subject, I think this is a fair introduction.
So, why is all this matter? You may ask, “What does it mean for me?” It means treble damages and stronger enforcement measures.
If you come to me with a final money judgment of $1 million or more and all you want is for me to turn it into money, that is fine.
But you may come to me and we see that the debtor is moving those assets or moving those moneys around through his or her or its shenanigans partnerships, corporations, trusts, LLC’s, and family members and friends and just creating a moving target that is just so hard to keep track of. The guy who took your money has nothing but he claims he controls everything or it appears to be so. Well, if that is the situation you present to me, I immediately think of these racketeering statutes because the conduct you are describing has a high probability of being part of the pattern of racketeering conduct. If I can show that, there are several interesting things that happen. I can bring a civil action. I usually couple it with an action to collect your judgment where we start after a particular asset in the hands of some third-party or entity and we say, “That was a fraudulent conveyance”, and we get the asset and we also get to impose liability against the person holding the assets. I also say, “Hey, this is part of a pattern of racketeering activity”.
If I show that on the civil side, your damages are automatically trebled. You get trebled damages. So, if he ripped you off for a million, all-of-a-sudden it goes to 3 million, plus attorney’s fees, plus interest. The guy is also now known as a racketeer. I do know a few racketeers who just are not bothered by the label. It’s like water off the duck’s back, but most people are more likely to understand that it is going to be very harmful to me professionally or in business if anyone knows about it.
These days we have Facebook, internet, social media, etc. I suspect they are all going to know about it because it is all in open courts. Now, the flipside of that is you get principled people or people in denial of what they have done, you say, “I am not a racketeer, I am going to fight you till the ends of the earth to get rid of this and prove my innocence or that I am not liable for this.” Well, that is why we have courtrooms and that is why we have trials. But there are several other things that go along with this statute that a judge can impose. He can impose reasonable restrictions on the future activities or investment of any of the defendants, any of the guys doing the racketeering, including but not limited to prohibiting them from engaging in the same type of endeavors in enterprise in which he was engaged in violation of law.
A judge can say “I am going to prohibit you from engaging in this kind of business in the future. You just cannot do it. You would have to find something else to do.” Sophisticated white-collar financial crime covers a wide swath of activities that can be covered by such a court order. The judge can order the dissolution or reorganization of any enterprise. “Okay, we are going to break it up”, the judge can order the suspension or revocation of any license or permit to any enterprise that is involved. The judge can order the forfeiture of a corporation or LLC or other entity under certain conditions. All property, real or personal, including money, used in the course of, intended for use in the course of, or derived from, or realized through, conduct in violation of these statutes is subject to civil forfeiture to the state. The state shall dispose of all forfeited property as soon as commercially feasible.
On the civil side in relation to that, in addition to a person injured by reason of the violation of the frauds, in addition to a private cause of action, if the judge orders a forfeiture, any injured person shall have a right or claim to the forfeited property or to the proceeds derived from the forfeited property superior to any right or claim the state may have in the same property or the proceeds.
There are some more details, a few other tools in there but once you really get going in a case and you can educate a defendant and the defendant’s attorney sufficiently, the creation of the additional exposure will oftentimes, but not always, help induce a reasonable settlement. Now, when you are unable to reach a settlement, that is why we have courtrooms, the judges and trials. Then, you just try the case to verdict.
No lawyer wins every case, and it is hard to get to trial. The courts really pressure people to settle. A fair settlement is better than a good case any day. Yet, plenty of cases do get tried. By the time you do the work to put one of these together, all that is left is the fun part of what happens in that courtroom because courtrooms are inherently places of uncertainty. It is just the way they are. That is just how it works.
If I Obtain A Judgment Against A Defendant Under RICO, What Prevents The Defendant From Declaring Bankruptcy And Having The Judgment Discharged?
There is nothing that prevents a defendant at any time in life from declaring bankruptcy and seeking to have any judgment discharged. The question is, will that be successful? There are all kinds of grounds upon which you may bar a debtor in bankruptcy from discharging either a particular debt, namely the one he owes to you Or, you can bar a debtor under certain circumstances from discharging any and all debt. The interplay of those two things is a matter of strategy and tactics as well as an assessment of the facts and the law. In general, the type of RICO claim, with which I am involved, involves one form or another of fraud. In general, fraudulent activity of specified types under certain circumstances can be barred or the judgments that have arisen from that activity can be barred from being discharged in bankruptcy.
But you would have to bring an adversary proceeding inside the bankruptcy as a separate lawsuit to be filed within the bankruptcy court for that determination. My answer is not meant to say that any RICO or state court similar statute would so qualify for being barred from discharge in bankruptcy dealing here principally with the items I have spoken about elsewhere, not in these videos, principally arising from mail fraud, wire fraud, and securities fraud. But there are other activities that the statutes encompass like illegal possession of firearm, exposing incendiary devices, all kinds of things. Money laundering would probably qualify depending on the facts and circumstances because there is probably going to be some fraud involved of the type that the bankruptcy code discusses.
That is where you have to look to see what types of fraud would be barred from discharge but it isn’t an automatic ticket just because he or she or it has decided to file for bankruptcy protection. They do not automatically get that pass that says you are out of here Scott-free and you do not have to pay this anymore. It can be prevented under a variety of circumstances.
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