In a recent settlement conference for a RICO case I am prosecuting, one of the defense counsel was commenting about how the case is “just a business dispute,” not a RICO case. Of course, he was downplaying the strength of the RICO case. But he surprised me when he said how no one understands RICO, including the court. It was obvious that he did not read any of my columns discussing RICO. See Civil RICO and Proximate Cause: A Tool for Defendants and Challenge for Plaintiffs; The Forgotten and Often Misunderstood Sections of RICO; and How RICO Plays a Role in the World of Harvey Weinstein and #MeToo. Contrary to counsel’s comments, the reach of RICO is expanding, not contracting, especially in the U.S. Court of Appeals for the Third Circuit.
Until recently, creditors who attempted to recover their monies against debtors using sophisticated schemes to conceal or transfer their assets could collect either under fraudulent transfer law or reverse veil-piercing. Most states have enacted the Uniform Fraudulent Transfer Act, which was intended to prevent debtors from divesting themselves of assets to prevent creditors from collecting. Reverse veil-piercing allows creditors to prove that an entity is essentially the debtor and thus the entity’s assets are used to satisfy the obligations of the debtor. Many states, however, refuse to apply this doctrine because it bypasses the normal judgment collection procedures and fails to protect nonculpable shareholders that would be prejudiced if the corporation’s assets were attached. Both the Uniform Fraudulent Transfer Act and reverse veil-piercing have their shortcomings as they are often unable to penetrate the sophisticated networks and structures designed by savvy fraudsters. Even when these legal theories are “successful,” the creditor is typically only able to salvage a limited recovery against part of a debtor’s protected assets.
