Editor’s Note – The following article on RICO was written for lawyers and is to be published in the National Law Review. We are posting it here because it useful for business owners and individuals victimized by banks and others. RICO is one of the most powerful anti-fraud statutes on the books. Unfortunately, it is so misused and improperly pled that we see many judges tossing otherwise viable RICO claims. If you have a case with damages in excess of $1 million or more, consider talking to us. We are a boutique national firm that sues banks and pursues fraud claims on behalf of businesses and individuals.
Need more information? Contact attorney Chris Katers at [hidden email] or by telephone at (414) 777-0778. The author of this article, attorney Brian Mahany, can be reached at [hidden email]
Predicate Acts for NJ RICO Statute
by Brian Mahany Esq.
The Racketeer Influenced and Corrupt Organizations Act (RICO) is one of the most powerful, most misunderstood and most misused civil fraud recovery statute on the books. Originally enacted by Congress in 1970 as part of an organized crime control package, many states have enacted their own state version of RICO. One of those states is New Jersey.
Although there are major similarities between the two laws, the New Jersey RICO statute enumerates many more predicate acts. These predicate acts are necessary to demonstrate a “pattern of racketeering activity.” To understand the differences, some background is in order.
RICO establishes four separate civil causes of action. These can all be found in 18 U.S.C. sec. 1962. Entire volumes have been written on these causes of action; what follows is a very brief summary.
Section 1962(a) makes it unlawful for any person who has received any income derived from a pattern of racketeering activity to use or invest any part of that income in the acquisition or operation of any enterprise which is engaged in or affects interstate or foreign commerce. This is the so-called “investment” or “a” claims section of the statute.
Section 1962(b) makes it unlawful for any person through a pattern of racketeering activity to acquire or maintain any interest in or control of any enterprise which is engaged in or affects interstate or foreign commerce. This is the “b” claims or “acquisition” section of the statute.
Section 1962(c) says it is unlawful for any person employed by or associated with any enterprise engaged in or affecting interstate or foreign commerce to conduct or participate in the conduct of such enterprise’s affairs through a pattern of racketeering activity. This is the “c” or participation section.
Finally, section 1962(d)makes it unlawful for any person to conspire to violate any of the above provisions. These are the “D” or “conspiracy” claims.
All of these sections speak of a “pattern of racketeering activity.” Just what exactly is that? The racketeering activity requires certain predicate act. (NJ speaks of predicate “incident,” more on that in a moment.) The federal RICO statute sets forth an exhaustive list of predicate acts. Section 1961(1) lists these as follows:
“racketeering activity” means (A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which is indictable under any of the following provisions of title 18, United States Code: Section 201 (relating to bribery), section 224 (relating to sports bribery), sections 471, 472, and 473 (relating to counterfeiting), section 659 (relating to theft from interstate shipment) if the act indictable under section 659 is felonious, section 664 (relating to embezzlement from pension and welfare funds), sections 891–894 (relating to extortionate credit transactions), section 1028 (relating to fraud and related activity in connection with identification documents), section 1029 (relating to fraud and related activity in connection with access devices), section 1084 (relating to the transmission of gambling information), section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), section 1344 (relating to financial institution fraud), section 1351 (relating to fraud in foreign labor contracting), section 1425 (relating to the procurement of citizenship or nationalization unlawfully), section 1426 (relating to the reproduction of naturalization or citizenship papers), section 1427 (relating to the sale of naturalization or citizenship papers), sections 1461–1465 (relating to obscene matter), section 1503 (relating to obstruction of justice), section 1510 (relating to obstruction of criminal investigations), section 1511 (relating to the obstruction of State or local law enforcement), section 1512 (relating to tampering with a witness, victim, or an informant), section 1513 (relating to retaliating against a witness, victim, or an informant), section 1542 (relating to false statement in application and use of passport), section 1543 (relating to forgery or false use of passport), section 1544 (relating to misuse of passport), section 1546 (relating to fraud and misuse of visas, permits, and other documents), sections 1581–1592 (relating to peonage, slavery, and trafficking in persons).,[1] section 1951 (relating to interference with commerce, robbery, or extortion), section 1952 (relating to racketeering), section 1953 (relating to interstate transportation of wagering paraphernalia), section 1954 (relating to unlawful welfare fund payments), section 1955 (relating to the prohibition of illegal gambling businesses), section 1956 (relating to the laundering of monetary instruments), section 1957 (relating to engaging in monetary transactions in property derived from specified unlawful activity), section 1958 (relating