Private Cause of Action Exists for RICO Criminal Violations Description Supreme Court held that if a party rigged

a public bidding process, thereby

causing competitors to lose prospective business, the losers had a private right of action to sue under RICO. The party that rigged the bidding process was accused of engaging in mail fraud, a criminal offense, which could give rise to the suit.

Topic Key Words

Criminal Law RICO; Private Right of Action; Mail Fraud

CASESUMMARY

Facts

Cook County, Illinois, holds public auctions to sell tax liens on properties of delinquent taxpayers. Winning bidders give the property owner the chance to pay the back taxes, plus a penalty. If the taxpayer does not pay the taxes, the bidder then owns the property and sometimes sells it for a significant profit. To prevent one buyer from getting control of the process, the rules require each buyer to submit bids only in the real name of the buyer, not use hidden agents. Bidders must swear they are abiding by the rules. Phoenix Bond complained that Bridge had fraudulently obtained properties by violating the bidding rules. He used secret agents and lied on affidavits sent to the county that stated he did not do so. This allowed Bridge and his compatriots to gain more property at lower prices than should have been the case. Suit was brought for violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). It provides a private right of action for treble damages to any person injured in his business or property by reason of a violation of the Acts criminal prohibitions. The district court dismissed the suit for lack of standing. On appeal, the Seventh Circuit Court of Appeals reversed, holding that the bidders did have a cause of action based on RICO. Bridge appealed. Affirmed. A plaintiff asserting a RICO claim based on mail fraud, as here, need not show, as an element of the claim or as a prerequisite to establish proximate cause, that it relied on defendants alleged misrepresentations. Mail fraud occurs whenever a person has devised a scheme to defraud and used the mail to help execute the scheme. The fact that Phoenix Bond and other bidders may not have relied on paperwork sent by Bridge and others to the County does not mean they were not injured by such paperwork, as that was at the heart of the scheme to execute the improper bidding scheme. A person can be injured by reason of mail fraud even if he has not relied on any misrepresentation. Here, Phoenix Bond has shown that by violating the bidding rules, Bridge could have imposed real harm due to Phoenix Bond losing out on liens it may otherwise have won in the bidding process.
Bridge v. Phoenix Bond & Indemnity Co., 128 S.Ct. 2131 (Sup. Ct., 2008)

Decision

Citation

Company May Be Convicted for Illegal Acts of Its Officers Description Appeals court affirmed the conviction of corporate officers and the liability of
their employing corporation in an effort to bribe the leader of a state legislature to secure passage of legislation favorable to company interests.

Topic Key Words

Criminal Law Fraud, Conspiracy, Bribery, Public Officials, Corporate Liability

CASESUMMARY

Facts

LPRI operated a gambling facility and dog track in Rhode Island. It was owned by Wembley, a British company. Bucci was the general manager of LPRI; Potter was CEO of Wembley. They were convicted of hiring the McKinnon law firm to pay John Harwood large sums of money to influence state legislation beneficial to LPRI. Harwood was speaker of the Rhode Island House of Representatives and a member of the McKinnon firm. Bucci was sentenced to 41 months in prison, Potter to 36 months, and LPRI was fined $1.5 million. They challenged the sufficiency of the evidence and the ability to convict the firm for misdeeds of its manager. Affirmed. Defendants were found guilty of violating the federal statute that makes it illegal to devise any scheme, in interstate or foreign commerce, that involves fraud that deprives citizens of their officials' honest services. Evidence was sufficient to show that Bucci got an agreement from Potter to pay a $1 million bonus to McKinnon if Harwood got legislation passed that would help LPRI's gambling interests. The payments were called "retainers" to the law firm but payment was based on passage of beneficial legislation. Even if the scheme is not successful, it is illegal to attempt to secure favorable legislation based on promised payments to legislators. A corporation may be held liable for the criminal acts of its agents so long as those agents are acting within the scope of employment. U.S. v. Potter, 463 F.3d 9 (1st Cir., 2006)

Decision

Citation

Criminal Charges May Be Based on Adding Losses Inflicted on All Victims Description Utah high court held that fraud over a period of time to get money from victims
who fell for the scam was one scheme, and the losses could be added together to impose a harsher felony conviction.

