Justice Dept. Revises Rules on RICO Cases

The U.S. Department of Justice for a second time has taken steps to rein in tactics in racketeering prosecutions that sparked controversy during Wall Street corruption cases brought by former Manhattan U.S. Attorney Rudolph W. Giuliani.

According to a newly disclosed Justice Department internal memo, criminal division chief Edward S. G. Dennis ordered federal prosecutors around the country to limit demands for pretrial freezes on assets under the tough Racketeer Influenced and Corrupt Organizations law. He said they should not seek the fullest financial forfeiture permissible under the law where that forfeiture would be disproportionate to the defendant’s crime.

The memo cited criticism in the press of tactics used in some highly publicized cases. It mentioned no cases by name, but Giuliani’s office sparked wide criticism in the RICO prosecution of five officials of New Jersey’s Princeton/Newport Partners for forfeiture demands that drove the investment firm to fold last December.

The five were finally convicted in August. Prosecutors originally sought pretrial restraints on all of the assets of the partnership--which was not indicted--and indicated that forfeitures could exceed $26 million. The jury eventually ordered just $3.8 million in forfeitures, but prosecutors are appealing that ruling.

Forfeiture threats also played a role last year in persuading Drexel Burnham Lambert Inc. to plea bargain with Giuliani. Fearing disastrous asset freezes before it ever got to trial, Drexel pleaded guilty to six felonies to avoid a RICO indictment.

The June 30 memo--disclosed last week--marked the second recent policy shift on RICO apparently tied to Giuliani’s tactics. As previously reported, the Justice Department’s tax division in July said prosecutors should no longer circumvent the intent of Congress by using RICO in tax cases. In Princeton/Newport, Giuliani’s office charged that bogus securities trades, which accelerated the timing of tax losses, constituted a RICO violation.

Before the Princeton/Newport trial, investors pulled out because of fear about the effect of the RICO indictment on their investment. Giuliani, now running for mayor of New York, said at the time that the effect of an indictment on a defendant’s business was not his concern.

Dennis’ memo said that in future cases, prosecutors seeking pretrial asset freezes will be required to publicly announce that the government will not seek to disrupt the normal, legitimate business activities of the defendant.