CFO Violated RICO; Plaintiff Awarded $3.5 Million in Damages

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

The bookkeeper and chief financial officer (CFO) of an industrial machinery supplier violated RICO by participating in a fraudulent scheme to sell overpriced equipment to a flooring company, the federal district court in Abingdon, Virginia, has ruled. More than $3.5 million in damages, after trebling under RICO, were awarded to the flooring company.

Participation in Enterprise

The bookkeeper-CFO participated in the conduct of an association-in-fact enterprise—which consisted of the plaintiff, her husband, the supplier, and a company that appeared to be used for the sole purpose of carrying out the fraudulent scheme—by manipulating the supplier’s books and records, creating false invoices, signing kickback checks, and obstructing access to accurate data and documents, the court explained.

These actions were integral to the operation of the enterprise. Without the manipulation of the supplier’s accounting records, the issuance of false invoices, and the cutting of the kickback checks, the enterprise would have not been able to achieve its goal of defrauding a flooring company.

Pattern of Racketeering

The defendant and her co-conspirators engaged in a pattern of racketeering activity that consisted of mail fraud, wire fraud, commercial bribery, and obstruction of justice, even though those acts were perpetrated in furtherance of a single scheme to defraud a single customer (the flooring company), the court determined. Under RICO, a pattern of racketeering was present if a series of related predicate acts were committed over a substantial period of time.

In this case, the racketeering acts were related because they all were perpetrated to defraud the flooring company. The acts were sufficiently continuous, as well, because they were committed between September 2005 and 2008, which represented a substantial period of time for the purpose of RICO’s continuity requirement.

Punitive Damages; Attorney Fees

The court denied the plaintiff’s request for punitive damages because the plaintiff’s state law claims arose from the same set of facts, and were based on the same duties and injuries, as its RICO claims. A punitive damage award would thus be duplicative. The plaintiff’s request for nearly $713,000 in attorney fees was also denied.

Although the hourly rate charged by the plaintiff’s counsel was reasonable, the overall fee was not, according to the court. Therefore, the plaintiff’s fee request was reduced by 50 percent. The court awarded slightly more than $356,000 in attorney fees.

The decision is VFI Associates, LLC v. Lobo Machinery Corp., CCH RICO Business Disputes Guide ¶12,204.

Further information regarding CCH RICO Business Disputes Guide appears here.