Topic Key Words

Criminal Law Scheme; Fraud; Felony; Misdemeanor

CASESUMMARY

Facts

Over three months, Bradshaw targeted and then defrauded 14 persons of about $500 each in a scheme where he claimed he would help the victims get better mortgages. The state charged Bradshaw with 11 counts of second degree felony communications fraud because it considered the acts to be part of a single "scheme" that added up to over $5,000 in losses. The trial court agreed that there was one scheme that exposed Bradshaw to conviction for 11 felonies, despite the fact that each victim's loss individually would have been a misdemeanor. Bradshaw appealed, contending that there was no "scheme" and that the charges should have been a misdemeanor for each victim. The appeals court agreed with him; the state appealed. Reversed; the trial court's interpretation was correct. A "scheme" in the communications fraud statute refers to the overall design to defraud one or many by means of a common plan or technique. The acts must share a sufficient number of common elements to permit a reasonable person to conclude that they were part of a single criminal design. A series of acts aimed at obtaining one criminal objective constitutes a single scheme. For the purposes of determining the degree of the offense, the amount of monies obtained may be aggregated. State v. Bradshaw, --- P.3d --- (2006 WL 3820468, Sup. Ct., Utah, 2006)

Decision

Citation

RICO Claim Must Show Proximate Cause of Injury Description Supreme Court held that even if a company engaged in behavior that could be a
RICO violation, the parties who are the direct victims of the illegal activity have a cause of action, not those who cannot show proximate cause of losses alleged to have resulted from the illegal behavior.

Topic Key Words

Criminal Law RICO, Tax Evasion, Business Loss

CASESUMMARY

Facts

National Steel and Ideal Steel were direct competitors. Ideal sued, claiming that National failed to charge New York sales tax to cash-paying customers, allowing it to reduce prices without losing profits. Ideal also claimed that National filed false state tax returns, which involved committing mail and wire fraud, both forms of racketeering activity under the Racketeer Influenced and Corrupt Organizations Act (RICO). Ideal claimed that these actions by National caused Ideal to lose customers to National and to lose profits. The district court dismissed the suit, finding that Ideal was not in reliance of the false information provided by National, so had no basis for the suit. The appeals court reversed, holding that RICO could be the basis of a claim for loss of competitive advantage due to a racketeering scheme. National appealed to the Supreme Court.

Decision

Reversed. Ideal cannot maintain a RICO claim. There must be proximate cause between the injury asserted and the injurious conduct alleged. The victim of the alleged RICO violation is the State of New York, not Ideal. Ideal claims it lost sales because of Nationals lower prices, but National could have lowered prices for reasons unrelated to the tax fraud. The link between Ideal and National is too weak to support the suit. A RICO plaintiff cannot circumvent the proximatecause requirement simply by claiming that the defendants aim was to increase market share at a competitors expense. Anza v. Ideal Steel Supply Corp., 126 S.Ct. 1991 (Sup. Ct., 2006)

Citation

Book Authored by Defendant May Be Used in Evidence against Him Description Appeals court upheld a conviction for fraud. To bolster the case against
defendant, a book he authored that described the fraud could be used as evidence to show that he understood the scheme very well.

