# Petition for Writ of Certiorari — Tiffany Industries, Inc. v. Grant

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1985
- **Citation:** 473 U.S. 922

## Text

84-1084

| Office-Suprems Court, ‘ S.
» *%

~ and that Tif-
fany is an interstate ‘‘enterprise’’* conducted by defendants
through a pattern of racketeering activity. Grant further asserts
that it is entitled to civil damages for this violation under 18
U.S.C. § 1964(c).°

The district court denied Grant’s motion to file an amended
complaint. The amended complaint names additional Tiffany
officials as defendants and recites the foregoing with far greater
specificity and clarity. It also incorporates additional claims of
fraud; the original complaint includes 26 acts of mail fraud and
4 acts of wire fraud while the amended complaint reveals 48 and
10 instances, respectively. Included in the amended complaint
are the following additional allegations: (1) Tiffany officials
were negotiating with seven insurance companies for $9,000,000
in loans when it discovered in June, 1977 that, if generally ac-
cepted accounting principles were used, it was operating at a

* “*Racketeering activity’’ is defined as, inter alia, ‘‘any act which is
indictable under any of the following provisions of title 18, United
States Code: * * * section 1341 (relating to mail fraud), section 1343
(relating to wire fraud) * * *.’’ 18 U.S.C. § 1961(1)(B).

* A “pattern of racketeering activity’’ is defined as ‘‘at least two
acts of racketeering activity * * the last of which occurred within ten
years * * after the commission of a prior act of racketeering activity.”’
18 U.S.C. § 1961(5).

* “Enterprise’’ includes ‘‘any individual, partnership, corporation,
association, or other legal entity, and any union or group of in-
dividuals associated in fact although not a legal entity.’’ 18 U.S.C. §
1961(4).

* 18 U.S.C. § 1964(c) provides a civil remedy to ‘‘{aJ]ny person in-
jured in his business or property by reason of a violation of section
i962 °*.”

— yaa

loss for the year; (2) Tiffany officials forged at least some of the
‘‘reconfirmation”’ letters from those suppliers who either refus-
ed or ignored Kahn’s request that they assure Grant that they
held Tiffany inventory bound for Nigeria; (3) Tiffany officials
forged a third letter and a telex from officers of Nigeria banks
that confirmed the $3,500,000 loan commitment to the Nigerian
government; and (4) Tiffany officials further defrauded Grant
by representing that Tiffany ‘‘farm stores’’ held inventory in ex-
cess of its actual value. The officials also pressured the
managers of these stores to send false certifications to Grant
and to make phony offers to purchase their inventories at in-
flated prices.

Grant asserts the it was damaged in three respects as a result
of Tiffany’s fraudulent representations. First, it claims that it
suffered ‘‘theft of services,’’ i.e., the fraud required it to spend
substantially more time on the Tiffany audit with a commen-
surate increase in fees, none of which have been paid. Second,
it contends that the SEC investigation caused it to spend large
amounts for attorneys’ fees, document requests, and other ex-
penses. Third, Grant argues that the fraud caused it to suffer
damages to its business reputation.

I. Standing

The district court did not hold, nor does Tiffany argue, that
Grant has failed to plead facts sufficiently alleging that Tiffany
committed a substantive violation of RICO under section
1962(c).° Rather, the district court relied on Cenco and its

® See supra note 1. We do observe that Grant’s original complaint
alleges that Tiffany is both a ‘‘person”’ and an “‘enterprise’’ within the
meaning of section 1962(c). It was precisely because of the possibility
of such an identity that we held that count II of the complaint in Ben-
nett v. Berg, 685 F.2d 1053, 1061-62 (8th Cir. 1982), aff’d in part and
rev'd in part, 710 F.2d 1361 (8th Cir. 1983) (en banc), cert. denied,
___ U.S. ___, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983), failed to state a
claim. Tiffany does not raise this point on appeal. We note, however,
that Grant’s amended complaint alleges that, in addition to Tiffany,
two other distinct ‘‘enterprises’’ existed. The first consists of an

= ee

holding that the accounting firm in that case suffered only ‘‘in-
direct’’ injury insufficient to grant it standing under section
1964(c).’ Grant asserts that Cenco should not be adopted as the
law of this circuit because its restrictive interpretation has no
basis in the language or legislative history of RICO. It further
argues that, in any event, this case is distinguishable from Cenco
because Grant has been ‘‘directly’’ injured by Tiffany’s
fraudulent practices. Tiffany argues that Cenco was properly
decided and that Grant has suffered the same indirect injury
alleged by the accounting firm in that case.’

association in fact of the six named individuals alleged in the amended
complaint to have participated in the fraud. The second consists of all
Tiffany employees.

’ See supra, note 5. The term ‘‘indirect injury’’ discussed in Cenco
has also been used as a synonym for the ‘‘commercial’’ or ‘‘com-
petitive’ injury requirement. See, e.g., Schacht v. Brown, 711 F.2d
1343, 1356-58 (7th Cir.), cert. denied, ___ U.S. ___, 104 S.Ct. 509,
78 L.Ed.2d 698 (1983). It has been suggested that this requirement,
borrowed from antitrust law, is applicable to RICO because the
statute’s legislative history reveals that it was ‘‘intended in part to
combat the threat posed by racketcer influences in the free market
system.’’ Bennett, 685 F.2d at 1059. We explicitly rejected in Bennett
any ‘“‘commercial’’ or ‘‘competitive’’ injury restriction on standing
under RICO. Jd. See also Blakey, The RICO Civil Fraud Action in
Context: Reflections on Bennett v. Berg, 58 Notre Dame L.Rev. 237,
255 n. 52 (1982).

* Appellee Kahn argues separately that Grant’s injury is insufficient
because it was not a victim in the ‘‘target area’’ of the alleged RICO
violation. He asserts that this concept, derived from standing tests
developed under section 4 of the Clayton Act, 15 U.S.C. § 15 (1982),
is applicable to RICO plaintiffs. Recognizing that we declined in Ben-
nett an invitation to apply antitrust standing restrictions to RICO
piaintiffs, see supra note 7, Kahn does not argue that Grant satisfies
the target area test only if it suffers ‘‘commercial’’ or ‘‘competitive’’
injury. Rather, Kahn asserts that Grant must ‘‘loan Tiffany money,
buy its stock or otherwise extend economic benefits to [it] * * *’’ to
have standing. Appellee’s Brief at 20. We believe that this reasoning
is simply an alternative means of characterizing Grant’s injury as ‘‘in-
direct,’’ and therefore feel it merits no analysis independent of our
discussion of Cenco.

