17 scandal. See 3 Corporate Crime Reporter, Monday, Feb. 20, 1989, p.4 (11 S & L audits showed positive net worth of 44 million, but within 5 to 17 months, each had collapsed, and they showed negative net worth of 1.5 million). See also Wall Street Journal, May 9, 1989, p. 1, col. 6 (analysis of fraud by auditor in Ramona Savings & Loan Association, in which federal fund out $65.5 million). The Federal Home Loan Bank Board is suing 10 accounting firms, including Cooper & Lybrand, Grant Thornton, and Touche Ross, which audited failed thrifts. N.Y. Times, March 12, 1989, Sec. 3, p. 1., col. 2. "Some auditors may have been too close to their clients and allowed them to do things that they shouldn't have done. I'm not sure the industry was as independent as it should have been," observes Arthur Bowman, the editor of Bowman Accounting Report, an Atlanta based newsletter. Id. at p. 10, col. 1. Indeed, the Big Eight, insiders say, are agreeing not to testify against one another. Id. No wonder that the accounting profession is a major contributor to the political campaigns of those in the forefront of the effort to disembowel RICO. Rolling Back RICO, National Journal, Sept. 6, 1986 p. 2114-15. Theodore C. Barreaux, Vice President of the American Institute of Certified Public Accountants, attributes the Department of Justice's switch in 1988 from opposition to support of the prior criminal conviction limitation on RICO to a series of meetings between accounting institute lawyers and Department officials. Id. at 2115. No wonder that the thrift industry has also sought to buy influence in Congress. See N.Y. Times, July 9, 1989, Sec. 3, p. 1, col. 2 (review of facts of collapse of American Continental Corp.'s Lincoln Savings & Loan Ass'n., one of the largest thrift failuers, allegations of improper congressional influence, and multi-million dollar losses to bond holders); Wall Street Journal, June 13, 1989, p. A, lb, col. 1 (American Continental Corp. Chairman Charles H. Keating, Jr." "[Did] my financial support influence political figures.. (?) I certainly hope so.") Drexel Burnham Lambert, Inc., too, has put $250,000 into the anti-RICO campaign. Forbes, Oct. 17, 1988, p. 12, col. 1. The need for more effective deterrent to fraud in the world of legitimate business is, therefore, manifest. 9.1 Myth: Multiple Damage Suits Are Not Needed. See Oversight at 177-78 (remarks of Charles L. Marinaccio, Securities and Exchange Commissioner): The RICO civil remedy may substantially alter 18 9.2 actual damages. XXX [The Securities Acts Fact: Multiple Damage Suits Are The Heart of the Necessary Private Enforcement Mechanism. It is, of course, correct that the Securities Acts only provide for actual damages. It can hardly be contended, however, that they have worked as an adequate compensatory scheme or mechanism for the deterrence of systematic fraudulent practices in light of the recent inside information trading scandals. The Wall Street Journal, Feb. 17, 1987, col. 1, p. 27 aptly observed: [T]he abuse of inside information in the take-over game is endemic and has grown systematically over the past half-decade. . XXX Whatever specific numbers come out in the The need for a strengthened private enforcement mechanism, including multiple damages, is manifest. When Michael Milken was indicted, acting United States Attorney Benito Romano observed, "the three-year investigation has uncovered substantial fraud in a very significant segment of the American financial community. A serious problem has infected Wall Street." N.Y. Times, March 30, 1989, p. 1, col. 1. The stock market and the futures market only operate well when people have confidence. Small investors today are avoiding the market. N.Y. Times, April 21, 1989, p. 30, col. 2. Households today own 58.5% of United States stocks compared with 82.2 in 1968. Wall Street Journal, March 28, 1989, p. C1, col. 2. Ms. Windy Gramm, the Chairwoman of the Commodities Futures Trading Commission, put it succinctly, "[I]f customers feel they are being ripped off by an exchange or that the exchange is not vigilant against fraud, they will leave the markets." N.Y. Times, March 26, 1989, p. 11, col. 1.4 4 Benjamin Stein, Barron's, April 3, 1989, p. 24, col. 1, summed up the charges against Milken: Michael Milken has been charged with a variety of crimes. But almost all of them had a common theme--the 19 The idea of multiple damages for certain kinds of unlawful practices has deep roots. The earliest such provision in English law was the Statute of Gloucester, 6 Edw. 1, ch. 5 (1278) (treble damages for waste). Modern antitrust statutes had their origin in the Statute Against Monopolies, 21 Jac. 1, ch. 3, § 4 (1624) (authorizing treble damages for those injured by unlawful monopolies). Parliament recognized that it was "one thing to pass statutes and quite another thing to insure that [they were] actually enforced. 