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Supreme court to rule on accountants' liability under civil RICO.

The U. S. Supreme Court agreed to review an appellate court decision on whether accountants and other outside professionals may be sued under the civil provisions of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act.

In the case under appeal, Reeves v. Arthur Young & Company (no. 91-886), Ernst & Young's predecessor was found to have committed securities fraud by helping conceal the perilous financial condition of a farmers' cooperative that operated in Arkansas and Oklahoma before going- bankrupt. The jury awarded the investors $6.1 million to compensate for their losses.

The Eighth Circuit Court of Appeals ruled the firm's conduct wasn't covered by RICO because although "it is clear that Arthur Young committed a number of reprehensible acts ... these acts in no way rise to the level of participation in the management or operation" of the cooperative.

The court held that absent "some participation in the operation or management of the enterprise itself," a defendant could not be found to have "participated in the conduct of the affairs" of the enterprise in violation of RICO section 1964(c). But the appeals court acknowledged other federal courts have interpreted RICO liability more liberally.

The Supreme Court's ruling could affect numerous lawsuits charging that accountants, lawyers and consultants participated in fraudulent activities. Since the case goes to the heart of the distinction between "central" participants and peripheral defendants, a decision upholding the Eighth Circuit ruling would provide greater protection for accountants against civil RICO claims.

On the other hand, if the Court reverses the appellate decision, it could limit protections against civil RICO claims that at least some courts have recognized.
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Publication:Journal of Accountancy
Date:May 1, 1992
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