Topic Key Words

Criminal Law Bank Fraud; Mail Fraud; Evidence; Prejudice

CASESUMMARY

Facts

Fraser wrote a book, The Birth of a Criminal, under the name Asante Kahari. The book describes the exact counterfeit-check scheme Fraser was convicted of performing. The book was used as evidence at trial. Fraser appealed the conviction, contending that it was reversible error for the trial court to admit portions of the book into evidence and caused the jury to be prejudiced. Affirmed. The book was properly admitted as evidence to help establish the defendants guilt. There was no question the defendant authored the book; it served, with other evidence, to rebut the defendants contention that he did not understand the fraud scheme that occurred. The value of the book as evidence outweighs the risk of prejudice. U.S. v. Fraser, 448 F.3d 833 (6th Cir., 2006)

Decision

Citation

Seller of Unregistered Securities Must Know They Were Subject to Registration Description California high court held that a person charged with selling unregistered
securities has an affirmative defense that he believed the securities were exempt from registration and the jury should have been so instructed.

Topic Key Words

Criminal Law Securities; Registration; Sale; Knowledge

CASESUMMARY

Facts

Salas was charged under California law with selling unregistered securities. He claimed he believed that the securities were exempt from registration. The trial judge instructed the jury that good faith belief was irrelevant to criminal culpability and Salas was convicted. The appeals court held that guilty knowledgemeaning knowledge of the securitys nonexempt status or criminal negligence in failing to determine its statusis an element of the crime of selling an unregistered security. It concluded the trial judge instructed the jury improperly but the error was harmless to Salas. He appealed. Reversed. Knowledge that a security was not exempt is necessary for a criminal conviction. Lack of knowledge that a security is not exempt is an affirmative defense. A defendant is not guilty of the crime of selling an unregistered security if there is a reasonable doubt whether the defendant knew the security was not exempt from regulation or was criminally negligent in failing to know that it was not exempt.
People v. Salas, 38 Cal.Rptr.3d 624 (Sup. Ct., Calif., 2006)

Decision

Citation

Conviction for Conspiracy Does not Require Proof of Action Conspired Description Supreme Court held that a conviction for money laundering could be based on a
conspiracy to engage in that act. Under federal law, the penalty can be the same for conspiring to launder money as to actually commit the overt act of money laundering.

Topic Key Words

Criminal Law Conspiracy; Proof; Overt Act; Money Laundering

CASESUMMARY

Facts

Whitfield and others were convicted under federal law of conspiracy to launder money as part of a scam known as Greater Ministries International Church (GMIC). It took in more than $400 million over four years. Investors were promised double their money back, but the funds disappeared. Defendants appealed, claiming that to be convicted, there had to be proof of an overt act in furtherance of the money laundering conspiracy. The trial court and appeals court held that was not the case; defendants appealed.

Decision

Affirmed. The Money Laundering Control Act of 1986 penalizes the knowing and intentional transportation or transfer of money from specific illegal activities. A 1992 amendment says "Any person who conspires to commit any offense defined in [the money laundering law] shall be subject to the same penalties." The language of the statute does not require an overt act of money laundering to be convicted of conspiracy to engage in money laundering. Whitfield v. U.S., 125 S.Ct. 687 (Sup. Ct., 2005)

Citation

Federal Arson Jurisdiction Did Not Cover Arson on State Lands Description Federal court dismissed an indictment against a confessed arsonist who set grass
fires that were suppressed by the U.S. Forest Service. Since all of the fires had been set and burned on state land, not federal land, federal criminal law did not apply to the actions.

Topic Key Words

Criminal Law Federal Jurisdiction; Arson; Forests

CASESUMMARY

Facts

Grant, a volunteer fireman, set nine separate grass fires in Montana during the dry summer of 2003. All fires were set on state lands, but the Forest Service is the primary responder for fires in the area in question. One fire was only a few feet from federal land, but did not touch federal land. Grant pled guilty to willfully setting fires on the public domain. When he appeared for sentencing in federal court, he raised the question of whether the federal government had jurisdiction over the crimes. Indictment dismissed. The federal court has no jurisdiction over such arson. Even though the management of fires was under federal supervision, and the federal government incurred costs in fighting the fires, the fires were all on state-owned land. Federal law did not specify that the act of setting fires on non-federal land, that did not injury federal land, could be subject to federal criminal law.

