Handling Fraud and RICO Claims: Powerpoint Slide Summary

Howard Gutman gave a presentation to the Institute for Continuing Legal Education on handling civil RICO claims.  Here is a summary of the slides, with the Powerpoint available through Slideshare.  www.slideshare.net.   We welcome the opportunity to assist you with research assistance, motion preparation,  co-counsel and other services.


  1. 1. HANDLING THE FRAUD AND RICO CLAIM: GUIDELINES AND CHALLENGES • Law Office of Howard A. Gutman 230 Route 206, Suite 307 Flanders, New Jersey 07836 315 Madison Avenue, Suite 901 New York, New York 10165 (973) 598-1980, howardgutman@aol.com, ricolawyer.org
  2. 2. PRESENTATION GOALS • Familiarize you with how to evaluate and investigate fraud and RICO claims. • Discuss typical defenses and how Court approach the claims • Review client relationship issues
  3. 3. Fraud Claim Viability • Many of those committing frauds have substantial assets. • Cases have obvious jury appeal. • Value, helping to protect society, deter wrongdoing.
  4. 4. Many types of fraud • Advance fee fraud Approval for loans or business transaction. Monies paid, unexpected problems arise. • Check clearing fraud. Basic theme, check deposited, disbursed 4-5 days and fails on secondary clearance. • Victims frequently re-solicited for the same fraud. Once I receive the additional 20,000, we will be able to transfer 10 million dollars to your account.
  5. 5. ASSETS OF SCHEMERS • Wolf of Wall Street employed over 1000 brokers and handled approximately $1 billion in assets. Ordered to pay back 100 million of 200 million taken. • Madoff had over 7 billion in liquid assets during much of his tenure. • Some are located in the U.S.
  6. 6. Challenges • Schemes well-hidden and conceived. Several law firms have been victimized • Badges of reliability. Linked-in profile, impressive background. In commercial transaction, well-drafted documents. Sorting through the data. • Economic viability, time, depletion of assets
  7. 7. Personal Characteristics of Schemers • Above Average Intelligence (just misplaced), in other circumstances, successful in a legitimate role. • Willingness to lie during investigation and skill in that effort. • Calm and easy manner. Not defensive Culprit may be well-dressed and look like your affable neighbor.
  8. 8. Nature of the Scheme and Skills of the Perpetrators • Layers of deception, hidden or misleading information. Enlist others to reinforce false statements, vouch for credibility, and give the victim confidence (“confidence game”) • Put it in writing. Written promises or representations made and then easily avoided. (blame coconspirators, victim, profess payment is being made).
  9. 9. Skills and Tactics in the Fraud Case • Delay, attacks on victims, blame co- conspirators. We have requested an immediate follow-up about the delay in funding your loan, our investigation has shown false statements in your loan application • Understanding of the limits of the system, fraud cases are complex, plaintiff’s lawyers, usually charge hourly, many claims not filed. (police frequently unresponsive).
  10. 10. Tools for Obtaining Information • Online Materials, Ripoffreport.com anecdotal reports of various deceptions • Blogs, Facebook • Gov sources, Florida Department of Consumer Affairs (no attachment of home in Florida. • Private investigators
  11. 11. Skills of Perpetrators in the Fraud Case • Understanding of the limits of the system, fraud cases are complex, plaintiff’s lawyers, usually charge hourly, many claims not filed. (I’ll go to the police or FBI, frequently an idle threat) • Distinguish fraud directed to the Court which elicits strong and severe penalties from less serious deception to the public or victim.
  12. 12. Investigatory Goals for Counsel in the Fraud and RICO Case • Acquire multiple sources of information • Be able to tell a clear and understandable story. • Have documents that corroborate your client’s version. • Establish culpability of each participant.
  13. 13. Client Assistance in Fraud Cases • Research the scheme and identify other victims. • Organize documents and provide an Excel Spreadsheet. • Followup with investigatory or regulatory agencies.
  14. 14. Challenges • Commercial cases involve substantial time and work. Expensive on an hourly, questions of economic viability on a contingency. • Look for common schemes and utilize factual and legal research. • Will the same lack of realism that made him a victim impact his research.
  15. 15. Client Challenges in Fraud and RICO Claim • Will the same lack of realism that made the client a victim impact his research. • Carry over of false impressions or statements, assets of coconspirators • Conclusory statements where documentation or support needed.
  16. 16. Where Client is Usually not Helpful • Explanations of how strong the case is, Discussion of how shocked the judge will be about the fraud. • Predictions about how the defendant will quickly settle after a particular event- letter, complaint, etc.
