Criminal Justice Fall 2019 Beyond the Mob “Varsity Blues” and DOJ’s Expanding Use of RICO to Prosecute White-Collar Crime by JOHN R. MITCHELL, STEVEN A. BLOCK, SARAH M. HALL, AND MARK R. BUTSCHA JR.

t is a fact of American life that par- parents of college-bound teenagers? Crime and Racketeering Section. ents want their kids to go to the best schools. Sometimes wealthy parents I A Short History of J. Edgar Hoover: are known to attempt to grease the in the United States “There Is No Mafia” skids for their children by donating Organized crime has existed in the However, J. Edgar Hoover and the FBI large sums of money to top universi- United States since the 19th century, remained more focused on inves- ties. But given the highly competitive but it became more sophisticated tigations related to the Cold War. nature of college admissions and the during the Prohibition era. Although Indeed, in 1951, Hoover famously told massive endowments at the most organized crime was present in many a congressional committee, “There prestigious schools (the market value communities, it was concentrated in is no Mafia.” As an illustration of the of Harvard’s endowment is reported large cities, particularly New York and extent to which the FBI’s investigative to be about $38 billion), sometimes . By the middle of the 20th focus was elsewhere, the Bureau’s a donation may not be enough. As century, criminal organizations were New York field office in the early seen by the recent federal charges engaged in various illegal activities, in- 1950s dedicated 400 special agents and guilty pleas in the “Varsity Blues” cluding gambling, loan sharking, drug to investigate subversive activity, but Department of Justice (DOJ) take- trafficking, extortion, gun running, only four were assigned to investigate down, enterprising parents have been prostitution, bootlegging, racketeer- organized crime. However, in Novem- tempted to break the law to ensure ing, money laundering, and fraud. The ber 1957, in a watershed moment, their children’s admission by falsifying rules of the underworld were en- more than 50 members of the Mafia academic records, athletic accom- forced by violence, including murder. from across the United States were plishments, and test scores. Shortly after World War II, organized arrested in Apalachin, New York, But are these overzealous par- crime caught the attention of policy- where they had gathered in a meet- ents no different than mob bosses? makers in Washington. ing of the national criminal . According to DOJ, these crimes are In 1949, the American Municipal Unable to avert his eyes any longer, just as bad as ’s, as dem- Association, on behalf of more than Hoover created an initiative to fight onstrated by prosecutors’ decision 10,000 US cities, asked the federal the mob within a week. to charge the case under one of the government to take action against Collective attention to organized most powerful tools in the federal law organized crime. In the early 1950s, a crime continued to grow. Attorney enforcement arsenal—the Racketeer Senate committee, led by Tennessee General Robert F. Kennedy created Influenced and Corrupt Organizations Senator Estes Kefauver, heard testi- the first federal Organized Crime Act (RICO). In charging some of the mony from more than 800 witnesses Strike Forces located in cities across Varsity Blues defendants with RICO concerning organized crime. Approxi- offenses, DOJ has utilized what was mately 30 million people watched the recently referred to as “‘bare-knuckle’ committee proceedings on televi- JOHN R. MITCHELL is a partner white collar prosecution tactics once sion. The committee found evidence in Thompson Hine’s office. reserved for organized crime or that the mob was engaged in illegal STEVEN A. BLOCK is a partner drug cases.” But have these hardball gambling and narcotics trafficking and in Thompson Hine’s Chicago office. tactics gone too far? Should the was infiltrating legitimate businesses. SARAH M. HALL is senior counsel same scorched-earth criminal statute On the heels of those hearings, the in Thompson Hine’s Washington, DC, that prosecutors used to bring down Justice Department encouraged office. notorious mobsters such as James federal prosecutors to investigate MARK R. BUTSCHA JR. is an “Whitey” Bulger and Anthony “Fat and prosecute organized crime, and associate in Thompson Hine’s Cleve- Tony” Salerno be used to prosecute in 1954 it formed a formal Organized land office.

