Showdown At Gucci

By Alain L. Sanders

When Congress adopted an obscure antiracketeering law in 1970, it seemed to target a particular kind of criminal: the old-school gangster wearing a fedora and a bulging shoulder holster. Nowadays, however, when federal prosecutors trigger the Racketeer Influenced and Corrupt Organizations Act, their sights are often set on a very different sort of defendant: a wealthy professional in designer pinstripes and Gucci loafers. In the nearly 20 years of its existence, RICO has evolved beyond its Mob-busting origins to become a powerful legal weapon against the upper reaches of white-collar crime. And because of its broad civil provisions, the statute has also become a tool for transforming common commercial and business disputes into major, expensive racketeering lawsuits.

Recently, few have felt the sting of RICO as much as the denizens of Wall Street. Federal prosecutors have used the law to go after big names like former junk-bond maestro Michael Milken, who is expected to be tried early next year on charges involving securities fraud. Two weeks ago, several executives of Princeton/Newport Partners were convicted for their roles in illegal stock-trading schemes. Two days later, the Justice Department indicted 46 traders at the Chicago Board of Trade and the Mercantile Exchange, 18 of them on RICO charges. And just last week the law was used to convict E. Robert Wallach, a longtime friend of former Attorney General Edwin Meese, of accepting illegal payoffs to influence Government officials in the Wedtech Corp. corruption case.

Critics blast RICO for the seemingly catchall provisions of both its criminal and its civil arms. "It's legislation on the cheap," says Harvard law professor Alan Dershowitz. "It's an attempt to use one statute to solve all the evils of society." Others say the law is a good example of justice made blind. Government investigators indicate that, as originally intended, RICO has significantly dented the operations of organized crime. But Notre Dame law professor G. Robert Blakey, one of its main drafters, insists that Congress never intended to restrict its application to the Mob. "We don't want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas," he says.

RICO gives law enforcers extraordinary latitude because it focuses on patterns of criminal behavior rather than on individual crimes. It can target anyone involved in an "enterprise" that engages at least twice a decade in any of a broad range of criminal activities, from murder and extortion to mail and wire fraud. The law authorizes heavy prison sentences and carries a powerful economic punch. Convicted defendants must forfeit all their ill- gotten gains, including all "proceeds" from the enterprise.

Such punishments can sometimes be draconian. Gas-pump owner Oscar Porcelli, for example, faces the prospect of losing his string of New York gas stations for a RICO conviction stemming from sales-tax evasion. "He made a mistake, but not a mistake that should warrant shooting him with a cannon," says his attorney, Vivian Shevitz.

The economic penalties of the law can squeeze some defendants into plea- bargain agreements. Threatened by a RICO indictment and its sweeping forfeitures, the investment-banking firm of Drexel Burnham Lambert pleaded guilty to lesser charges last year and was hit with $650 million in penalties. Equally troubling to RICO targets is the law's ability to seize temporarily the assets of an accused before a trial begins -- even funds that would be used to pay a defense attorney. "Suddenly, there are a lot of born-again civil libertarians on Wall Street," says Michael Waldman, legislative director for Public Citizen Congress Watch.

Although civil RICO lawsuits total less than half of a percent of the federal civil caseload, the statute's civil provisions draw some of the heaviest fire. "The imaginations of prosecutors in drafting RICO indictments are at least restrained by the Justice Department," explains University of Texas law professor Michael Tigar, "but the imaginations of plaintiffs' lawyers are not similarly restrained." What encourages the creativity, says critics, is the possibility of obtaining treble damages and the enormous leverage of labeling an opponent a "racketeer." The result has been a widening array of civil RICO lawsuits, from common commercial litigation to provocative political disputes. The law has been invoked by victims of sexual harassment against their bosses, by tow-truck drivers against local sheriffs and by whistle-blowers against their employers. Earlier this year, a federal appeals court upheld the use of RICO by a Philadelphia abortion clinic against 26 right-to-lifers who forced their way into the building, castigated patients, knocked down workers and damaged equipment.

This June, for the second time in four years, the U.S. Supreme Court refused to narrow the sweep of civil RICO, preferring to leave the matter to Congress. Not surprisingly, that ruling recharged ongoing legislative efforts to reform RICO's civil provisions. Among the broad coalition pressing for changes are some of the very groups that have recently attracted the attention of prosecutors: accountants and securities and commodities dealers. Says Waldman: "It's a combination of The Untouchables and Showdown at Gucci Gulch." The congressional shoot-out to determine what happens to RICO could come this fall.

With reporting by Priscilla Painton/New York