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Sunday, February 13, 2011

RICO: Prosecutors' Tool or Enemy of Capitalism?

The mainstream media is looking for news to cover, and is hoping that some recent comments by Manhattan's U.S. Attorney Preet Bharara signal a new wave of innovative prosecutions of wayward hedge funds and other businesses.

Note the difference.  Prosecutions of the business entities themselves would be the objective of these supposedly-new applications of existing laws.  Investigatng (but not necessarily prosecuting) individuals involved would be a secondary objective, and necessary only to get the requisite cooperating witnesses, and hopefully ones who have some credibility and character (unlike New Jersey's uber-criminal Solomon Dwek).

This Sunday news article is really not news.  Prosecutors think of new applications for existing laws all the time.  This is only getting noticed now because insider trading has become noticed, and because losers in the stock market have been complaining (not that there's anything wrong with that).  The general public should welcome this trend as a sign that our prosecutors have become less chummy with big business -- in other words, the people who could become future employers of these prosecutors once they get tired of making, at most, about $160,000 at the top of the federal pay scale.

RICO has been around for decades.  If it hasn't been used more, that's most likely a sign of the strength of the evidence in those cases and ability to use more directed statutes covering substantive crimes.  Prosecutors can and should bring cases using the strongest statutes that make it the easiest to prove a crime was committed.  That is, after all, their job.

It would be nice to see more cases involving the use of the conspiracy statute to go after wanton obstruction of justice.   There remain far too many people -- young hotshots and old codgers alike -- who lie, cheat and steal with absolute impunity.  

While I refrain from giving legal advice in any article, I will note that one cannot make a false statement if one never talks.  Remaining silent -- whether you assert your rights under the Fifth Amendment or simply elect to not talk as a strategic course of action -- may expose you to snickers from the press, neighbors and other people (none of whom have your best interests at heart, incidentally).  But the mere act of talking may expose you to some risk of prosecution -- and ultimately, of incarceration -- if the prosecutors and investigators are not acting in good faith and instead are adopting that old Soviet philosophy of "show me the man and I'll show you the crime."

Sometimes it's better to suffer a reputational risk, than to expose oneself to actually being prosecuted by very ambitious, headline-seeking prosecutors.  Go ask Barry Bonds or Roger Clemens (both facing upcoming trials for perjury).

On the other hand, some commentators are correct that society and business have become too overcriminalized, leading to entirely innocent people getting ruined or damaged, or facing the threat of reputational and financial ruin.  (See earlier articles on the late Senator Ted Stevens, noted Miami lawyer Ben Kuehne, former CEO David Stockman and former Reagan Administration Labor Secretary Raymond Donovan). 

There is always the risk that the multitude of criminal statutes on our books will trip up unsuspecting business owners.  It certainly seems as if the recent insider trading prosecutions are meant to go after not just wayward hedge fund managers and corporate tippers, but an entire way of doing business (that is, using these "expert networks" that appear to do little but trade in what is arguably, non-public, "material" information) and quite possibly, the "hedge fund industry" as a whole.

The problem with these prosecutions and investigations is that innocent people, with every desire -- and motivation -- to obey the law, are still at risk of an erroneous investigation.  There is no bright-line definition of what is "material" information.  Hence, the decision to charge someone (either civilly or criminally) with an insider-trading crime or violation remains largely arbitrary, discretionary...and subject to abuse.

Eric Dixon is a New York lawyer.  This article is opinion only and is not legal advice.  Mr. Dixon consults with clients facing investigations, lawsuits and prosecution on litigation stress management, assertiveness training and other techniques for coping with the burden of such potentially life-altering legal matters.  Mr. Dixon is available for consultation at 917-696-2442 and may be reached by e-mail at


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