Published in Criminal Justice, Volume 34, Number 3, Fall 2019. © 2019 by the American Bar Association. Reproduced with permission. All rights reserved.This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database orretrieval system 4 without the express written consent of the American Bar Association. Criminal Justice Fall 2019

the United States. In 1963, the public (Russello v. United States, 464 U.S. submit a thorough prosecution first heard the term “Cosa Nostra” 16, 27 (1983).) “The legislative history memorandum and proposed when legendary mob turncoat Joseph clearly demonstrates that the RICO indictment, information, or complaint. Valachi publicly acknowledged the statute was intended to provide new In addition, the Justice Manual warns Mafia’s existence. In 1967, President weapons of unprecedented scope for prosecutors that “not every proposed Johnson’s Task Force on Organized an assault upon organized crime and RICO charge that meets the technical Crime, relying heavily on the Senate its economic roots.” (Id. at 26.) requirements of a RICO violation will hearings, committees, and confer- From a federal prosecutor’s be approved” and that “the Criminal ences held throughout the 1950s and perspective, the RICO statute is a Division will not approve ‘imaginative’ 1960s, reported that law enforce- powerful tool designed to effectively prosecutions under RICO which ment thus far had been unsuccessful dismantle the heart of an organized are far afield from the congressional in curbing the growth of organized crime violation—the criminal con- purpose of the RICO statute.” (Id.) crime. The Task Force attributed this spiracy. One of the principal reasons Due to the lengthy approval lack of success to difficulties in obtain- prosecutors favor RICO charges is process for bringing RICO charges, ing proof to support charges, insuf- that it allows DOJ to bring together some prosecutors view RICO as ficient law enforcement resources, distinct acts by different defendants a last resort. Moreover, RICO jury poor coordination among law en- into a single, overarching RICO charges are complex and lengthy, forcement agencies, unavailability of conspiracy. Described by some as a and theoretically have the potential strategic intelligence, light sentences, “gift” to prosecutors, the generous to confuse and frustrate jurors. For and lack of public and political com- definition of a RICO conspiracy— example, in a 2019 case in Norfolk, mitment. buttressed by Congress’s express Virginia, federal prosecutors charged admonition that the statute must be eight alleged members of the “Mad Congress Passes RICO and Tough liberally construed to effectuate its Stone Blood” street gang with RICO Laws to Combat the Mob remedial purposes—permits seem- violations, alleging that they engaged Momentum built for Congress to ingly unconnected acts to be woven in attempted murder, robbery, and address organized crime. In 1968, together into one RICO conspiracy drug dealing. However, the jury Congress passed the Omnibus Crime for charging purposes. Prosecutors acquitted the defendants on the Control and Safe Streets Act. Signifi- also are attracted to the long prison RICO charges. Jurors interviewed cantly, this new law allowed federal sentences (up to 20 years or life for after the verdict said the prosecution law enforcement agencies to use certain racketeering offenses) that failed to prove that the alleged gang electronic wiretaps, an extremely may accompany convictions. Another members acted in support of a RICO useful tool that provided evidence important feature of the Organized criminal enterprise, as opposed and insight into the inner workings of Crime Control Act of 1970 was the to “freelancing” various crimes on organized crime. But even with these introduction of the witness security their own. As one commentator said new tools, Congress believed that program, currently known as WITSEC, afterward, “When you charge a RICO federal law enforcement agencies which allowed prosecutors to provide conspiracy, the jury really expects needed more ammunition to combat enhanced safety and protection for to see the Sopranos, and these guys criminal organizations. witnesses who testified against the were not the Sopranos.” On October 15, 1970, as part of the mob. Organized Crime Control Act of 1970, Recognizing the awesome power of The Dawn of the RICO RICO (18 U.S.C. §§ 1961–1968) became a RICO charge, the current version of Charging Era law. The stated congressional purpose the Justice Manual (formerly known To maintain the federal government’s of RICO was clear and ambitious: “[T] as the US Attorney’s Manual) cautions focus on the Mafia, in 1984, President he eradication of organized crime in prosecutors as follows: “Utilization Reagan created the President’s the United States by strengthening of the RICO statute, more so than Commission on Organized the legal tools in the evidence-gather- most other federal criminal sanctions, Crime. One year later, federal law ing process, by establishing new penal requires particularly careful and enforcement agencies employed prohibitions, and by providing en- reasoned application … it is the policy the broad tools Congress gave them hanced sanctions and new remedies of the Criminal Division that RICO be when federal prosecutors in New York to deal with the unlawful activities of selectively and uniformly used.” (U.S. charged the heads of the notorious those engaged in organized crime.” As Dep’t of Justice, Justice Manual § “” of the New York Mafia the US Supreme Court noted years 9-110.200 (2016).) The Justice Manual under RICO for participating in an later, “Congress emphasized the need goes even further, requiring Main unlawful racketeering enterprise. to fashion new remedies in order to Justice approval for all RICO charges Their enterprise “included the achieve its far-reaching objectives.” and mandating that prosecutors unlawful infiltration in New York