to use of interstate commerce facilities in the commission of murder-for-hire), section 1960 (relating to illegal money transmitters), sections 2251, 2251A, 2252, and 2260 (relating to sexual exploitation of children), sections 2312 and 2313 (relating to interstate transportation of stolen motor vehicles), sections 2314 and 2315 (relating to interstate transportation of stolen property), section 2318 (relating to trafficking in counterfeit labels for phonorecords, computer programs or computer program documentation or packaging and copies of motion pictures or other audiovisual works), section 2319 (relating to criminal infringement of a copyright), section 2319A (relating to unauthorized fixation of and trafficking in sound recordings and music videos of live musical performances), section 2320 (relating to trafficking in goods or services bearing counterfeit marks), section 2321 (relating to trafficking in certain motor vehicles or motor vehicle parts), sections 2341–2346 (relating to trafficking in contraband cigarettes), sections 2421–24 (relating to white slave traffic), sections 175–178 (relating to biological weapons), sections 229–229F (relating to chemical weapons), section 831 (relating to nuclear materials), (C) any act which is indictable under title 29, United States Code, section 186 (dealing with restrictions on payments and loans to labor organizations) or section 501(c) (relating to embezzlement from union funds), (D) any offense involving fraud connected with a case under title 11 (except a case under section 157 of this title), fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), punishable under any law of the United States, (E) any act which is indictable under the Currency and Foreign Transactions Reporting Act, (F) any act which is indictable under the Immigration and Nationality Act, section 274 (relating to bringing in and harboring certain aliens), section 277 (relating to aiding or assisting certain aliens to enter the United States), or section 278 (relating to importation of alien for immoral purpose) if the act indictable under such section of such Act was committed for the purpose of financial gain, or (G) any act that is indictable under any provision listed in section 2332b(g)(5)(B).
Many of these predicate acts may be useful in a criminal prosecution but are useless to private lawyers pursuing civil RICO claims. White slavery? Biological weapons? Drug trafficking? Nuclear materials? It is hard to imagine many civil suits relying on those criminal acts.
Our firm primarily uses the federal and state civil RICO statutes to sue banks, lenders, special servicers and appraisers. Obviously, these statutes can be very useful in other commercial claims. Lawyers love these laws because of the ability to receive triple damages, litigation expenses and legal fees.
The primary predicate acts used by most lawyers are mail and wire fraud. In today’s commerce, just about all business takes places by telephone, email (wire) and mail. Extortion is another common predicate act.
Under the federal RICO statute, extortion can take the form of a state law crime (if the state punishes that conduct with more than a year in prison) or as a violation of the Hobbs Act, 18 U.S.C. sec.1951. Bank fraud can be a predicate act but usually only arises in cases brought by banks and not actions against banks.
Wire and mail fraud are usually more than enough to bootstrap an argument for the existence of a “pattern of racketeering activity.”
Often, state RICO claims offer a broader selection of predicate acts. This may be useful for plaintiffs hoping to create a pattern of racketeering using more than just wire and mail fraud. Plaintiffs sometimes also to bring suit in state courts and keep them there.
Although state courts can hear federal RICO claims, bringing a federal cause of action in state court may mean the case is removed to federal court. Using the state version of RICO better assures the case remains in state court.
New Jersey is one of the states that offers a broader range of predicate acts. The New Jersey legislature adopted most of the federal predicates and then listed their own additional acts.
Under New Jersey Stat. Ann. Sec. 2C:41, the state legislature has defined predicate acts as follows”
a."Racketeering activity" means any of the following crimes which are crimes under the laws of New Jersey or are equivalent crimes under the laws of any other jurisdiction:
(a)murder
(b)kidnapping
(c)gambling
(d)promoting prostitution
(e)obscenity
(f)robbery
(g)bribery
(h)extortion
(i)criminal usury
(j)violations of Title 33 of the Revised Statutes
(k)violations of Title 54A of the New Jersey Statutes and Title 54 of the Revised Statutes
(l)arson
(m)burglary
(n)theft and all crimes defined in chapter 20 of Title 2C of the New Jersey Statutes
(o)forgery and fraudulent practices and all crimes defined in chapter 21 of Title 2C of the New Jersey Statutes
(p)fraud in the offering, sale or purchase of securities
(q)alteration of motor vehicle identification numbers
(r)unlawful manufacture, purchase, use or transfer of firearms
(s)unlawful possession or use of destructive devices or explosives
(t)violation of sections 112 through 116 inclusive of the "Casino Control Act," P.L.1977, c.110 (C.5:12-112 through 5:12-116)
(u)violation of N.J.S.2C:35-4, N.J.S.2C:35-5 or N.J.S.2C:35-6 and all crimes involving illegal distribution of a controlled dangerous substance or controlled substance analog, except possession of less than one ounce of marijuana
(v)violation of subsection b. of N.J.S.2C:24-4 except for subparagraph (b) of paragraph (5) of subsection b.