Say, gevee

We believe that Cenco is distinguishable from this case. In
Cenco, the accounting firm of Seidman & Seidman was a co-
defendant with Cenco, Inc., in a class action brought by persons
who had purchased Cenco stock at allegedly inflated prices due
to the company’s fraudulent representations. The co-
defendants cross-claimed against each other. Seidman argued
that it too had been defrauded by Cenco and sought as damages
under RICO indemnification for its liability to the shareholders.
In this case, Grant seeks not indemnification but damages for
the amount of its lost fees, the amount spent by reason of the
SEC investigation, and the amount representing its loss of
business reputation. We believe there are direct injuries,
distinguishable from a claim for indemnification. which, by its
very nature, is secondary and indirect.

Second, and more compellingly, we are unpersuaded by the
reasoning employed in Cenco. Judge Posner, writing for the
panel, reasoned that the case was one of first impression and
that the ‘‘language of section 1964(c) provides no answer * * *
and there is no useful legislative history relating to the provi-
sion.’’ Cenco, 686 F.2d at 457. The opinion thus focused on
whether recognizing a cause of action in favor of Seidman
would be consistent with the ‘‘compensatory and deterrent ob-
jectives of RICO”’ and would comport with its primary purpose
of ‘‘cop[ing] with the infiltration of legitimate businesses.’ ”’ Jd.
(quoting United States v. Turkette, 452 U.S. 576, 591, 101
S.Ct. 2524, 2532, 69 L.Ed.2d 246 (1981)). The court concluded
that the objectives and purposes of RICO would not be served
by permitting such actions, and also expressed concern with the
volume of treble damage lawsuits an opposite decision might
spawn.”

* The particular language in Cenco is as follows:

It is presumably on behalf of the owners, perhaps also the
customers and competitors, of such businesses that the civil
damages remedy was created, and not on behalf of the people

—s ww

We cannot agree that Grant’s standing under section 1964(c)
is to be determined by means of an appeal to RICO’s purpose
and objectives. Section 1964(c) provides a civil remedy for
**fa]Jny person injured in his business or property by reason of a
violation of section 1962 * * *.’’ This language is unambiguous
and, ‘‘in the absence of a ‘clearly expressed legislative intent to
the contrary, that language must ordinarily be regarded as con-
clusive.’ ’’ Russello v. United States, SE
S.Ct. 296, 299, 78 L.Ed.2d 17 (1983) (quoting Turkette, 452
U.S. at 580, 101 S.Ct. at 2527). We find no legislative history
supporting the direct-indirect dichotomy; indeed, to the extent
that the concept of indirect injury is a surrogate for concerns of
federal-state relations and crowded court dockets, the legislative
history indicates that Congress recognized that these were
necessary costs in the fight against organized crime. See Blakey,
supra note 7, at 280. It is simply ‘‘beyond our authority to
restrict the reach of the statute’’ in this manner. Bennett v.
Berg, 685 F.2d 1053, 1064 (8th Cir. 1982), aff’d in part and
rev'd in part, 710 F.2d 1361 (8th Cir. 1983) (en banc), cert.
denied, ___ U.S. ___, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983);
see generally Moss v. Morgan Stanley, Inc., 719 F.2d 5, 21 (2d
Cir. 1983), cert. denied, U.S. ___., 104 S.Ct. 1280, 79
L.Ed.2d 684 (1984); Schacht v. Brown, 711 F.2d 1343, 1361 (7th
Cir.), cert. denied, ____ U.S. ___, 104 S.Ct. 509, 78 L.Ed.2d
698 (1983).

We also observe that Judge Posner, in the post-Cenco deci-
sion of Sutliff, Inc. v. Donovan Cos., 727 F.2d 648 (7th Cir.
1984), determined the scope of RICO with considerably greater

who supply office equipment or financial or legal services to
criminal enterprises that may be violating RICO. It is unlikely
that Congress if it had adverted to the issue would have chosen
to create in the wake of every RICO violation waves of treble-
damage suits by all who may have suffered indirectly from the
violation, especially when many of these would inevitably be, as
here, the witting or unwitting tools of the violator.
686 F.2d at 457.

— > om

deference to its plain language than he did in Cenco.'° We
believe that Sutliff robbed Cenco of much of the precedential
value accorded it by the district court. Insofar as the ap-
proaches in the two cases differ, the task of reconciliation is left
to the Seventh Circuit.

We conclude that Grant has suffered injury within the mean-
ing of section 1964(c).

II. Racketeering Enterprise Injury

Section 1964(c) provides that a civil remedy is available to
persons suffering injury ‘‘by reason of a violation of section
1962 * * *.’’ Yet section 1962(c) does not prohibit ‘‘racketeering
activity;’’ rather, it makes it unlawful for a person to ‘‘conduct
or participate * * * in the conduct of [an] enterprise’s affairs
through a pattern of racketeering activity * * *.’’ Tiffany
reasons that the language of these two sections combines to limit
civil recovery to persons suffering a ‘‘racketeering enterprise in-
jury’’—the conduct of an enterprise through a pattern of
racketeering—and does not create a cause of action for those
suffering injury only from the underlying predicate acts. Tif-

'© In Sutliff, Judge Posner made the following observation in the
context of rejecting an organized crime connection for civil RICO
recovery:

Congress deliberately cast the net of liability wide, being more
concerned to avoid opening loopholes through which the mi-
nions of organized crime might crawl to freedom than to avoid
making garden-variety frauds actionable in federal treble-
damage proceedings—the price of eliminating all possible
loopholes. We must abide by Congress’s decision, made at a
time of less sensitivity than today to the workload pressures on
the federal courts and to the desirability of maintaining a
reasonable balance between state and federal courts, however
much we may regret not only the burdens that the decision has
cast on the federal courts but also the displacement of state tort
law into the federal courts that it has brought about.

727 F.2d at 654 (citations omitted). Sutliff does not refer to the Cenco

decision.

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fany asserts that Grant’s injuries have resulted solely from the
particular acts of mail and wire fraud outlined in the complaint.

We have characterized the attempt to limit the scope of RICO
by seizing on the ‘‘by reason of’’ ianguage contained in section
1964(c) as a ‘‘reiterat[ion] in new guise [of] the argument that no
[distinct] ‘enterprise’ is alleged * * *.’’ Bennett, 685 F.2d at
1059 n. 5. As advanced by Tiffany here, a racketeering enter-
prise injury also appears to bear some resemblance to the com-
mercial or competitive injury concept and to the requirement
that RICO is applicable to only those defendants associated
with organized crime. We rejected both of these restrictions in
Bennett. 685 F.2d at 1058-59, 1063-64. We recognize that a
racketeering enterprise injury is a slippery concept whose defini-
tion has eluded even those courts professing to recognize it. See
In Re Catanella and E.F. Hutton and Co. Sec. Litigaton, 583
F.Supp. 1388, 1434-37 (E.D.Pa.1984) (collecting cases).
“‘Underlying this [racketeering enterprise injury] requirement is
the familiar judicial discomfort with the potential breadth of
RICO’s civil component.’’ Jd. at 1434.

