Antitrust Law Daily Wrap Up, RICO—C.D. Cal.: RICO claims against offshore investment scheme result in $1.5 million treble damage award, (Oct 16, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Los Angeles has held three participants in a fraudulent offshore banking and investment scheme liable for over $1.5 million on the RICO claims brought by one of the scheme’s victims (Alexander v. Incway Corp., October 11, 2013, Fisher, D.). The court also found that the defendants had engaged in intentional misrepresentations, intentional concealment of material facts, and negligent misrepresentations under California law, awarding compensatory damages and $2 million in punitive damages against one of the participants and his corporate alter egos as an alternative to the treble damages award.

In June 2008, Thomas E. Alexander contacted Incway Corporation, doing business as Companies, Incorporated (CI), about depositing funds in an offshore bank account, to protect those assets. Kevin W. Wessell responded to Alexander’s contact, and recommended that Alexander deposit his money in a financial institution called The Alps, purportedly a Swedish bank. Matt Mitchell followed up, informing Alexander that he would help him set up the offshore LLC in Nevis, a small country in the Caribbean, and that Casey Lawrence would help Alexander set up the bank account. Materials sent to Alexander and the websites for CI and The Alps appeared to confirm their identities.

However, Wessell, Mitchell, and Lawrence failed to disclose that Swedish credit unions are not regulated, that they were directors of The Alps, and that the money Alexander was depositing would be used to make real estate investments in Washington. Alexander wired a total of $525,000 to be deposited with the Alps. However, when he later attempted to wire $320,000 out of the account to purchase a property in Hawaii, the funds did not arrive. Alexander never recovered any portion of the $524,785 owed to him, and spent close to $175,000 in attorneys’ fees and costs trying to get it back. CI, Wessell, Mitchell, and Lawrence made similar misrepresentations and omissions with respect to other individuals who made deposits with The Alps.

Wessell—a director, president, secretary, and treasurer of CI—possessed substantial control over the company. Lawrence served as bank and trust administrator for CI, setting up offshore companies and communicating with clients and potential clients. Mitchell functioned as an “account representative” or “asset protection specialist” for CI, and spent his time at CI communicating with customers. Wessell was also director, president, secretary, and treasurer of Presidential Services Inc. (PSI), which conducted seminars and provided management services for establishing and assisting other companies. The court noted “the exact relationship between” CI, PSI, and the related entity 1-800-COMPANY was “unclear,” but all operated out of the same address in California.

Wessell, Mitchell, and Filip Strebl were founding members of The Alps, with Wessell acting as managing director, and Mitchell acting as a director. CI provided credit for startup capital and operating costs for The Alps. Despite claiming to have a headquarters at the World Trade Center in Stockholm, Sweden, however, The Alps merely had a post office box and an answering service used by numerous other entities. No evidence indicated that The Alps had ever done business in Sweden, and about 95 percent of its loans were in Washington.

Lawrence provided login PINs to Alexander to access his account, and sent clients bank applications for The Alps. Mitchell participated in the marketing and advertising aspects of The Alps, and recommended The Alps to customers as safer than U.S. banks. The court noted that, even if it were to believe Mitchell’s testimony that he knew little about The Alps, he would have made his statements “recklessly and without regard for their truth.” However, the court did not believe his testimony, given his role as a board member. The court also did not believe Lawrence’s attempts to distance herself from the scheme in her testimony. The court found Wessell’s testimony to be “the most evasive the Court has experienced in thirty-three years.”

The court concluded that all three individual defendants had engaged in intentional misrepresentations, intentional concealment of material facts, and negligent misrepresentations under California law with respect to Alexander, and found Alexander had suffered $524,785 in damages as a result of their actions. The court also assessed $2 million in punitive damages against Wessell and the corporate entities, although not against the other individual defendants.

RICO violation. The court explained that to establish a RICO claim Alexander would have to prove: “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity; (5) causing injury to his business or property.”

The court found an enterprise consisting “of a closely inter-related group of corporate entities, including Incway, CI, PSI, 1-800-COMPANY, The Alps, and perhaps others,” and that the enterprise affected interstate and foreign commerce through the wire transfers it assisted.

Wessell, Mitchell, and Lawrence engaged in a pattern of racketeering activity by committing their predicate acts of mail and wire fraud, according to the court. The alleged pattern also satisfied the required showing of two or more related acts of racketeering activity occurring within a 10 year period because the individual defendants had committed numerous acts of mail and wire fraud within a 10 year period in order to further their fraudulent investment scheme. The court found that “Wessell, Mitchell, and Lawrence willfully and knowingly were part of a scheme to defraud and obtain money by means of false representations, and representations that were made recklessly.” Wessell solicited clients through free online seminars, and all three defendants concealed material facts such as Wessell’s and Mitchell’s roles as directors for The Alps, CI’s loans to The Alps, The Alps’ investments in U.S. real estate, the type of financial institution The Alps was, and The Alps’ physical location. All three profited from the fraudulent scheme.

The court also explained that Alexander would have to establish, with respect to each defendant, “(1) that the particular defendant was distinct from the alleged RICO enterprise, (2) that the defendant was employed by or associated with the enterprise, and (3) that the defendant conducted or participated, directly or indirectly, in the conduct of such enterprise’s affairs through the pattern of racketeering activity.” The “conducted or participated” requirement “contemplate[d] that the defendant be involved in the operation, direction, or management of the enterprise.”

The court found Wessell, Mitchell, and Lawrence were “each distinct from the RICO enterprise,” and were each “employed by, or otherwise associated with, the enterprise.” Moreover, all three defendants “knowingly and willfully participated in the enterprise’s affairs,” with Wessell serving as a the mastermind of the scheme, Mitchell functioning as an asset protection specialist and a member of The Alp’s board of directors, and Lawrence “interfacing with clients about The Alps and assisting with the operation of its affairs by, among other things, arranging for the transfer of funds to The Alps.”

The court therefore found Alexander was entitled to treble damages under the RICO act for the defendants’ conduct, and held the individual defendants jointly liable in the amount of $1,574,355, as well as attorney’s fees and costs. The court noted that Alexander was “entitled to punitive damages against Wessell and the corporate defendants in the amount of $2,000,000” as an alternative to the RICO treble damages. The court also found Incway, PSI, 1-800-COMPANIES, and The Alps were alter egos of Wessell, although not of Mitchell or Lawrence, and that failing “to treat Wessell as one and the same as these entities will lead to an inequitable result,” because Wessell had placed Incway and PSI into bankruptcy “in a transparent effort to avoid liability.” The court also awarded Alexander prejudgment interest of 7 percent on his California law claims and prejudgment and post-judgment interest in the statutory amount for his RICO claim, although only on the compensatory award, not on the punitive trebling award.

The case is No. CV 11-8851 DSF (VBKx).

Attorneys: Anthony Bruce Gordon (Gordon and Gordon PLC) for Thomas E. Alexander. G. Marshall Hann (G. Marshall Hann Law Offices) for Incway Corp., Companies Incorporated, and Presidential Services Inc.

Companies: Incway Corp.; Companies Incorporated; Presidential Services Inc.

Cases: RICO CaliforniaNews