Published in Criminal Justice, Volume 34, Number 3, Fall 2019. © 2019 by the American Bar Association. Reproduced with permission. All rights reserved.This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database orretrieval system 5 without the express written consent of the American Bar Association. Criminal Justice Fall 2019

City of legitimate businesses in James T. “Jack White” Licavoli, were Section, regularly bring RICO cases the concrete construction, food tried and convicted under RICO for, against gang members from national manufacturing, and food distribution among other things, bombing the gangs such as MS-13, the Aryan industries, exercise of control over car belonging to the leader of a rival Circle, the , unions in these and other industries, criminal organization. (United States v. , as well as many operation of illegal gambling Licavoli, 725 F.2d 1040 (6th Cir. 1984).) lesser-known local street gangs. For businesses, loansharking, murder example, in Chicago, dozens of mem- and conspiracies to murder those The Heyday of RICO: The Mob Is bers of the street gang who would threaten the enterprise, Prosecuted Out of Business were charged and convicted under engendering fear of the enterprise In the 1980s and early 1990s, DOJ’s RICO for a criminal organization that through violence and concealment of RICO mob prosecutions were a engaged in fraud and violence. the existence of the enterprise from resounding success. Between 1981 law enforcement authority.” (United and 1992, DOJ convicted 23 mob 9/11 Brings New Law Enforcement States v. Salerno, 631 F. Supp. 1364, bosses under RICO. Scores of Mafia Priorities and the Declining Use of 1366 (S.D.N.Y. 1986).) This prosecution and captains also RICO resulted in convictions and substantial were convicted under the statute. After September 11, 2001, the FBI’s prison time, including a 139-year Federal law enforcement effectively number-one priority became protect- sentence for Carmine “The Snake” wiped out La Cosa Nostra in cities ing the United States from terrorist Persico, the head of New York’s across the country, including Boston, attacks. Fewer FBI agents were as- Colombo . Earlier this Cleveland, Denver, Milwaukee, New signed to organized crime squads and year, Persico died in federal custody. Orleans, Philadelphia, Pittsburgh, and investigations, which DOJ’s Office of As President Reagan wrote in a Tampa. Thanks in large part to RICO the Inspector General acknowledged January 1986 article in The New York prosecutions, the Mafia’s power and to be the result of prioritizing counter- Times Magazine, federal prosecutors influence have waned since the early terrorism over organized crime. were “beginning to exploit fully 1990s. The Justice Department’s To illustrate this shift in priorities, in the statutory weapons Congress Organized Crime Council, which 2000, the FBI opened 433 organized provided” with RICO. Reagan wrote creates domestic organized crime crime investigations, but by 2004, that “America has lived with the policy, did not even meet between that figure had fallen dramatically to problem of organized crime for far too 1993 and 2008. just 263, according to a Congressional long” and vowed to “obliterate this Research Service report. The number evil and its awful cost to our nation.” DOJ Repurposes RICO to Combat of organized crime cases referred (Ronald Reagan, Declaring War on Public Corruption and Violent Street to federal prosecutors fluctuated in Organized Crime, N.Y. Times Mag., Gangs the 2000s, with a high of 317 in 2000 Jan. 12, 1986.) With the mob neutralized, federal and a low of 156 in 2006. In 2010, the Federal prosecutors also used prosecutors deployed the muscu- number of referrals was 300, almost RICO to charge and convict Mafia lar RICO statute to disrupt other the same as a decade earlier. bosses outside of the famed large-scale conspiracies, from public But in the post-9/11 world, DOJ mob stomping grounds of New corruption to violent street gangs. For again repurposed the RICO statute— York. In Boston and Rhode Island, example, former Illinois Governor Rod this time to prosecute terrorism. In DOJ charged and convicted five Blagojevich was charged under RICO 2001, federal prosecutors in North “members or associates of the (among other statutes) as prosecutors Carolina filed cigarette smuggling Patriarca Family of La Cosa Nostra,” alleged that he conspired to “auc- and tax evasion charges under RICO including the , Gennaro tion” a US Senate seat vacated when against defendants with connections Angiulo. (United States v. Angiulo, Barack Obama was elected president. to Hezbollah. The indictment was 897 F.2d 1169, 1175–76 (1st Cir. 1990).) A jury failed to reach a verdict on the later superseded, adding a charge for The defendants were found guilty RICO counts, and the government conspiracy to provide material sup- after an eight-month trial in which dismissed them before retrying Blago- port to Hezbollah, and all defendants prosecutors presented evidence— jevich (he was ultimately convicted of were convicted. In 2004, prosecutors much of which was gathered through more than a dozen non-RICO of- in Chicago charged defendants with court-authorized wiretaps and video fenses). supporting Hamas, which prosecutors surveillance—that they were engaged Additionally, many violent street identified as a RICO enterprise. in an illegal gambling business, gangs have been prosecuted under extortion, loansharking, and murder. RICO. Various US Attorney’s Offices RICO Rises Again: Unconventional In Cleveland, several defendants around the country, as well as Main Uses of RICO in the Post-Mob Era— affiliated with the mob, including boss Justice’s Organized Crime and Gang FIFA, Insys, Varsity Blues, and R.