  17. 17. Attorney’s Pre-suit Role in Fraud Cases • Need for candor and pushing the client for organization of documents, understanding of scheme and clarification of how the scheme works. • Consider awaiting decision about litigation until completion of investigation.
  18. 18. Client Retention • Hourly billing the most standard and reliable. Many cases end up in federal courts with detailed discovery, lengthy briefs and multiple conferences. • Cannot make client commit to a specific settlement. • Contingency, be careful of straight percentage. Your client may reject a settlement of ½ because of the lack of incremental cost.
  19. 19. Considerations in Accepting Contingent Representation • Trying to control and limit time. • Clear understanding of the basic case helps limit time and facilitate resolution. • Client commitment to assist with organization of documents.
  20. 20. Memorialize Client Help • Provide for client obligations in engagement agreement.
  21. 21. Documentation • Need for compilation of documents, particularly in federal court. • Ideal, Excel spreadsheet identifying documents by category, brief explanation of importance. Client scanned papers.
  22. 22. Defenses in the Fraud Case • Complaint is vague and cannot be defended. Fraud not pled with particularity, a defense that has historically done quite welI. • Fact that defendant committed the fraud and obviously understands what he did and why- usually not persuasive. • I know I did it. I’m entitled to know whether you figured out how.
  23. 23. Federal Court Standard for Fraud Complaints • To satisfy this heightened pleading standard, a plaintiff must state the circumstances of his alleged cause of action with “sufficient particularity to place the defendant on notice of the ‘precise misconduct with which [it is] charged.’” Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007). Specifically, the plaintiff must plead or allege the “date, time and place of the alleged fraud or otherwise inject precision or some measure of substantiation into a fraud allegation.” Rule 9(b) requires a plaintiff to allege the “essential factual background that would accompany ‘the first paragraph of any newspaper story’—that is, the ‘who, what, when, where and how’ of the events at issue.” In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 276-77 (3d Cir. 2006) .
  24. 24. Dismissal and Twombly • Possibly the most important case ever decided, in terms of handling federal court litigation. Provides expansive power and leeway to dismiss federal cases on motion. Bell Atlantic v. Twombly, 127 S.Ct. 1955 (2007) • Examine evidence in detail at the pleading stage. Allegations are not assumed to be true even if well-pled. Must be substantiated at the pleading stage.
  25. 25. Dismissal, Federal Courts and Twombly • Bell Atlantic v. Twombly, 127 S.Ct. 1955 (2007) a plaintiffs obligation to provide the grounds for of his relief “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level.
  26. 26. Twombly • A new way of handling claims where the central event is the motion to dismiss. • Particularly troublesome in fraud cases. False or misleading statements can be put forth without discovery or scrutiny. • A world upside down. Truthful plaintiff has his statements scrutinized while defendant largely escapes scrutiny.
  27. 27. Complaints Frequently Dismissed • Dismissal without prejudice the usual disposition. • Not only is judge sympathetic to defense arguments about understanding the specific claims, the judge wants a clear, well-drafted complaint for her own purposes. • The prosecution cannot prove the case of a guilty defendant, not my problem.
  28. 28. Iqbal • Ashcroft v. Iqbal 556 U.S. 662 (2009). Continues and expands Twombly. • Case correctly decided, allegations unsupported but skillfully made to satisfy the legal standard. • A claim has facial plausibility only when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Claim must be substantiated. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Id., at 570.
  29. 29. Standard on Dismissal Motions • Plausible means close to proven • Speculation unacceptable. Allegations must be factually supported. • Dismissal motions now standard Mini- summary judgment motion – Plaintiff must establish a plausible claim at the pleading stage.
  30. 30. Madoff • Madoff Fraud – Largest fraud involving thousands of fraudulent claims in a 15 year, 50 billion dollar Ponzi scheme. • Complainant – Demopoulos correctly identified the Ponzi scheme, based upon the exaggerated and implausible returns. After multiple calls and complaints, and a perfunctory investigation, his complaint was rejected.
  31. 31. How Madoff Was Handled and Persistence of the Same Problems • Investigatory body looked into the alleged fraud and essentially cleared him. Applied Twombly/Iqbal, finding no fraud. • In Madoff, false documents were provided with false stories. Quickly accepted without sufficient investigation. Twombly/Iqbal motions Tremendous incentive for defendant to conceal or lie since discovery cannot expose the deception.
