RICO run amok - suit against Drexel Burnham

THE WORLD MAY never know if Drexel Burnham, the Wall Street securities firm that pioneered the modern junk-food market and by that means helped to restore power to corporate stockholders, was guilty of the charges to which it is currently negotiating a guilty plea. In truth, Drexel Burnham had little choice, whether innocent or guilty.

By taking action against the company under the RICO law, intended for use against organized crime, federal prosecutors were able to impose on the company financial sanctions that threatened to ruin it before the trial. Once Drexel was able to limit the financial costs of conviction by advance agreement, the calculation was plain and imperative. The costs of pleading guilty: $650 million in fines and restitution. The costs of insisting on a fair trial: bankruptcy and ruin. When criminals make such threats to companies, we call it "the protection racket." When federal prosecutors and the SEC do so, we give them favorable newspaper headlines.

In other words, RICO has abolished the presumption of innocence. That is a legal innovation that is hard to justify even if it leads to the jailing of murderers. It is doubly difficult to support when its victims are stockbrokers whose clients, supposedly the victims of their activities, make no complaint. The most lasting legacy of Mr. Rudolph Giuliani, the U.S. Attorney for Southern New York, who has led the battle against Drexel, may well be to have destroyed the credibility of a guilty plea. These are not the best credentials for Mr. Giuliani's rumored run for the mayoralty of New York.