Published in Criminal Justice, Volume 34, Number 3, Fall 2019. © 2019 by the American Bar Association. Reproduced with permission. All rights reserved.This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database orretrieval system 6 without the express written consent of the American Bar Association. Criminal Justice Fall 2019

In 2015, the US Attorney’s Office Activities Prohibited by RICO— for the Eastern District of New York captured international news headlines 18 U.S.C. § 1962 with a massive, 27-defendant indict- Under RICO, it is unlawful for any person: ment of international soccer officials and executives associated with FIFA. (a) “who has received any income derived, directly or indirectly, The EDNY used RICO to charge from a pattern of racketeering activity or through collection the $200 million conspiracy, which of an unlawful debt in which such person has participated as spanned more than 24 years and a principal … to use or invest, directly or indirectly, any part of included many disparate acts, most such income, or the proceeds of such income, in acquisition of which occurred outside the United of any interest in, or the establishment or operation of, any States. The defendants challenged the enterprise which is engaged in, or the activities of which affect, RICO charges, claiming that the stat- interstate or foreign commerce”; ute was being pushed too far afield (b) “through a pattern of racketeering activity or through from its original purpose of fighting collection of an unlawful debt to acquire or maintain, directly organized crime, and that the govern- or indirectly, any interest in or control of any enterprise which ment was using RICO to get around is engaged in, or the activities of which affect, interstate or Federal Rule of Evidence 403 to bring foreign commerce”; in unfairly prejudicial evidence. How- (c) “employed by or associated with any enterprise engaged in, ever, their arguments failed to gain or the activities of which affect, interstate or foreign commerce, legal traction with the court. to conduct or participate, directly or indirectly, in the conduct In May 2019, in United States v. Bab- of such enterprise’s affairs through a pattern of racketeering ich, the Insys Therapeutics criminal activity or collection of unlawful debt”; or health care fraud case, a federal jury (d) “to conspire to violate any of the provisions” above in Boston convicted five former Insys executives of a RICO conspiracy. De- Sentencing Under RICO—18 U.S.C. § 1963(a) spite the defense’s repeated efforts to convince the judge to dismiss the A defendant convicted of a RICO violation “shall be fined … or RICO charges, claiming that they rep- imprisoned not more than 20 years (or for life if the violation is resented “prosecutorial overreach,” based on a racketeering activity for which the maximum penalty were “inflammatory” in a corporate includes life imprisonment), or both.” health care fraud case, and made the defendants look like drug dealers, the Forfeiture Under RICO—18 U.S.C. § 1963(a) government went to trial and won. Although the jury deliberated for a A convicted defendant also must forfeit to the government: lengthy 15 days, according to post- (1) “any interest the person has acquired or maintained in conviction juror interviews, the jury violation of section 1962”; viewed it as an “open and shut case,” (2) “any interest in; security of; claim against; or property or and during deliberations took the time contractual right of any kind affording a source of influence to identify documents linking each over any enterprise which the person has established, operated, defendant to the predicate acts of controlled, conducted, or participated in the conduct of, in the RICO conspiracy. In other words, violation of section 1962”; and a jury in the infamous mob town of (3) “any property constituting, or derived from, any proceeds Boston had no difficulty or trepidation which the person obtained, directly or indirectly, from about applying the RICO statute to a racketeering activity or unlawful debt collection in violation of health care fraud case. section 1962.” In March 2019, the US Attorney’s Office in Boston brought the Varsity Blues case, charging ringleader Wil- liam Rick Singer with a racketeering Kelly crime setting. Notable examples in conspiracy “to facilitate cheating on Recent high-profile cases demon- the past few years include the FIFA college entrance exams; to facilitate strate that, in the post-mob era, DOJ and R. Kelly cases in and the the admission of students to elite uni- has not shied away from using RICO Insys Therapeutics and “Varsity Blues” versities as recruited athletes, regard- outside the traditional organized prosecutions in Boston. less of their athletic abilities; and, to

