Richard Raysman is a Pattner in the New York office
The Racketeering Influenced Corrupt Organizations Act (RICO) (18 U.S.C. § 1962) is a federal civil and criminal statute originally designed to thwart organized crime. It has been previously used to prosecute, among others, the Hells Angels, the Genovese crime family, and junk bond king Michael Milken. At least in one recent case, Edvisors Network, Inc. v. Husser, No. 14-062-JJB-RLB (M.D. La. Aug 4, 2014), it was used to allege causes of action against a scheme designed to defraud a referral program established by an online lending website.
Facts
Edvisors Network, Inc. (Edvisors) operates an online lending resource center that assists prospective students in finding student loans. To do so, Edvisors uses affiliates to market its services and direct prospective students to its website. One of those affiliates was run by individuals at a site called "Pay4mycollege" (the Hussers). The Hussers became an affiliate of Edvisors and thereafter posted a banner on its pay4mycollege.com website that hyperlinked (and therefore, routed) visitors to Edvisors. The Hussers were compensated based on the number of visitors that completed student loan questionnaires after being routed to Edvisors via pay4mycollege.com
In filing a complaint that alleged violations of RICO, Edvisors claimed that the Hussers used the information of unknowing students and thereafter posed as these students to complete thousands of questionnaires on Edvisors while purposefully concealing their true identity. Edvisors further averred that Clint Husser had become involved in a sordid pay-for-sex relationship with a unnamed "Jane Doe." Husser allegedly compensated Jane Doe $1 per questionnaire submitted to Edvisors via the pay4college.com website. He also assisted her in becoming an affiliate of Edvisors so as to perpetrate similar online fraud against Edvisors.
This purported fraud resulted in Edvisors paying the Hussers in excess of $90,000 in "unearned" commissions. Edvisors filed suit based on RICO and the corresponding Louisiana state law. The Hussers filed a motion to dismiss.
Legal Conclusions/Analysis
To succeed in a civil RICO claim, the plaintiff must establish these three common elements: (1) a person; (2) a pattern of racketeering activity; and (3) an enterprise. See Delta Truck & Tractor, Inc. v. J.I. Case Co., 855 F.2d 241 (5th Cir. 1988). The RICO person (in this case, the Hussers) must "pose[] or has posed a continuous threat of engaging in acts of racketeering," an element that can be met by showing a pattern of racketeering activities. "A pattern of racketeering activity" requires at least two acts of racketeering activity which includes wire fraud, mail fraud, and interstate transportation of stolen goods, all of which were alleged by Edvisors.
The court agreed that Edvisors had evinced a prima facie case that the Hussers had committed wire fraud because they had utilized the Internet to commit thousands of violations within the same overarching plan to receive untoward commissions from Edvisors. See also 18 U.S.C.§ 1343 (wire fraud section of RICO). Therefore, a pattern of racketeering had been established. The court also found that the Hussers' business "pay4mycollege.com" and the relationship between Clint Husser and Jane Doe each constituted separate enterprises.
Edvisors also had to allege facts that met at least one of the RICO subsections contained in section 1962. The court found that Edvisors had sufficiently plead all four. Of most interest is the finding that Edvisors had plead sufficient facts to satisfy the RICO prohibition against the derivation of income from a pattern of racketeering activity, and the use of any part of that income in acquiring an interest in or operating an enterprise. First, the court held that the complaint adequately alleged that the Hussers derived income from racketeering in the amount of $90,000 of fraudulently earned commissions. Second, the complaint alleged that the Hussers' decision to invest money in Jane Doe to establish a second enterprise created further unearned commissions ultimately remitted to the Hussers. See also St. Paul Mercury Ins. Co. v. Williamson, 225 F.3d 425 (5th Cir. 2000) (explicating the full test for this type of RICO violation).
Accordingly, Edvisors survived the Rule 12(b)(6) motion to dismiss.
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