We need not further consider the nature of a racketeering
enterprise injury, however, for it is clear that Grant’s complaint
does not simply allege injury from the underlying predicate acts.
It contends that Tiffany was conducted through a pattern of
mail and wire fraud that enabled it to remain in business. As a
result of this extended life, Grant continued to provide its ac-
counting services to Tiffany for a time greater than it would
have had the fraud not occurred. This also increased the harm
resulting to Grant’s business reputation. We conclude that
these allegations sufficiently plead an injury ‘‘by reason of” a
RICO violation.

The Second Circuit recently held in Sedima, S.P.R.L. v. Im-
rex Co., 741 F.2d 482 (2d Cir. 1984), that the ‘‘by reason of”’
language in section 1964(c) requires that the injury result from
mobster activity or the efforts of organized crime. As indicated
previously, this requirement is contrary to our holding in Ben-

— A-ll —

nett.'' We do view our decision today as consistent with the Se-
cond Circuit’s decision in Bankers Trust Co. v. Rhoades, 741
F.2d 511 (2d Cir. 1984). Both require that civil RICO plaintiffs
allege something more than injury from the underlying
predicate acts. We recognize, however, that the Second Circuit
in Bankers Trust defines that ‘‘something more’’ in a far nar-
rower fashion. Jd. at 517. See also Furman v. Cirrito, 741 F.2d
§24 (2d Cir. 1984) (criticizing the requirement of a racketeering
enterprise injury imposed by Sedima and Bankers Trust).

Appellee Kahn asserts in the alternative that no ‘‘racketeering
enterprise injury’’ exists because Tiffany never secured the
favorable audit from Grant, and therefore its business opera-
tions were never enhanced, nor did it receive any financial ad-
vantage, from its racketeering activity. We are not persuaded
by this argument. As concluded above, Grant’s complaint suf-
ficiently alleges that its injury resulted from the operation of
Tiffany through a pattern of racketeering activity. Moreover,
Kahn’s argument would lead to the anomalous result that the
racketeering activity must be allowed to proceed to successful
completion before civil recovery is permitted. No interpretation
of the plain language of RICO’s civil provisions supports the
position that Grant must silently tolerate the significant costs
and risks associated with ongoing fraud before it seeks redress.

111. Amended Complaint

The district court did not articulate its reasons for refusing to
allow Grant to file the amended complaint. Two factors con-
vince us that the district court should on remand give serious
consideration to Grant’s motion. First, any additional allega-
tions contained in the amended complaint would in all

'' Sedima also holds that a prior criminal conviction is a prerequisite

to civil RICO recovery. This issue has not been raised in the district
court in this case.

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likelihood be permitted in evidence under the original com-
plaint. Second, the amended complaint relates Grant’s claim in
a far clearer and more specific manner.

In summary, we conclude that Grant has sufficiently pled that
it was ‘‘injured’’ by Tiffany’s fraudulent practices and that its
injury occurred by reason of”’ Tiffany’s alleged violation of sec-
tion 1962(c).

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APPENDIX B

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

No. 79-191 C (3)

ALEXANDER GRANT & COMPANY,
Plaintiff,

Vv.

TIFFANY INDUSTRIES, INC., et al.,
Defendants.

MEMORANDUM AND ORDER
(Filed Dec. 30, 1982)

This matter is before the Court on defendants’ renewed mo-
tions to dismiss. The Court in its order of July 20, 1982, set out
a pre-trial procedure which would be followed in this matter. In
this initial stage the Court will consider only the legal issue of
plaintiff’s standing under the civil liability provisions of the
Racketeer Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. §1964. Both sides have briefed this issue extensively
for the Court.

Plaintiff is the former independent auditor of defendnat Tif-
fany Industries. In its complaint plaintiff alleges that defen-
dants committed various fraudulent acts in an attempt to
deceive plaintiff as to Tiffany’s true financial condition. Plain-
tiff claims that the resulting deception visited upon it resulted in
harm to its reputation and seeks treble damages under RICO.
Defendants contend that plaintiff has no standing under
RICO to bring this action and cite in support of their argument
the Seventh Circuit’s recent opinion in Cenco, Inc. v. Seidman
& Seidman, 686 F.2d 449 (7th Cir. 1982). Thus the Court’s rul-
ing on defendants’ motions turns upon Cenco’s meaning and
applicability to this action.

—

Cenco was an action involving facts very similar to those in
this action. Purchasers of Cenco stock brought a class action
against Cenco and its independent auditor Seidman & Seidman
alleging that fraudulent practices committed by various defen-
dants artificially inflated the value of Cenco’s stock. Seidman &
Seidman cross-claimed against Cenco under RICO. The court
phrased the issue as a question of ‘‘the standing of auditors
under the RICO statute...to sue [the audited company] for
damages....’’ 686 F.2d at 451. The court inquired ‘‘whether a
treble-damages action by auditors of criminal enterprises would
contribute to the compensatory and deterrent objectives of
RICO.’’ /d. at 457. Pursuant to this analysis, the court held
that auditors such as Seidman & Seidman have no standing
under RICO to sue the audited company. In so doing the court
stated:

[i]t is presumably on behalf of owners, perhaps also the
customers and competitors, of such businesses that the
civil damages remedy was created, and not on behalf of the
people who supply office equipment or financial or legal
services to criminal enterprises that may be violating
RICO.

Id.

In the matter sub judice plaintiff attempts to distinguish Cen-
co by arguing that the auditors there alleged only indirect injury
while plaintiff here is alleging a direct injury. Although the
matter seems to be largely a question of semantics, the holding
of the Seventh Circuit is clear—auditors of companies that have
been practicing fraudulent bookkeeping techniques do not have
standing under RICO to sue the audited companies. The court
ruled as a matter of law that auditors of fraud practicing firms
do not suffer the type of injury redressable under RICO.