4 W. Holdsworth, A History of English Law 335 (3d ed. 1945). Accordingly, "it was a common expedient [in the Middle Ages and beyond] to give the public at large an interest in seeing that a statute was enforced " Id. It was also an idea found in early colonial laws. See, e.g., The Laws and Liberties of Massachusetts 5 (pilfering and theft: treble damages), 24 (gaming: treble damages) (1648). In turn, the idea of multiple damages for various kinds of wrongs was a perversion and betrayal of principals by agents, the The capitalist system, which has done so well for But according to the indictments . Milken and his co-indictees took advantage of the trust placed in Those buy orders moved the stock price upwards, often raising the takeover price to his own clients by tens or hundreds of millions of dollars. Conversely, those trades made millions for Milken and his pals. Milken made money personally by violating his client's trust and thereby cost his clients, his principals, large bucks . . . Milken, made himself the principal in a great many cases in which he had been hired to be the agent. This is a basic attack on the credibility of the system, which cannot function without trust between principals and agents, especially at that exalted Id. at 80. 20 characteristic feature of Roman law. The "delict" of theft ran back at least to the Twelve Tables (450 B.C.). The Institutes of Gaius (Part I) (Text with Critical Notes and Translation by F. deZulueta) at 217 (1958). "[T]he penalty . . . [was] four times the value of the thing stolen" when the offender was caught in the act; otherwise, it was "double." A. Watson, The Law of the Ancient Romans 76 (1970). Extortion was remedied by four times the loss. Possession of stolen property was remedied by three times the value of the property. Id. at 77. Greek law provided for double damage if stolen property was recovered; tenfold damages otherwise. 5 C. Kennedy, The Orations of Demosthenes, app. VI 187 (1909) (quoting a law of Solon), quoted in, J. Wigmore, Panorama of the World's Legal Systems 343 (1936). Biblical law, too, reflected multiple damage recovery. Exodus 22:1 (theft of ox or sheep, if killed, restoration of five for OX and four for sheep); Exodus 22:9 (trespass to property double damages); 2 Samuel 12:1-6 (restoration of fourfold for taking of lamb). Modern economic analysis supports the wisdom of this history. See generally, R. Posner, Economic Analysis of Law § 7.2 (3rd ed. 1986). Indeed, a number of federal statutes, particularly in the commercial area, contain treble damage provisions. Professor (now Judge) Posner argues for private enforcement mechanisms of more than actual damages against deliberate anti-social conduct, particularly where the factor of concealment is present. Economic Analysis of Law at 560 (private enforcement); 194, 346 (more than actual damages for deliberate conduct); 293 (concealment). Concealment is the sine qua non of most RICO-type behavior, particularly fraud. See, GAO: Fraud In Government Programs--How Extensive Is It?--How Can it be Controlled? cover page (1980) ("Most fraud is undetected. For committing fraud, the chances of being prosecuted and eventually going to jail are slim The sad truth is that crime against the Government often does pay.") If society authorizes the recovery of only actual damages for deliberate those 5 See, e.g., 12 U.S.c. § 1464 (1982) (Home Owners' Loan Act of 1933); 12 U.S.C. § 1975 (1982) (Bank Holding Company Act); 12 U.S.C. § 2607 (1982) (Real Estate Settlement Act of 1974); 15 U.S.C. § 15 (1982) (Clayton Act: Antitrust); 15 U.S.C. § 72 (1982) (Revenue Act of 1916: Restraints on Import Trade); 15 U.S.C. 1117 (1982) (Trademark Act of 1946); 15 U.S.C. § 1693f (1982) (Electronic Fund Transfer Act); 15 U.S.C. § 1989 (1982) (Motor Vehicle Information and Cost Savings Act); 22 U.S.C. § 4209 (1982) (Consular Officers: Penalty for exacting excessive fees); 30 U.S.C. § 689 (1982) (Lead and Zinc Stabilization Program); 35 U.S.C. § 284 (1982) (Patents); 42 U.S.C. § 9607 (1982) (CERCLA); 45 U.S.C. § 83 (1982) (Government Aided Railroads); 46 U.S.C. § 1227 (1982) (Merchant Marine Act of 1970). anti-social conduct 21 engaged in for profit, it lets the perpetrator know that if he is caught, he must return the misappropriated sums. If he is not caught, he may keep the money. Even if he is caught and sued, he may be able to defeat part of the damage claim or at least compromise it. In short, the balance of economic risk under traditional single damage recovery provides little economic disincentive to those who would engage in such conduct. See R. Posner, Antitrust Law: An Economic Perspective 223 (1976) ("If, because of concealability, the probability of being punished for a particular . violation is less than unity, the prospective violator will discount (i.e., multiply) the punishment cost by that probability in determining the expected punishment cost for the violation.") In fact, as the court in Haroco, Inc. v. American National Bank & Trust Co. of Chicago, 747 F.2d 384, 399 n.16 (7th Cir. 1984), aff'd on other grounds, 105 S.Ct. 3291 (1985) observed: [It is also true that] the delays, expense Similarly, studies under the antitrust statute show that most treble damage suits are now settled at close to actual damages. Study of the Antitrust Treble Damage Remedy, Serial No. 8, House Comm. on the Judiciary, 98th Cong., 2d Sess. 14 (1984). No reason exists to believe that a similar pattern will not develop under RICO, at least in the fraud area. Ironically, it may be necessary to authorize treble damages to assure that deserving victims receive actual damages. See generally, Note, Treble Damages Under RICO: Characterization and Computation, 61 Notre Dame L. Rev. 526, 533-34 (1986): Treble damages have unique characteristics |