  32. 32. Lessons from Madoff • Correctly identifying a fraud is not enough. You need to explain exactly how it is run. • Courts and investigatory agencies will not allow discovery without the claimant presenting substantial evidence. • Concern about fairness to the defendant and adequacy of pleading can exceed the interest in protecting the public and providing justice to the victim.
  33. 33. Lessons from Madoff (2) • Two realities – What actually occurred and what plaintiff can prove. • Evidence not justice based system. Do not assume indulgent treatment. • Defendants will lie and those misstatements may find their way into defendant’s briefs. • Substantial and compelling evidence can even be found insufficient. Wright v. BankAmerica Corp., 219 F.3d 79 (2d Cir. 2000) (extensive evidence and criminal prosecution insufficient to permit inference of fraud, reversed by Second Circuit)
  34. 34. Addressing Iqbal and Madoff • Discuss barriers with client Multiple calls and communications to solidify and clarify claim. Have client explain what was false or misleading and why. • Clear complaint. No broad references to defendants. Explain what each defendant did. •
  35. 35. Policy Arguments • Public policy of deterring fraud. • Falsus in unum, falsus in omnibus. Proof of falsity should help establish the claim, at least permit discovery. If the defendant lied but provides facts, should credibility issues preclude resolution on motion. • Twombly and Iqbal were not fraud cases. Requirement of pleading specificity already sorts out unmeritorious claims.
  36. 36. Policy Considerations • The market crash of 2008-09 occurred largely because of widespread fraud. Solution, makes valid claims harder to file. • Dodd-Frank provides a comprehensive set of regulations. Why not punish those engaged in fraud, rather place burdens upon innocent businesses.
  37. 37. Concerns in Presenting Fraud Claims to Judge • Annoying the judge by talking about policy considerations, instead of factually laying out the claim. • Basic rule, tailor your presentation to the decision-maker • Conflating all defendants’ responsibility (defendants engaged, defendants solicited rather than laying out the role of each.
  38. 38. Judge and Client: Conflicting Expectations • Client: we will get important documents in discovery. Judge: Why wasn’t this case adequately investigated before being filed. • Client: general allegations of fraud sufficient. Judge: Fraud must be pled with particularity, where, why, when, and how.
  39. 39. RECOGNIZE JUDGE’S CCONCERN • One magistrate had a caseload of 500 cases. Little room for confusing pleadings. • Judge is not an advocate but an individual charged with applying the law. • Opinion needs to set forth factual basis for findings. Vague complaint means a vague opinion.
  40. 40. Pleading Tips • Clear complaint Articulate what each defendant did wrong. What statements are false or misleading and why. (demanding task) • Be careful of broad-based pleading- collective references to defendants. Instead A did this, B did this.
  41. 41. Fraud and RICO Pleading Tips (2) • Expect and plan for the motions to dismiss. • Consider referencing materials or even attaching as an exhibit so they are part of the pleading.
  42. 42. Favorable Law to Site on Motions • application of Rule 9(b) prior to discovery “may permit sophisticated defrauders to successfully conceal the details of their fraud.” Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989). • where the facts of the fraud “are peculiarly within the defendant’s knowledge or control,” courts relax the application of this rule, Craftmatic, 890 F.2d at 645.
  43. 43. Venue • Burdens associated with federal court leads to the obvious question, why are you there. Long, detailed opinions means the need for equivalent briefs and affidavits in federal court. • More lenient standard in NJ state court under Printing Mart on dismissal motion • Consider just proceeding with common law fraud and conspiracy and include state defendants.
  44. 44. Dismissal Standard in New Jersey State Court • Lenient standard on motion to dismiss Printing Mart v. Short 116 N.J. 739 (1989) “such motions, almost always brought at the very earliest stage of the litigation, should be granted in only the rarest of instances. If a complaint must be dismissed after it has been accorded the kind of meticulous and indulgent examination counselled in this opinion, then, barring any other impediment such as a statute of limitations, the dismissal should be without prejudice.”
  45. 45. RICO • Complex, sometimes confusing statute which provides a civil remedy for organizations (loosely defined) engaged in criminal conduct. • Statute suggests two criminal incidents allows Rico. Court construal far more narrow.