Decision

Citation

U.S. v. Grant, --- F.Supp.2d --- (2004 WL 1123829, D. Mont., 2004)

Corporation and Employees May Face Criminal Charges for Bringing Illegal Aliens to the Country for Work

Description Trial court held that a corporation and its employees could face criminal charges
for helping to bring illegal aliens into the country to work and for helping them to obtain illegal Social Security cards. They could not be charged with illegally providing identification cards, as Social Security cards are not clearly recognized as such.

Topic Key Words

Criminal Law Immigration; Illegal Aliens; Identification Documents; Vicarious Liability; Lenity
CASESUMMARY

Facts

Tyson Foods and some of its employees were charged with criminal violations for misuse of official documents for immigration purposes and for transporting illegal aliens to the U.S. for commercial advantage. Defendants moved to have the charges dismissed, contending that the statute prohibits misuse of identification documents, which does not specify Social Security cards to be such a document. Because the statute and its legislative history is unclear, under the rule of lenity, a criminal statute is not to be enforced if its meaning is ambiguous. That is the case here, as Social Security cards are not always recognized as identification documents. So that charge is dismissed. However, the charge that defendants illegally helped in obtaining illegal Social Security cards may proceed, as may the charges that defendants aided in bringing and transporting illegal aliens into the country for commercial gain. The rule of vicarious liability would allow such charges to be brought against the principal and its agents.
U.S. v. Tyson Foods, Inc., 258 F.Supp.2d 809 (E.D. Tenn., 2003)

Decision

Citation

Conviction Must Be Based on Violating the Letter of the Law Description The Supreme Court held that Pennsylvania violated the Due Process Clause by
imprisoning a person despite the fact that, as the Pennsylvania supreme court later recognized, the letter of the law was not violated. The intent of the law may have been violated, but that is not sufficient for a criminal conviction.

Topic Key Words

Criminal Law Due Process; Beyond a Reasonable Doubt

CASESUMMARY

Facts

Fiore obtained a permit, as required by Pennsylvania statute, to operate a hazardous waste facility. Later, the state prosecuted Fiore for operating the facility without a permit, arguing that he had deviated so dramatically from the terms of the permit that it was the same as if he operated the facility without a permit. Fiore was imprisoned. The Pennsylvania supreme court upheld the conviction. Later that court reviewed an identical conviction of Scarpone, Fiore's partner at the facility, holding that to operate a facility improperly with a permit was not the same as operating a facility without a permit. Fiore then appealed to have his conviction set aside on the basis of the interpretation of the statute in the Scarpone case. The Pennsylvania courts refused the appeal, so Fiore brought a federal habeas corpus action. The federal district court granted the writ, but the federal court of appeals reversed, holding that "state courts are under no [federal] constitutional obligation to apply their decisions retroactively." Fiore appealed. Reversed. According to the Pennsylvania supreme court, the Scarpone case "merely clarified" the statute that required a permit and was not new law that presented an issue of retroactivity. "Fiore's conviction and continued incarceration on this charge violates due process. We have held that the Due Process Clause of the Fourteenth Amendment forbids a State to convict a person of a crime without proving the elements of that crime beyond a reasonable doubt. In this case, failure to possess a permit is a basic element of the crime of which Fiore was convicted. And the parties agree that [Pennsylvania] presented no evidence whatsoever to prove that basic element." Since Fiore had a permit, he could not have violated the statute in question.
Fiore v. White, 121 S.Ct. 712 (Sup. Ct., 2001)

Decision

Citation

Interest May Be Added to Restitution Payment Owed by Thief to Victim Description Appeals court held that while the Kentucky statute on restitution to victims of
crime did not address the issue of interest payments on the sum due, it was logical that interest be included in the restitution payments in order for victims to be made whole in their recovery.