Published in Criminal Justice, Volume 34, Number 3, Fall 2019. © 2019 by the American Bar Association. Reproduced with permission. All rights reserved.This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database orretrieval system 7 without the express written consent of the American Bar Association. Criminal Justice Fall 2019

enrich [defendant] and his co-conspir- Concerns about RICO’s scope persist organizations—and now to white-collar ators personally.” Other defendants in to this day. prosecutions—the evolution of DOJ’s this case have also been charged with Nonetheless, the use of RICO to use of RICO has been long and slow. conspiracy to commit racketeering, prosecute non-organized crime white- The trend, however, is unmistakable: some of whom have pled guilty and collar defendants is well-established So long as prosecutors have a broad agreed to cooperate with the govern- and has been upheld repeatedly and flexible tool like RICO, they will ment along with Singer. A law profes- by the courts. (See, e.g., Jackson v. find new ways to use it.n sor recently commented, “This is a Sedgwick Claims Mgmt. Servs., 731 new generation of applying RICO-like F.3d 556, 563 (6th Cir. 2013) (noting litigation strategy to non-organized that “courts have frequently rejected crime. It feels like tactics that are used arguments that RICO should be given for the Whitey Bulgers of the world, constructions that prevent it from people who are hardened criminals reaching conduct that Congress may and threats to society.” not have intended it to reach”).) But In July 2019, the EDNY charged the policy question, as reflected in R&B singer R. Kelly under RICO alleg- the Justice Manual, remains whether ing a pattern of racketeering activity DOJ should rein in RICO prosecu- that consisted of sexual exploitation tions outside the traditional organized of minors, kidnapping, forced labor, crime context. The Justice Manual and Mann Act violations. The purpose implores prosecutors to restrict RICO of the RICO enterprise, according to charges to effectuate the congressio- the indictment, was to recruit women nal purpose of the law, which was to and girls to engage in sexual activ- combat organized crime. Prosecutorial ity with R. Kelly. The allegations are discretion is of paramount importance disturbing, but it remains to be seen in ensuring the statute is used for whether DOJ’s decision to charge R. appropriate purposes. Using RICO to Kelly with a substantive RICO offense prosecute street gangs and terror- will result in victory for the prosecu- ist groups seems to fall well within tion. Congress’s intent, as those groups are These highly significant cases may similar to the mob: organized, violent, only embolden federal RICO pros- and engaged in various illegal activi- ecutions outside the organized crime ties, from drug dealing to murder. context. But what DOJ once used exclusively as a tool to bring down Prosecutorial Overreach or the New sprawling criminal enterprises Normal? engaged in heinous acts of violence Misgivings about RICO’s reach have and intimidation is now being been common since before the stat- employed to prosecute less severe ute was enacted. Opponents recog- crimes involving nonviolent offenders. nized its scope and “complained that The Varsity Blues defendants are it provided too easy a weapon against a far cry from mob bosses and ‘innocent businessmen’ and would be murdering hitmen (or even street prone to abuse.” (Sedima v. Imrex Co., gangs and corrupt politicians), and 473 U.S. 479, 498 (1985).) Even during using RICO—including its threat of RICO’s heyday in the 1980s, some ex- severe penalties—is a bit like using a pressed unease about using the stat- sledgehammer to pound a nail. ute to prosecute criminals outside the But DOJ did not go directly context of organized crime. (See id. from using RICO only to prosecute at 499 (“Instead of being used against mobsters smuggling vast quantities mobsters and organized criminals, it of heroin and cocaine in cases such has become a tool for cases brought as “The Pizza Connection” in the against ‘respected and legitimate 1980s to deploying it against less enterprises.’”).) And some feared that severe conduct as in the Varsity Blues the expansion of RICO could prompt case. From the mob to street gangs Congress to limit the statute’s reach. to public corruption and terrorist

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