Plaintiff also contends that Cenco is in conflict with a recent
Eighth Circuit decision, Bennett v. Berg, 685 F.2d 1053 (8th Cir.
1982), and that the Eighth Circuit’s opinion is controlling here.
It is true, of course, that if the Seventh and Eighth Circuits had

— A-15 —

issued conflicting rulings of law, this Court would be bound by
the Eighth Circuit’s edict. This, however, is not the situation
here. In Berg the Court addressed two arguments raised by ap-
pellees there. First, the couri resolved the issue of whether
plaintiffs in that action were required to plead breach of con-
tract to state a claim under RICO. Second, the court answered
appellees’ contention that plaintiffs had alleged no ‘‘injury to
property,’’ which appellees argued was a requirement of RICO.
685 F.2d at 1058. Thus, Berg is simply a different case than
Cenco, which indeed, is strikingly similar to the facts in this
matter.

Moreover, Berg is distinguishable from Cenco on one other
ground as well. In Berg plaintiffs were customers of defendants
and were alleging that the ‘‘life-care’’ they had contracted for at
the subject retirement village was endangered by defendants’
financial mismanagement. Contrast this with the situations in
Cenco and here in which piaintiffs are neither ‘‘owners...
customers {nor] competitors’’ of the alleged criminal enter-
prises. Cenco, 686 F.2d at 457. Accordingly, the Court does not
believe that Berg in any way alters the applicability or per-
suasiveness of Cenco, and thus, defendants’ motions to dismiss
plaintiff’s complaint will be granted.

Dismissal of plaintiff’s complaint does not, however, bring
this entire matter to a close. Several defendants in this action
have filed counterclaims against plaintiff, and the question re-
mains whether these are to be dismissed as weil. Inasmuch as
the counterclaims seem to raise primarily state law issues, the
Court is most concerned with whether it has subject matter
jurisdiction over the counterclaims. The Court, therefore, will
ask the parties to brief the issue of whether dismissa! of defen-
dants’ counterclaim is appropriate under the circumstances of
this action.

In accordance with the foregoing,

IT IS HEREBY ORDERED that defendants’ renewed mo-
tions to dismiss piaintiff’s complaint be and are GRANTED.

— A-16 —

IT IS FURTHER ORDERED that plaintiff’s complaint be
and is DISMISSED without prejudice.

IT IS FURTHER ORDERED that the parties shall within 15
days of the date of this order submit to the Court memoranda
on the issue of whether defendants’ counterclaim in this action
should be dismissed.

Dated this 30th day of December, 1982.

/s/ Edward L. Filippine
United States District Judge

inne wnt Matai,

ADEA i i ac i wae

— A-17 —

APPENDIX C

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

No. 79-0191-C(4)

ALEXANDER GRANT & COMPANY, a partnership,
Plaintiff,

VS.

. TIFFANY INDUSTRIES, INC., FARRELL KAHN
and GAIL MARTIN,

Defendants.

COMPLAINT
COUNT I
JURISDICTION AND VENUE

1. Jurisdiction of this Court is founded upon the provisions
of Chapter 96, U.S. Code, ‘‘Racketeer Influenced and Corrupt
Organizations’’, Title 18, U.S. Code, Sections 1961, 1962, 1963
and 1964. Defendants were associated with an enterprise [as
defined by 18 U.S.C. 1961 (4)], which enterprise was engaged in
interstate or foreign commerce (or affected interstate or foreign
commerce). Defendants did unlawfully, willfully, and know-
ingly conduct and participate, directly and indirectly, in the
conduct of such enterprise’s affairs through a pattern of
‘‘racketeering activity’? as defined in 18 U.S.C. 1961, to the
damage of plaintiffs as hereinafter alleged.

2. This civil action is brought under 18 U.S.C. 1964(c), which
provides that any person injured in his business or property by
reason of a violation of 18 U.S.C. 1962 may sue therefor in the
U.S. District Court for threefold damages.

3. Venue in this Court is founded upon 18 U.S.C. 1965(a), in
that defendants reside in the Eastern District of Missouri, or

— A-18 —

may be found in said District, or are transacting business in said
District.

4. Plaintiff Alexander Grant & Company (hereinafter
**Grant’’) is a partnership and brings this action in its common
name pursuant to Rule 17(b)(1), F.R.C.P. for the purpose of
enforcing a substantive right existing under the Constitution or
laws of the United States. Grant is a public accounting firm and
is engaged in the business of rendering audit and accounting ser-
vices throughout the United States. In the course of rendering
its services, Grant represents numerous publicly held companies
~ which are subject to regulation and supervision by the federal
Securities and Exchange Commission (‘‘SEC’’).

5. Defendant Tiffany Industries, Inc. (‘‘Tiffany’’) is a cor-
poration having its principal place of business in the Eastern
District of Missouri. Tiffany is a publicly held company. Until
approximately May 1, 1978, the stock of Tiffany was traded on
the American Stock Exchange.

6. Defendant Farrell Kahn (‘‘Kahn’’) is a resident of St.
Louis County, Missouri. At all relevant times herein alleged
and until approximately May 1, 1978, Kahn was President and
Chief Executive Officer (“‘CEO’’) of Tiffany. As CEO of Tif-
fany, Kahn directed and controlled the business of Tiffany and
its Operations.

7. Defendant Gail Martin (‘‘Martin’’) resides in the Eastern
District of Missouri. At all relevant times herein alleged, Martin
was employed by Tiffany as secretary to defendant Kahn.

8. At all relevant times, the activities of defendants Kahn and
Martin, and the activities of all other officers, agents and
employees of Tiffany, all as described herein, were performed
within their employment capacities with Tiffany and were car-
ried out in behalf of Tiffany.

9. Under the provisions of SEC regulations, public com-
panies, including Tiffany, are required to retain independent

— A-19 —

public accountants to audit their books and to certify to their
financial statements. SEC regulations further require filings by
Tiffany and other public companies of independently audited
financial statements, and the SEC and the investing public rely
upon the accuracy and reasonableness of said financial
Statements. For several years prior to 1978 and until approx-
imately May 22, 1978, Grant was retained by Tiffany to render
accounting and auditing services. Tiffany’s fiscal year ends on
December 31. Among the services rendered by Grant to Tiffany
was the conduct of annual audits of Tiffany’s books and
records. The results of audits conducted by Grant were incor-
porated by Tiffany into its annual reports to stockholders and
were also included in reports made by Tiffany to the SEC as re-
quired by federal securities laws.

10. Tiffany has, from time to time, borrowed substantial
sums from various lenders. Upon information, in July of 1977,
Tiffany sought and obtained additional loans upon representa-
tions by Tiffany to its lenders that Tiffany’s financial position
was sound and that Tiffany was enjoying positive earnings and
thus was a good credit risk to said lenders.

