Edward T. Kang of Kang Haggerty Fetbroyt.

The complexity with RICO (the Racketeer Influenced and Corrupt Organizations Act), however, does not end there. Almost all RICO lawsuits filed are brought under Section 1962(c) (note: violation under Section 1962(d) relating to conspiracy to violate a substantive section is routinely asserted whenever there is a violation of a substantive section). But, what about Sections (a) and (b)? Why are these sections rarely used? Is it because these sections are generally inapplicable? While the specificity of Sections 1962(a) and (b) compared to the breadth of Section 1962(c) is a reason these sections are not commonly used, it is also because they are more difficult to understand, and often misunderstood. In effect, these sections have become virtually forgotten. While many lawyers have an understanding—ranging from basic to advance—of Section (c), far fewer understand (a) and (b).

Pleading and Proving a RICO Violation Under Section 1962(a)— Investment of Income

Section 1962(a) is primarily concerned with money laundering activity. This section makes it unlawful for “any person who has received any income derived … from a pattern of racketeering activity … to use or invest … any part of such income … in acquisition of an interest in … any enterprise ….” Here, the RICO enterprise is the “prize” of the racketeers whereas the RICO enterprise is the “instrument” of the racketeers under Section 1962(c).

Section 1962(a) prohibits investing any income derived from a pattern of racketeering activity to acquire any interest in an enterprise. The section prohibits a person from using “dirty money,” for instance, to buy a membership interest in a legitimate business. As stated above, money laundering is typically the most common goal of the racketeers under this section. By investing dirty money into a legitimate business and, in turn, using the business to write checks to themselves (or affiliates), the racketeers complete the money laundering cycle.

To have standing under this section, a plaintiff must plead and prove that he was injured from the “use” or “investment” of dirty money. Alleging that the plaintiff was injured from the racketeering activity is not sufficient. Although there is a circuit split about the type of injury necessary to confer standing under Section 1962(a), the majority view, which is followed by the U.S. Court of Appeals for the Third Circuit, holds that the investment (or use of dirty money) itself must proximately cause the plaintiff's injury, as in Guy's Mechanical Systems v. FIA Card Services, 339 Fed.App'x. 193, 195 (3d Cir. 2009). The Third Circuit has held that the same act cannot constitute both the predicate act through which dirty money was realized and the later investment of that money in a way that harms the plaintiff, as it would blur any distinction between Sections 1962(a) and 1962(c).