RICO Action In Mortgage Securitization

Dear Jim:

The essential element to prove in a RICO action is a conspiracy among two or more people to violate any law, state or federal. For example, if a single employee embezzles money from an employer without others knowing, you probably cannot prove the elements of a RICO case. On the other hand, if a group of employees cooperates to effect an embezzlement scheme, you might well have the basis for a civil RICO action (in addition to any criminal action the District Attorney might bring).

I have long believed that the RICO statutes are tailor-made to address the kind of institutionally generated fraud we have seen perpetrated throughout this financial crisis. Think about the fact that most of these securitization were developed specifically to allow certain huge clients (like governments and pension funds) to buy types of assets they were prohibited by law from acquiring. Think about the fact that the investment banks openly conspired with the major ratings companies to give AAA ratings to these poorly understood, risky assets.

I therefore echo your view that the emergence of well-publicized RICO actions in this arena is groundbreaking. I believe it is safe to say this is the tip of the iceberg.

Respectfully yours,

CIGA Richard B.