11. Defendant Tiffany is and was at all relevant times a ‘‘per-
son’’ as defined in 18 U.S.C. Sec. 1961(3). Tiffany sells its pro-
ducts in interstate and foreign commerce. Defendants Kahn
and Martin were at all relevant times ‘‘persons’’ employed by
Tiffany. Defendants were at all relevant times associated with
an ‘‘enterprise’’ as defined in 18 U.S.C. Sec. 1961(3) engaged in
or the activities of which affect interstate and foreign com-
merce, specifically, Tiffany and its business operations and af-
fairs.

12. Sometime prior to June 30, 1977, the exact time presently
unknown to plaintiffs, defendant Kahn and other officers and
employees of Tiffany devised a scheme or artiface to defraud
Grant and others. Defendant Kahn and other officers and
employees of Tiffany became aware that Tiffany’s actual finan-
cial position was unsound and that if ‘‘generaily accepted ac-

— A-20 —

counting principles’’ (““GAAP’’) were applied, Tiffany was in-
curring losses rather than earnings. Tiffany misrepresented its
true financial position to its lenders in order to obtain financing.
Grant was not retained by Tiffany to conduct ‘‘interim’’ audits
on Tiffany’s books and records during the year. Accordingly,
during the year Tiffany was able to record certain sales (as
hereinafter described) and to make other entries to its books
during the year without any check by independent auditors. Tif-
fany ‘‘closed’’ its 1977 books and sought to show earnings for
the fiscal year ending December 31, 1977. After adjustments
proposed by Tiffany, Defendant Kahn and other officers and
employees of Tiffany knew that if the actual financial facts (ap-
plying GAAP) concerning its 1977 performance were
discovered, Tiffany would have sustained a substantial loss for
the year instead of a profitable year as shown on Tiffany’s
books.

13. Defendants sought to induce Grant into assisting, aiding
and abetting Tiffany in making false, misleading and fraudulent
financial statements. Defendant Kahn and other officers and
employees of Tiffany gave Grant false, misleading and
fraudulent information, intending that Grant accept such false,
misleading and fraudulent information and permit Tiffany to
include such information in Tiffany’s financial statements.
Defendants further sought to induce Grant to restrict the scope
of its audit investigations by complaining that the scope was ex-
cessive and by withholding payment of amounts due and
theretofore promised to Grant for services performed by Grant
during the course of the audit. Defendants further sought to in-
duce Grant to ‘‘certify’’ its audit and financial statements to the
SEC and to stockholders, thus lending Grant’s reputation and
credibility as independent auditors to such false and fraudulent
financial statements.

14. Having devised the scheme to defraud as heretofore alleg-
ed, defendants conducted or participated, directly or indirectly,
in the conduct of Tiffany’s affairs through a pattern of

—__ ee

— A-21 —

racketeering activity as defined in 18 U.S.C. Sec. 1961(5) in the
following particulars:

(a) In late February or early March, 1978, defendant Kahn, in
furtherance of said scheme to defraud, called (on the telephone)
one Murphy, who is President of Steelabrade Corporation
(‘‘Steelabrade’’), a supplier of products to Tiffany. Kahn, with
full knowledge that as of December 31, 1977 and early March,
1978 Steelabrade held no Tiffany ‘‘inventory’’ in its possession,
nevertheless, fraudulently and willfully attempted to induce
Murphy to represent to Grant that Steelabrade did, in fact, have
in its possession as of December 31, 1977 and early March, 1978
certain inventory purportedly the property of Tiffany. Murphy
refused Kahn’s fraudulent request, whereupon Kahn directed
Murphy to prepare and deliver to Kahn a schedule of all pur-
chases during 1977 of Steelabrade products by Tiffany. Murphy
complied.

(b) Kahn falsely and fraudulently represented to Grant that
Steelabrade held in its possession (as of December 31, 1977 and
early March, 1978) approximately $500,000 in ‘‘inventory”’
(products sold by Steelabrade to Tiffany and other products, all
of which were held in Steelabrade’s possession). In reliance
upon said representations, Grant caused to be sent to
Steelabrade a ‘‘confirmation’’ request, that is, a written request
that Steelabrade confirm to Grant that Steelabrade did, in fact,
have in its possession said inventory. A copy of said confirma-
tion request is attached as Exhibit A and incorporated herein.

(c) On or about March 8, 1978, Kahn and Martin (at Kahn’s
direction) prepared a schedule showing sales by Steelabrade to
Tiffany during 1977 and additional products. The total of said
sales and other property was valued at approximately $500,000.
To said schedule said defendants attached a confirmation re-
quest. Defendant Kahn, or defendant Martin, or some third
person (acting at the direction of Kahn or Martin) signed the
name ‘‘James V. Murphy’’ (President of Steelabrade) to said
document and dated the same. Said signature was made

— see

without the knowledge, consent or authorization of Murphy,
and is a forgery. Further, defendant Kahn, or defendant Martin
(at Kahn’s direction) inserted the following typed language in
the confirmation request:

**Attached please find a list of materials that was either
purchased from us going back to 1976 or was delivered to
our facility for processing during 1977. This inventory was
at our premises at December 31, 1977 and March 1, 1978.”’

The insertion of said language was done without the knowledge,
consent or authorization of Murphy, and is a false statement. A
copy of the fictitious and fraudulent confirmation, together
with the schedule, is attached as Exhibit B and is incorporated
herein.

(d) Defendants committed the acts herein alleged as part of a
scheme to defraud Grant, in that Defendants by means of false
representations and forgery, intended to induce Grant to believe
that Tiffany owned some $500,000 in inventory in the posses-
sion of Steelabrade. Defendants further attempted to induce
Grant to make a certified audit which would reflect ownership
by Tiffany of said inventory. Such certification would have
materially increased Tiffany’s earnings (or decreased its losses)
for 1977, and would have distorted Tiffany’s actual financial
condition as of December 31, 1977.

(e) On or about March 8, 1978, defendants, having devised
and intending to devise a scheme or artifice to defraud (as
heretofore alleged) by means of false or fraudulent representa-
tions, and for the purpose of executing such scheme or artifice
or attempting so to do, placed in a post office or authorized
depository for mail, to be sent or delivered by the U. S. Post Of-
fice Department, the fictitious, fraudulent and forged confirma-
tion (Exhibit B), addressed to Grant at its offices in Clayton,
Missouri. Such actions of defendants are in violation of Title
18, United States Code, Section 1341 (Mail Fraud). Further,
such actions constitute a part of a pattern of racketeering activi-
ty in violation of Title 18, United States Code, Section 1962.