(w)violation of section 1 of P.L.1995, c.405 (C.2C:39-16), leader of firearms trafficking network
(x)violation of section 1 of P.L.1983, c.229 (C.2C:39-14), weapons training for illegal activities
(y)violation of section 2 of P.L.2002, c.26 (C.2C:38-2), terrorism
(z)violation of section 1 of P.L.2005, c.77 (C.2C:13-8), human trafficking
(aa) violation of N.J.S.2C:12-1 requiring purposeful or knowing conduct
(bb) violation of N.J.S.2C:12-3, terroristic threats
(cc) violation of section 1 of P.L.2015, c.85 (C.2C:33-31), dog fighting.
Because the New Jersey legislature mostly adopted the federal predicates acts, the state law is at least as broad as its federal counterpart. There is more, however.
Congress in 1995 enacted the Private Securities Litigation Reform Act. That law specifically excluded many forms of securities fraud as predicate acts under the federal RICO statute. New Jersey has no such restriction. A lawsuit based on fraud in the offering or purchase of securities can be a predicate act under NJRICO.
Before looking at some of the other specific predicate offenses found in New Jersey law, it is important to note that NJRICO speaks in terms of predicate “incidents.” The federal RICO statute uses the term predicate “acts.” Is there a difference? Yes!
The New Jersey Supreme Court found that the state Legislature must have considered the difference in meaning and intentionally chose to use the term “incident.” According to the court, “We infer from the preference for the word ‘incident’ with its perceived meaning of ‘happening’ or ‘circumstance’ that the Legislature intended to cover a broader spectrum of behavior than is connoted by the Act.” State v. Ball, 661 A.2d 251, 263 (N.J. 1995). In other words, behavior that might not be enough under federal RICO may still qualify for New Jersey RICO.
That same New Jersey Supreme Court decision also found that the existence of “continuity” is not relevant to finding a pattern of racketeering activity. Although the court found that “continuity” may still be relevant, the decision allows for more unrelated offenses to still qualify for a pattern.
Read together, these two holdings in Ball certainly imply that the state RICO statute is defined more broadly and includes more wrongful behaviors.
So what are some of the specific behaviors that can be predicate incidents or acts under NJRICO?
New Jersey lists “forgery and fraudulent practices”, tax violations, theft and violations of Chapter 21 of the state’s criminal code.
Chapter 21 of Title 2C contains a number of criminal statutes that may be of value to private litigants pursuing civil RICO charges against wrongdoers. Included in that section are laws prohibiting the use of false government documents (2C:21-2.1), false filings of public records (2C:21-3), records tampering (2C:21-4), healthcare fraud, insurance fraud (2C:21-4.6), bad checks and fraudulent electronic funds transfers (2C:21-5), deceptive business practices (2C:21-7), misconduct by a corporate official (2C:21-9), commercial bribery and failure to act disinterestedly (2C:21-10), defrauding secure creditors (2C:21-12), fraud in insolvency (2C:21-13), receiving deposits in a failing financial institution (2C:21-14), misapplication of entrusted property (2C:21-15), securing execution of documents by deception (2C:21-16), identity theft (2C:21-17), wrongful credit practices (2C:21-19), and money laundering (2C:21-23).
Another difference is in how both RICO statutes define “theft” as a predicate incident or act. The federal statute lists theft from an interstate carrier. New Jersey, however, specifies “theft and all crimes defined in chapter 20 of Title 2C of the New Jersey Statutes.” Chapter 20 includes not only traditional theft but computer crimes, theft by extortion, theft by deception, theft by failure to make required disposition, theft of property delivered by mistake and wrongful disclosure of information.
Clearly, the New Jersey Legislature intended to cover many more theft offenses than did Congress. Actions which may not establish a pattern of racketeering activity under federal RICO may still be actionable under New Jersey’s Racketeer Influenced and Corrupt Organizations Act.
Often lawyers not familiar with RICO believe that both the federal and many state statutes are the same. Nothing could be further from the truth. Often the state laws offer more opportunities for those astute enough to recognize the differences and nuances. If you are a lawyer or plaintiff and believe that you have a claim for racketeering activity, make sure you always consider state RICO claims.