The opinion of the court was delivered by: BARTLE
On December 4, 1996, the grand jury returned a 63 count indictment against Allen W. Stewart ("Stewart"). It charges: (1) a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962; (2) 12 acts of mail fraud, in violation of 18 U.S.C. § 1341; (3) 13 acts of wire fraud, in violation of 18 U.S.C. § 1343; and (4) 35 acts of money laundering in violation of 18 U.S.C. § 1957. The final two counts of the indictment seek forfeiture of Stewart's assets.
Stewart now moves this court to dismiss the indictment on two grounds pursuant to Rule 12(b) of the Federal Rules of Criminal Procedure.
He states that the indictment fails to allege all the required elements of a RICO violation and that the entire indictment is "preempted" by state law by reason of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq.
In a motion to dismiss the indictment we accept as true the facts alleged in the indictment and determine if those facts "constitute the violation of law for which [the defendant] is charged." United States v. Polychron, 841 F.2d 833, 834 (8th Cir.), cert. denied, 488 U.S. 851, 102 L. Ed. 2d 107, 109 S. Ct. 135 (1988); United States v. Seitz, 952 F. Supp. 229, 1997 U.S. Dist. LEXIS 777, 1997 WL 34690, at *1 (E.D. Pa. 1997). If the facts do not constitute a violation of federal law, the charges should be dismissed. Polychron, 841 F.2d at 834.
According to the indictment, Stewart committed a pattern of racketeering activity through his association with Summit National Life Insurance Company ("Summit"), now incorporated in Pennsylvania, which he purchased in 1988. P 3. Stewart allegedly "acquired control of Summit ... through a scheme wherein the costs of acquiring the company, including the purchase price, were paid from the insurance company's own funds after it was acquired." P 6. By acts of wire and mail fraud, Stewart devised and furthered schemes to siphon funds out of Summit as well as Equitable Beneficial Life Insurance Company ("Equitable"), another Pennsylvania domestic life insurance company he controlled. PP 4, 11. Summit's capital and surplus was $ 38 million when Stewart purchased the company in 1988, but decreased to negative $ 80.5 million by 1993. P 10. Likewise, Equitable's capital and surplus was reduced from $ 2 million in 1988 to negative $ 43.2 million in 1993. P 12. Through a series of transactions which inflated the book value of Summit's and Beneficial's assets, Stewart concealed his theft of funds from the public, insurance regulators, policyholders, customers, potential customers, insurance agents, and others. PP 28, 46-47, 51. Stewart sold both insurance companies in 1993. P 13.
Stewart contends that these allegations, even if true, do not comprise a RICO violation under 18 U.S.C. § 1962(c),
because an entity cannot be both the enterprise through which the racketeering acts were committed and the victim of such racketeering activity. Since the indictment states that Summit was the enterprise as well as the victim, Stewart argues that no RICO violation exists and this count must be dismissed.
Congress originally enacted RICO to combat organized crime. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 487, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985). However, it "has become a tool for everyday fraud cases brought against respected and legitimate enterprises." Id. at 499. The statute is to be "liberally construed." Pub. L. 91-452, § 904(a), 84 Stat. 947. Section 1962(c) of RICO, states:
it shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.
18 U.S.C. § 1962(c). An enterprise is broadly defined to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). A pattern of racketeering activity arises when at least two acts of racketeering are committed within ten years of each other. 18 U.S.C. § 1961(5).
In National Organization for Women, Inc. v. Scheidler, 510 U.S. 249, 114 S. Ct. 798, 127 L. Ed. 2d 99 (1994), the United States Supreme Court addressed the enterprise requirement. It stated that the term enterprise "connotes generally the vehicle through which the unlawful pattern of racketeering activity is committed, rather than the victim of that activity." 114 S. Ct. at 804. The Third Circuit has interpreted this language to mean that a
victim corporation "drained of its own money" by pilfering officers and employees could not reasonably be viewed as the enterprise through which employee persons carried out their racketeering activity. Rather, in such an instance, the proper enterprise would be the association of employees who are victimizing the corporation, while the ...