— A-23 —

(f) On or about March 8, 1978, defendants, having devised
and intending to devise a scheme or artifice to defraud (as
heretofore alleged) by means of false or fraudulent representa-
tions, and for the purpose of executing such scheme or artifice
or attempting so to do, placed in a post office or authorized
depository for mail, to be sent or delivered by the U. S. Post Of-
fice Department, a copy of the fictitious, fraudulent and forged
confirmation (Exhibit B-1 attached hereto and incorporated
herein), addressed to James V. Murphy at Steelabrade at its of-
fices in St. Louis County, Missouri. Such actions of defendants
as alleged herein are a separate and additional violation of Title
18, United States Code, Section 1341 (Mail Fraud). Further,
such actions constitute a part of a pattern of racketeering activi-
ty in violation of Title 18, United States Code, Section 1962.

15. In June, 1977, shortly prior to obtaining loans as describ-
ed in paragraph 10, Tiffany recorded on its books a purported
sale to the Government of Nigeria (hereinafter the ‘‘Nigerian
sale’’) in the approximate amount of $3,500,000. The effect of
Tiffany’s recordation of such purported sale was to increase
substantially Tiffany’s net income for 1977 (or to decrease
losses substantially). The recordation of such sale by Tiffany
was effected unilaterally, that is, without audit by Grant.

16. In late December, 1977 when Grant personnel commenc-
ed work on the audit of Tiffany’s books for 1977, the purported
Nigerian sale was brought to Grant’s attention. Grant
discovered that most of the products allegedly ‘‘sold’’ by Tif-
fany in 1977 to the Government of Nigeria had not, in fact,
been shipped by Tiffany to the Customer. Additionally,
Grant’s investigation revealed that a substantial portion of the
products allegedly ‘‘sold’’ by Tiffany in 1977 were products Tif-
fany was to purchese from suppliers, and most of said products
had not even been purchased by Tiffany for delivery to the
Government of Nigeria.

17. As the result of discoveries by Grant as alleged in
paragraph 16, serious and substantial questions arose as to

~h~

whether, in accord with GAAP, Tiffany had properly recorded
the Nigerian sale, and whether Tiffany had the right to reflect in
its financial statements the substantial earnings (or reduction in
losses) which would result from such a sale. Grant personnel
communicated to defendant Kahn and to other Tiffany person-
nel their serious doubts as to the validity of the purported
‘*sale’’. Tiffany personnel and representatives of Tiffany ag-
gressively sought to persuade Grant to ‘‘sign off’’ on said sale,
that is, to certify that said purported ‘‘sale’’ was indeed a sale in
accord with GAAP.

18. Between January and May, 1978, defendants conducted
or participated, directly or indirectly, in the conduct of
Tiffany’s affairs through a pattern of racketeering activities in
that they committed acts in violation of 18 U.S.C. 1341 (mail
fraud) and 18 U.S.C. 1343 (wire fraud) as part of a fraudulent
scheme or artifice to deceive Grant and to induce Grant to cer-
tify the purported Nigerian sale as a sale in accord with general-
ly accepted accounting principles. More specifically:

(a) In carly 1978, Tiffany personnel represented to Grant per-
sonnel that the Nigerian sale should be recognized as a sale for
various reasons, including Tiffany’s representation that while
the products ‘‘sold’’ had not yet been delivered, nevertheless
Tiffany had issued purchase orders in June 1977 (before the
Nigerian sale was recorded by Tiffany) to various suppliers, and
that the suppliers were ‘‘holding’’ the products as early as June,
1977, awaiting only shipment instructions from Tiffany. Tif-
fany personnel urged Grant personnel to consider such products
as ‘‘sold’’ since Tiffany was obligated to pay the suppliers for
such products (by virtue of the purchase orders), and the pro-
ducts were ready for shipment.

(b) In response to the representations by Tiffany as described
in subparagraph (a), Grant personnel requested of Tiffany con-
firmation from each supplier as to the following: (1) the is-
suance by Tiffany of purchase orders to the various suppliers

o dh

prior to June 30, 1977 (the date the Nigerian sale was recorded);
(2) the fact that the products so ordered were in fact being held
for Tiffany by the suppliers prior to June 30, 1977.

(c) The representations made by Tiffany as described in sub-
paragraph (a) were false and fraudulent and known to be so
when made. Tiffany had not, in fact, issued such purchase
orders prior to June 30, 1977 as represented, nor were said pro-
ducts being held (per any such purchase orders) by said suppliers
awaiting orders for shipment. |

(d) Having devised a scheme or artifice to defraud, as hereto-
fore alleged, Tiffany caused to be placed in a post office or
authorized depository for mail matter, to be delivered by the
U.S. Post Office Department, and thereafter received a letter
dated February 20, 1978 from Hunter Manufacturing, Inc. to
Tiffany (Exhibit C attached and incorporated herein). Tiffany
caused said letter to be mailed and received said letter for the
purpose of executing a scheme to defraud Grant and to induce
Grant to ‘‘sign off’’ on the Nigerian sale, that is, to certify the
sale as a sale and to aid Tiffany in issuing false and fraudulent
financial statements which would distort Tiffany’s actual earn-
ings or losses. The aforesaid acts by Tiffany are in violation of
18 U.S.C. 1341 (mail fraud) and are part of a pattern of
racketeering activity carried out by Tiffany in the conduct of its
affairs.

(e) Tiffany committed nine additional and separate violations
of 18 U.S.C. 1341 (mail fraud) by causing nine letters to be sent
by other suppliers to Tiffany. None of the suppliers, including
Hunter Manufacturing, Inc., were aware of Tiffany’s true pur-
pose and intent. As to each such letter, Grant restates the
allegations contained in subparagraph (d) hereof. Each such
violation constitutes part of a pattern of racketeering activity by
Tiffany in the conduct of its affairs. Said letters are marked Ex-
hibits D, E, F, G, H, I, J, K and L, and are further described as
follows:

— A-26 —

Exhibit D: Letter of Merritt Roaster Corp. dated 2/2/78
to Tiffany

Exhibit E: Letter to Hagan Manufacturing Company
dated 2/17/78 to Tiffany

Exhibit F: Letter of the Essmueller Company dated
2/21/78 to Tiffany

Exbibit G: Letter of Seedburo International Equipment
Co. dated 2/21/78 to Tiffany

Exhibit H: Letter of Ferrell-Ross dated 2/20/78 to Tif-
fany

Exhibit I: Letter of Gustafson, Incorporated dated
2/17/78

Exhibit J: Letter of Universal Industries dated 2/17/78

Exhibit K: Letter of Howe Richardson Scale Company
dated 2/20/78 to Tiffany

Exhibit L: Letter of Superior Equipment Manufacturing
Co. dated 2/21/78 to Tiffany