  46. 46. Challenges under Rico • Continuity Continuing criminal enterprise, not isolated acts. Under Iqbal, need to prove this at the time of pleading. (Madoff, being correct but not being able to prove it is not enough) • Mail and wire fraud Most common predicate acts. Court concern about garden variety fraud, civil disputes criminalized.
  47. 47. RICO VENUE • Venue Cases can be filed in state or federal court. • State and federal RICO statute • Review the local rule on RICO statement. My site ricolawyer.org has cases, practice tips, etc.
  48. 48. Rico Impact Mixed • Some initial impact Statute on its face imposing. But later a lot of pleadings (amended complaints, etc) and waiting. • Motion to dismiss May take 4-5 months to decide and court could stay discovery. • Lengthy briefs needed articulating each element, enterprise definition, predicate acts.
  49. 49. Conspiracy to Commit Fraud • Important Cause of Action • Not all elements of fraud cause of action have to be pleaded as to all parties. • Research aiding and abetting fraud.
  50. 50. Causes of Action in Typical Cases • Fraud and conspiracy to commit fraud. • Rico, state and federal • Consumer Fraud Act. • Breach of contract, negligence.
  51. 51. Federal Court Concerns • Motion to dismiss. Court scrutinizes complaint at the pleading stage requiring factual support and documentation. • Federal court used to and expect considerable pre-trial investigation. • Complaint should generally be drafted to maintain state jurisdiction.
  52. 52. Consumer Fraud • Broad-based statute providing treble damages and counsel fees. • Nice jury charge Model Jury Charge 4.43 • May cover various forms of deceptive conduct, though concern about exclusion with other regulatory schemes. • Avoids extensive motion practice associated with RICO.
  53. 53. Criminal Complaints • Local Police Pleasant but recommends referral to state. • State Pleasant but recommends referral to federal • FBI Prosecutions rare
  54. 54. Other Investigatory Entities • FTC • State banking regulatory entities.
  55. 55. Policy Concerns • Frauds continue- profitable, easy, lack of enforcement, plausible deniability, capable defense counsel.
  56. 56. Policy Concerns (2) • We have one of the highest rates of incarceration in the world but no one has time to investigate devastating frauds. • Not our job or jurisdiction. No one likes hard cases. Whose job is it. Statistics not helped. • Less skilled criminals arrested, better ones escape. Shouldn’t we be concentrating efforts at those who present the most danger to the public.
  57. 57. Handling of Criminal and Regulatory Complaints • Follow up, Inaction frequent- recall Madoff, multiple calls largely ignored. • Each agency has a different way of doing things. Try to understand and address their needs and procedures. • Try to have law enforcement at least interview the defendant.
  58. 58. Handling of Criminal and Regulatory Complaints • Followup. Not our job or jurisdiction. No one likes hard cases. Statistics not helped. Recognize challenges and presumption of inaction. • Multiple agencies and jurisdictions Go to different agencies. • Criminal and regulatory can generally be simultaneously. Be careful of threats to file either.
  59. 59. Discovery • Serve narrow, targeted discovery. • Serve the requests early, follow-up and file a motion to compel. • Better make sure client understand his discovery obligations. Typical comment in commercial contingency cases, the lawyer has all the papers and will handle it. Contingent or alternative fee arrangement should memorialize client’s work.
  60. 60. Depositions • Be careful of wiggle words that avoid answers, attempts to switch topics. • Defendant’s attorneys sometimes obstructive, restate questions. • Musante, The Artful Dodge, Good seminar about dealing with evasive witnesses.
  61. 61. Frivolous Claim Motions • Standard in this litigation. (the more pervasive the fraud the more likely it will be defended). • Attack on the plaintiff, a good client-relations tool for defense counsel. • Negotiating tool Implicit suggestion, we have claims, you have claims, you request counsel fees, so do we.
  62. 62. Strategies for Addressing Frivolous Claims Letters • Review and internally document your claim. • Set forth law and facts in response. • Ask questions. Will defendant provide a certification, provide specified documents for review.
  63. 63. SETTLEMENT • Amount Cases veer toward one half of loss not considering punitive or treble damages. Federal courts more likely to note pleading deficiencies than risk of enhanced damages. • Be receptive Assets dissipate. • Concern about pure percentage contingency.
  64. 64. QUESTIONS AND CONTACT INFORMATION • Comments or questions.  Feel free to contact our office if you have any questions. • Law Office of Howard A. Gutman 230 Route 206, Suite 307 Flanders, New Jersey 07836 315 Madison Avenue, Suite 901 New York, New York 10165 (973) 598-1980, howardgutman@aol.com, www. ricolawyer.org.  We can help you identify arguments, prepare briefs, and effectively present your case or defense.