Topic Key Words

Criminal Law Restitution; Damages; Interest Payment

CASESUMMARY

Facts

The Hearns pled guilty to felony theft for having stolen more than $300,000 from a public school in Kentucky, where Patricia Hearn was a superintendent. They were sentenced to 10 years in prison, but the sentence was probated on the condition of restitution of the money. The state requested that the Hearns also be required to pay interest on the money, but the trial court held that it did not have authority to order interest to be paid on the stolen funds. The state appealed.

Decision

Reversed. Restitution is a condition of probation in Kentucky. The statute dealing with restitution does not say anything about interest payments. "All statutes are to be liberally construed to carry out the legislature's intent." Restitution is a part of the "victim's rights movement." Restitution normally includes post-judgment interest on payments due the victim. So for restitution to be paid in full, interest can be included in the payment ordered, at the discretion of the trial court.
Kentucky v. Hearn, 2000 WL 1252552 (Ct. App., Ky., 2000)

Citation

Criminal Case Outcome Might Not Determine Related Civil Case Outcome Description Appeals court held that a civil case that follows a criminal case on the same
matter, may not result in collateral estoppel being used by the plaintiff to win summary judgment unless the issues in the civil case were fully developed and litigated in the criminal proceeding.

Topic Key Words

Criminal Law Securities Fraud; Collateral Estoppel

CASESUMMARY

Facts

The SEC filed civil charges against Bertoli for securities violations. The action was stayed while Bertoli was tried and convicted of criminal charges for obstruction of justice but acquitted on related racketeering counts based on alleged securities fraud. He was sentenced to 78 months in prison, supervised release, and fined $100,000. The SEC moved for summary judgment on the civil suit on collateral estoppel grounds based on findings of fact rendered by the court at sentencing proceedings. The district court granted summary judgment for the SEC and permanently enjoined Bertoli from associating with anyone in the securities industry. Bertoli appealed. Vacated and remanded. Offensive collateral estoppel is when a plaintiff may foreclose a defendant from relitigating an issue the defendant has previously litigated but lost. For collateral estoppel to apply: 1) the issues in both proceedings must be identical; 2) the issue in the prior proceeding must have been actually litigated and actually decided; 3) there must have been a full and fair opportunity for litigation in the prior proceeding; and 4) the issue previously litigated must have been necessary to support a valid and final judgment on the merits. Here, some of the civil issues received little attention at the criminal trial, so the civil case must be heard distinctly from the previous criminal case.
Securities Exchange Comm. v. Monarch Funding Corp., 192 F.3d 295 (2nd Cir., 1999)

Decision

Citation

RICO Claims Against Insurer May Proceed Description The Supreme Court held that the McCarran-Ferguson Act does not prohibit
enforcement of federal statutes, including RICO, that do not conflict with the purpose of the Act to grant the states power to regulate insurance.

Topic Key Words

Criminal Law RICO, McCarran-Feguson Act, Health Insurance

CASESUMMARY

Facts

Plaintiffs had health insurance policies in Nevada issued by Humana, under which they received care at a Humana-owned hospital. Insurance covered 80% of hospital charges after deductible, insured paid 20%. Unknown to insureds, the hospital gave insurer a discount, which meant it paid well under the supposed 80%. Insureds sued, contending that RICO had been violated through a pattern of racketeering activity via fraud. Humana contended the suit could not go forward because RICO, a federal statute, conflicts with the delegation of insurance regulation to the states under the McCarran-Ferguson Act. Conflicting rulings came from the lower courts. McCarran-Ferguson precludes application of a federal statute in the face of state law related to insurance regulation. However, McCarran does not preclude application of federal law that does not directly conflict with state regulation and would not frustrate any state policy concerning insurance regulation. Since suit under RICO would not impair Nevada insurance regulation, it was not precluded by McCarran. Action against Humana could proceed as RICO's private right of action complements Nevada's statutory and common-law claims for relief.
Humana, Inc. v. Forsyth, 119 S.Ct. 710 (1999)

Decision

Citation

Legal Impossibility Not a Defense to Conspiracy to Steal Trade Secrets Description Appeals court held that defendants in criminal case involving conspiracy to steal
trade secrets, in violation of Economic Espionage Act, do not have a right to see the trade secrets in question in an effort to prove that there were no trade secrets.