(f) Copies of the ten letters (Exhibits C through L) were
delivered by Tiffany employees to Grant personnel in early
1978. Grant personnel advised Tiffany that Grant wished to
‘treconfirm’’ the representations of the suppliers by having Tif-
fany address an additional letter to some of the suppliers. Grant
wished to ask a representative group of the suppliers whether
the purported Purchase Order to each supplier was, indeed,
received by the supplier prior to June 30, 1977, and whether the
material supposedly ordered by the Purchase Order had, in-
deed, been held for Tiffany’s account and continued to be so
held. A draft of such a confirmation letter was prepared. On or
about March 13, 1978, Defendant Kahn, knowing that the
representations in said letter (if signed and returned by the sup-
pliers) were false, and intending to defraud and mislead Grant,

a

caused six (6) letters (Exhibits M through R attached and incor-
porated herein) to suppliers to be typed on Tiffany letterhead.
Defendant Kahn and other Tiffany personnel acting on behalf
of Tiffany, having devised a scheme or artifice to defraud, caus-
ed to be placed in a post office or authorized depository for mail
matter, to be delivered by the U.S. Post Office Department,
said six letters (Exhibits M through R). Each such letter contain-
ed false and fraudulant statements, and said letters were placed
in the mail, addressed to the suppliers as addressees, with the in-
tent by Tiffany to induce each addressee to sign such letter and
return the same to Grant and thus to aid and assist Tiffany in
defrauding Grant. Tiffany caused said letters to be mailed for
the purpose of executing a scheme to defraud Grant and to in-
duce Grant to ‘‘sign off’’ on the Nigerian sale, that is, to certify
the sale as a sale and to aid Tiffany in issuing false, fraudulent
and misleading financial statements which would distort Tif-
fany’s actual earnings or losses.

(g) Each of the six mailings (Exhibits M through R) wherein
Tiffany caused a confirmation to be mailed, is a separate and
additional violation of 18 USC 1341 (mail fraud) and each such
violation is a part of a pattern of racketeering activity carried
out by Tiffany in the conduct of its affairs.

(h) Upon information and belief, Grant alleges that after the
six letters (Exhibits M through R) described in sub-paragraphs
(f) and (g) were received by the various suppliers, one or more of
said suppliers communicated to Tiffany a refusal or reluctance
to sign and return the confirmation letter, since at least portions
of the statements each supplier was asked to ‘‘confirm’’ was
false. At various times (the specific instances presently unknown
to Grant) officers and employees of Tiffany, having devised a
scheme or artifice to defraud Grant by means of false and
fraudulent representations (as heretofore described) and for the
purpose of executing such scheme or artifice, transmitted or
caused to be transmitted by means of wire (telephone) in in-
terstate commerce messages regarding said letters (Exhibits M

— A-28 —

through R) and fraudulent requests that one or more of said
suppliers sign and return said confirmations. Each such
telephone or other wire communication is a separate violation
of 18 USC 1343 (wire fraud).

(i) Having devised a scheme or artifice to defraud (as
heretofore described), and for the purpose of executing such
scheme or artifice, officers and agents of Tiffany induced the
suppliers identified in Exhibits M to R to sign said letters and
further caused said letters to be addressed to Grant and to be
placed in a post office or authorized depository or mail matter,
to be delivered by the U.S. Post Office Department. Each of
the six instances aforesaid, wherein Tiffany caused s-id letters
to be mailed to Grant, is a separate and additional violation of
18 U.S.C. 1341 (mail fraud) and each such violation is a part of
a pattern of racketeering activity carried out by Tiffany in the
conduct of its affairs. Tiffany caused said confirmations to be
mailed to Grant for the purpose of executing a scheme to
defraud Grant and to induce Grant to ‘“‘sign off’? on the
Nigerian sale, that is, to certify the sale as a sale and to aid Tif-
fany in issuing false and fraudulent financial statements which
would distort Tiffany’s actual earnings and losses.

(j) In early 1978, questions were raised by Grant as to whether
the Government of Nigeria (the alleged purchaser, sometimes
referred to as the ‘‘Bendel Food Production Board’’) had made
arrangements so as to provide Tiffany sufficient assurance that
amounts due Tiffany under the purported Nigerian sale would
be paid. Defendant Kahn and other Tiffany officers and
employees represented to Grant that ‘‘financing’’ had been ar-
ranged, and that a consortium of banks in Nigeria had made
commitments to loan the Purchaser sufficient funds to make
full payment to Tiffany for products sold under the Nigerian
sale. As purported proof of said financing commitments,
defendant Kahn, acting in behalf of defendant Tiffany,
delivered to Grant the following documents (marked as follows
and incorporated herein):

— A-29 —

Exhibit S: Letter dated 3/9/78 to Tiffany, from W. J.
Anukpe, Chairman/Managing Director, New
Nigeria Bank Ltd. (the ‘‘Anukpe letter’’).

Exhibit T: Letter dated 3/20/78 to Tiffany, from M. In-
sole, Principal Manager, Standard Bank
Nigeria Limited (the ‘‘Insole letter’’).

Defendant Kahn represented to Grant that Exhibits S and T had
been received by Tiffany from the Nigerian banks designated in
said exhibits, and further represented that by virtue of said let-
ters and other assurances given Kahn by the banks and by the
Purchaser, payment in full under the Nigerian sale was assured.

(k) The representations made by defendant Kahn and by
other Tiffany employees as described in subparagraph (j) were
false and fraudulent and known to be so when made:

(1) The Anukpe letter, Exh. S, is a forgery, the pur-
ported signature having been forged by defendant Kahn or
some other Tiffany officer or employee acting in Tiffany’s
behalf.

(2) The Anukpe letter, Exh. S, although represented as
having been typed and prepared in Nigeria, was in fact
typed at Tiffany’s offices in St. Louis County, Missouri by
defendant Martin or some other Tiffany officer or
employee acting in Tiffany’s behalf.

(3) The Insole letter, Exh. T, although represented as
having been typed and prepared in Nigeria, was in fact
typed at Tiffany’s offices on the same Tiffany typewriter
used to type the forged Anukpe letter.

(4) Upon information and belief, Grant alleges that the
Insole letter is a forgery.

(1) Upon information and belief, Grant further alleges:

(1) At various times (the specific instances presently
unknown to Grant), officers and employees of Tiffany, or

— =

others acting in Tiffany’s behalf, having devised a scheme
or artifice to defraud Grant by means of false and
fraudulent representations (as heretofore described) and
for the purpose of executing such scheme or artifice, plac-
ed (or caused 10 be placed) in a post office or authorized
depository for mail matter, to be sent or delivered by the
U.S. Post Office Department, one or both of the fictitious,
spurious and fraudulent documents (Exhs. S and T); in
violation of 18 U.S.C. 1341 (mail fraud).