You want to file a RICO claim with your civil complaint.  Indeed, your client may have come to you for the specific reason of filing under RICO.   He may be telling you about the damages the statute provides and the impact the filing will have.  Stop!   Take a second to review the pros and cons.

1.  Venue in federal court.

Without a RICO claim, it is possible for the claim to be filed in and remain in state court.  Federal caselaw now allows a motion to dismiss to challenge the complaint, and have plaintiff substantiate its allegations, before any discovery.   You will face a mini summary judgment motion at the onset.   In contrast, in states such as New Jersey, early motions to dismiss are disfavored and outlining the claim and requesting discovery may be sufficient.

2. Other causes of action may be as persuasive without the baggage.

Common law fraud permits punitive damages without a lengthy pleading.  You will likely include state fraud claims and conspiracy anyway.  Many state consumer fraud statutes such as New Jersey permit triple damages without the requirement of showing a pattern, criminal enterprise, predicate acts  and satisfying other statutory requirements.

3. Why  not file the State RICO statute.

Less popular, state civil RICO statutes can provide similar relief.

Law Office of Howard Gutman
(providing co-counsel, consulting, research, and other services on RICO claims).

RICO Cases: An Overview

The federal RICO statute enables a plaintiff to present claims showing a deceptive scheme or other unlawful conduct. It provides various potentially strong remedies including the award of counsel fees and treble damages. Because of its many requirements and frequently narrow construction by courts, it is sometimes of limited utility, creating protracted litigation, rather than quick settlement or early judgment. There are pros and cons to RICO litigation. Since the potential problems are large, it is appropriate to start with them.


1. Judges frequently don’t like it particularly if that is the basis for federal jurisdiction. You do not want to start off on the wrong foot.

2. Overestimating settlement value You may simply give the defendant’s attorney an opportunity to file multiple motions to dismiss rather than target the offending conduct. A magistrate can even hold up the case while a motion to dismiss or jurisdictional challenge is evaluated.