Handling the Fraud and RICO Claim

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. 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. Fraud Claim Viability
• Many of those committing frauds have
substantial assets.
• Cases have obvious jury appeal.
• Value, helping to protect society, deter
wrongdoing.

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. 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. 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. 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. 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. 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. (I’ll go to the police or

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Memorialize Client Help
• Provide for client obligations in
engagement agreement.

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Causes of Action in Typical
Cases
• Fraud and conspiracy to commit fraud.
• Rico, state and federal
• Consumer Fraud Act.
• Breach of contract, negligence.

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. 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. Criminal Complaints
• Local Police Pleasant but recommends
referral to state.
• State Pleasant but recommends referral
to federal
• FBI Prosecutions rare

54. Other Investigatory Entities
• FTC
• State banking regulatory entities.

55. Policy Concerns
• Frauds continue- profitable, easy, lack of
enforcement, plausible deniability, capable
defense counsel.

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. 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. 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. 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. 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. 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. 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. 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. QUESTIONS AND CONTACT
INFORMATION
• Comments or questions today. Feel free
to contact me 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