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Indiana RICO Act applies to 'foot soldiers'

Jennifer Nelson
January 1, 2008
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An Indiana Supreme Court decision Feb. 27 regarding the state's racketeering laws creates a larger net of potential defendants that can be charged under it.

The Indiana Supreme Court ruled that under Indiana's RICO (Racketeer Influenced and Corrupt Organizations) Act, a person can be implicated under the state act even if he or she doesn't participate in directing the racketeering activity.

In Linda Keesling, Harold Lephart, et al. v. Frederick Beegle III, John Bucholtz, et al., No. 18S04-0704-CV-150, the high court accepted transfer to rule on whether liability under the Indiana RICO Act extends only to people who direct racketeering activity, the "generals," or whether it extends below the managerial or supervisory level to the "foot soldiers."

The Supreme Court ruled that the Indiana RICO Act uses "significantly broader" language than the federal act, which states that it's unlawful for anyone employed by or associated with an enterprise to "conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt."

Under Indiana's act, a person can be charged if he or she "knowingly or intentionally conducts or otherwise participates in the activities of that enterprise through a pattern of racketeering activity."

As a result of this difference in language, the Supreme Court overturned summary judgment in favor of defendants Dennis Baugher; Baugher's company, Florida Underwriting; and William Jones with respect to the Indiana RICO Act, finding Indiana's act imposes liability on both persons at or below a racketeering enterprise's level of manager or supervisor.

The plaintiffs are Indiana residents who purchased pay telephones and entered into service agreements to install, service, and maintain the phones. The plaintiffs were passive investors in the program that targeted investors across the country, relying upon the promoters of the deal to select locations, install, and service phones, as well as obtain all regulatory certifications.

Kelley Johnson, associate at Cohen & Malad and an attorney on the case, described the program as a pyramid scheme in which the only way people could receive money was to recruit more people into the program.

The promoters violated federal security laws by not registering the pay-telephone program with the Securities and Exchange Commission.

Baugher, president of Florida Underwriting, was not one of the ultimate promoters of the program but did have an agreement with the promoters to recruit sales representatives and receive commission on the sales made by his recruits. Baugher recruited Jones; Jones in turn recruited another person, who made the sales to plaintiffs Keesling and the Lehparts.

The plaintiffs sued, alleging violations of the Indiana Securities Act, the Indiana RICO Act, fraud, conversion, and theft. The Court of Appeals affirmed the trial court grant of summary judgment in favor of Baugher, Florida Underwriting, and Jones with respect to the fraud, conversion, and theft allegations; however, the court reversed the grant of summary judgment in their favor with respect to the Indiana Securities and Indiana RICO Act allegations.

The Court of Appeals had previously ruled that in order for someone to be charged under the Indiana RICO Act, the person must do more than just participate in the activities of the enterprise but actually participate in the operation or management of it, Yoder Grain, Inc. v. Antalis, 722 N.E.2d 840, 846 (Ind. [Ct.] App. 2000).

However, in this case, the Court of Appeals took a different approach, finding Indiana's RICO Act is broader than the federal statute and that merely participating in the activities of an enterprise can allow a person to be charged under the act.

The Supreme Court agrees with the Court of Appeal's decision in this case, ruling that the scope of liability under the Indiana act is broader than the federal act because it imposes liability not only on the person who "conducts" the activities, but also one who "otherwise participates in the activities," wrote Justice Frank Sullivan.

The legislature intended for the Indiana act to reach "a racketeering enterprise's 'foot soldiers' as well as its 'generals,'" he wrote.

The Supreme Court vacated the trial court's grant of summary judgment in favor of Baugher, Florida Underwriting, and Jones with respect to the Indiana RICO Act allegations and remanded to the trial court for further proceedings. In all other respects, the high court affirms the Court of Appeals' ruling.

"This definitely solidifies that the Indiana act is different from the federal act, which I think has been a question for some time," Johnson said.

Bradley Skolnik, attorney at Stewart & Irwin and former Indiana Securities commissioner, said this ruling will give plaintiffs more opportunities to file RICO cases in Indiana.

"I would characterize this as an investor-friendly decision of the court," he said. "It certainly broadens the scope of potential defendants in any security fraud or RICO action."
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  1. He called our nation a nation of cowards because we didn't want to talk about race. That was a cheap shot coming from the top cop. The man who decides who gets the federal government indicts. Wow. Not a gentleman if that is the measure. More importantly, this insult delivered as we all understand, to white people-- without him or anybody needing to explain that is precisely what he meant-- but this is an insult to timid white persons who fear the government and don't want to say anything about race for fear of being accused a racist. With all the legal heat that can come down on somebody if they say something which can be construed by a prosecutor like Mr Holder as racist, is it any wonder white people-- that's who he meant obviously-- is there any surprise that white people don't want to talk about race? And as lawyers we have even less freedom lest our remarks be considered violations of the rules. Mr Holder also demonstrated his bias by publically visiting with the family of the young man who was killed by a police offering in the line of duty, which was a very strong indicator of bias agains the offer who is under investigation, and was a failure to lead properly by letting his investigators do their job without him predetermining the proper outcome. He also has potentially biased the jury pool. All in all this worsens race relations by feeding into the perception shared by whites as well as blacks that justice will not be impartial. I will say this much, I do not blame Obama for all of HOlder's missteps. Obama has done a lot of things to stay above the fray and try and be a leader for all Americans. Maybe he should have reigned Holder in some but Obama's got his hands full with other problelms. Oh did I mention HOlder is a bank crony who will probably get a job in a silkstocking law firm working for millions of bucks a year defending bankers whom he didn't have the integrity or courage to hold to account for their acts of fraud on the United States, other financial institutions, and the people. His tenure will be regarded by history as a failure of leadership at one of the most important jobs in our nation. Finally and most importantly besides him insulting the public and letting off the big financial cheats, he has been at the forefront of over-prosecuting the secrecy laws to punish whistleblowers and chill free speech. What has Holder done to vindicate the rights of privacy of the American public against the illegal snooping of the NSA? He could have charged NSA personnel with violations of law for their warrantless wiretapping which has been done millions of times and instead he did not persecute a single soul. That is a defalcation of historical proportions and it signals to the public that the government DOJ under him was not willing to do a damn thing to protect the public against the rapid growth of the illegal surveillance state. Who else could have done this? Nobody. And for that omission Obama deserves the blame too. Here were are sliding into a police state and Eric Holder made it go all the faster.

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