Topic Key Words

Criminal Law Economic Espionage Act, Trade Secret Theft, Legal Impossibility
CASESUMMARY

Facts

Hsu and others were indicted, following an FBI sting, for violating the Economic Espionage Act (EEA) of 1996 for conspiring to steal corporate trade secrets regarding a valuable anti-cancer drug. The defense requested a copy of the trade

secret documents at stake. The government contended that the defense did not need access to the documents except in camera under supervision of the judge. The defense maintained that constitutional and procedural requirements of criminal prosecutions dictate full access to the documents so they could establish the defense of legal impossibilitythey could not steal trade secrets that did not exist. District court agreed with the defense; government appealed.

Decision

Reversed. In a case of first impression on this subject, the appeals court held that legal impossibility is not a defense to the charge of conspiracy and attempt to steal trade secrets, rather than a charge of actual theft of trade secrets, under the EEA. So long as the defendants believed they were going to steal trade secrets, it does not have to be proven that there were actually trade secrets at stake. Defense may see documents only after trial court has conducted an in camera review so that confidential information is protected.
U.S. v. Hsu, F.3d (1998 WL 538221, 3rd Cir.) or 155 F. 3d 189 (3rd Cir., 1998)

Citation

Medicare Fraud by Physician Due Sentence Enhancement Under Guidelines Description

Physician who engaged in Medicare fraud -- charging patients and the government for medical equipment not needed or obtained -- was properly tried. Sentence enhancement under Guidelines was proper because of her position of fiduciary responsibility. Criminal Law Sentencing Guidelines, Medicare Fraud, Fiduciary
CASESUMMARY

Topic Key Words

Facts

A physician signed false medical equipment payment claims for elderly patients and was convicted of Medicare fraud. She appealed the conviction on various grounds and appealed the level 19 sentence under the Sentencing Guidelines as inappropriate. Affirmed. The Guidelines provide enhancement of sentences in some cases: "If the defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense, increase by 2 levels." As a doctor, she was "in a fiduciary relationship with her patients and the government" so the enhancement of sentence is appropriate.
U.S. v. Ntshona, F.3d (1998 WL 598614, 2nd Cir.), or 156 F. 3d 318 (2nd Cir., 1998)

Decision

Citation

Civil Penalties Imposed After Criminal Penalties Not Double Jeopardy Description
Defendant sentenced to prison and to pay restitution could be required, in subsequent civil penalty action, to pay further damages and fines without violating the Double Jeopardy Clause of the Fifth Amendment, which only protects against serial criminal punishments for the same act. Criminal Law Double Jeopardy, Securities Fraud
CASESUMMARY

Topic Key Words

Facts

Palmisano, an attorney, was convicted of criminal offenses for running a Ponzi scheme that defrauded 90 people out of $8 million. He was sentenced to 15 years in prison and was ordered to pay $3.8 million in restitution to victims and $700,000 to the U.S. He was then sued by the SEC for civil violations of the securities laws and was ordered to disgorge $9.2 million and pay $500,000 in civil penalties. He appealed the second (civil) judgment as double jeopardy in violation of the Fifth Amendment. Affirmed. The Double Jeopardy Clause "protects only against the imposition of multiple criminal punishments for the same offense" in successive proceedings. Only in unusual cases will civil sanctions be held to be criminal; designation of sanctions by Congress is to be given considerable deference. Disgorgement and monetary penalties are not so punitive as to not be civil.
Securities and Exchange Comm. v. Palmisano, 135 F.3d 860 (2nd Cir., 1998)

Court of Appeals Decision

Citation