(2) At various times (the specific instances presently
unknown to Grant), officers and employees of Tiffany, or
others acting in Tiffany’s behalf, having devised a scheme
or artifice to defraud Grant by means of false and
fraudulent representations (as heretofore described) and
for the purpose of executing such scheme or artifice,
transmitted or caused to be transmitted by means of wire
(telephone) and by telex in interstate or foreign commerce
the contents or substance of the contents of Exhs. S and T,
in violation of 18 U.S.C. 1943 (wire fraud).

(m) In a false and fraudulent attempt to ‘‘pressure’’ Grant in-
to certifying the Nigerian sale as a sate, Tiffany engaged the ser-
vices of four independent public accounting firms and furnished
to said firms the fictitious, spurious and fraudulent documents
(Exhs. S and T) and other false, misleading and fraudulent
materials. Tiffany intended, by such fraudulent actions, to per-
suade said accounting firms to render opinions to the effect that
the Nigerian sale should be recognized, and thus to coerce Grant
to render such opinion. Based upon the false representations
made to said firms, they did indeed render such opinions. Upon
information and belic:, Grant further alleges:

(1) At various times (the specific instances presently
unknown to Grant), officers and employees of Tiffany, or
others acting in Tiffany’s behalf, having devised a scheme
or artifice to defraud Grant by means of false and
fraudulent representations (as heretofore alleged), and for

———

eo

the purpose of executing such scheme or artifice, placed or
caused to be placed in a post office or authorized
depository for mail matter, to be sent or delivered by the
U.S. Post Office Department, and transmitted by wire or
telex in interstate or foreign commerce, false and
fraudulent communications to said accounting firms and
to others, in violation of 18 U.S.C. 1341 (mail fraud) and
18 U.S.C. 1943 (wire fraud).

19. Throughout the course of the audit by Grant of Tiffany’s
books and records for 1977, Tiffany officers, agents and
employees (or others acting in Tiffany’s behalf) impeded and
obstructed the ordinary course of the audit and engaged in a
conspiracy to conceal relevant facts from Grant and to defraud
and mislead Grant. As the result of such conspiratovial and
fraudulent conduct, the time required by Grant personnel to
conduct the audit was substantially enlarged over the time which
would have been required had Tiffany not engaged in such con-
duct. Tiffany was well aware that the charges by Grant to Tif-
fany for audit services would be based upon the time spent by
Grant personnel. In further perpetration of this fraudulent and
criminal conspiracy, Tiffany attempted to induce Grant to com-
plete its audit and certify Tiffany’s fraudulent transactions first
by withholding payment; then, when the fraudulent and
criminal conduct was disclosed, Tiffany sought to conceal said
conduct by promising to pay Grant in full.

20. Had Grant been aware of the activities of defendants as
above alleged, it would not have performed any accounting ser-
vices for Tiffany in connection with the 1977 audit. As a result
of the fraudulent conduct of defendants as described above,
none of which was known or disclosed to Grant, the personnel
of Grant continued to perform accounting services for defen-
dant, all to Grant’s injury to its business and property.

21. Through late April, 1978, defendants attempted to con-
ceal (and are continuing to conceal) their fraudulent and
unlawful acts. In late April, 1978 when Grant confirmed that

— A-32 —

defendants had used forged and fictitious documents in an at-
tempt to defraud Grant and in a further attempt to publish
misleading and fraudulent financial reports, Grant promptly
advised Tiffany and its counsel that Grant would report its fin-
dings to the SEC as required by SEC Regulations. Following
said report, the SEC commenced an intensive investigation of
Tiffany; said investigation is still pending. Following Grant’s
report to the SEC, Tiffany terminated Grant and refused to pay
Grant for its services.

22. As the result of the SEC investigation, which was
necessitated by and resulted directly from the unlawful and
fraudulent actions of defendants, Grant has incurred substan-
tial expense in responding to SEC subpoenas and requests for
documents, interviews, the giving of testimony, counsel fees
related to same, and other related expenses.

23. As a further result of the unlawful and fraudulent actions
of defendants and their continued effort to conceal such ac-
tions, Grant has been damaged in its reputation as a national in-
dependent public accounting firm. Defendant Tiffany has
issued misleading public statements to the effect that Tiffany’s
problems do not involve violations of law but instead are little
more than ‘‘disputes’’ with its former auditors (Grant).

24. In furtherance of its fraudulent and unlawful actions, Tif-
fany (beginning in early May, 1978) promised to pay Grant all
fees owed (totaling $258,000), whereas Tiffany intended not to
pay Grant at all, but to induce Grant to limit its responses to the
SEC and to lend its reputation to representations made to the
SEC by Defendants.

25. As the result of the foregoing, Grant has been damaged in
the sum of $1,500,000.

WHEREFORE, plaintiffs (Grant) prays judgment against
defendants under Count I in the sum of $1,500,000; further, in
accord with 18 U.S.C. 1964(c), that said award of damages be

APERTURE

— A-33 —

trebled, and that plaintiffs further recover the cosis of this ac-
tion and reasonable attorney’s fees.

Walter M. Clark
and
Thomas E. Wack

Attorneys for Plaintiff
611 Olive St., Suite 1950
St. Louis, Missouri 63101
314-621-5070

OF COUNSEL:
ARMSTRONG, TEASDALE,
KRAMER & VAUGHAN

on hel

APPENDIX D

RACKETEER INFLUENCED AND
CORRUPT ORGANIZATIONS ACT

18 U.S.C. §§1961-1968
§1961. Definitions
As used in this chapter—

(1) ‘racketeering activity’? means (A) any act or threat in-
volving murder, kidnapping, gambling, arson, robbery,
bribery, extortion, or dealing in narcotic or other dangerous
drugs, which is chargeable under State law and punishable by
imprisonment for more than one year, (B) any act which is in-
dictable under any of the following provisions of title 18, United
States Code: Section 201 (relating to bribery), section 224
(relating to sports bribery), sections 471, 472, and 473 (relating
to counterfeiting), section 659 (relating to theft from interstate
shipment) if the act indictable under section 659 is felonious,
section 664 (relating to embezzlement from pension and welfare
funds), sections 891-894 (relating to extortionate credit transac-
tions), section 1084 (relating to the transmission of gambling in-
formation), section 1341 (relating to mail fraud), section 1343:
(relating to wire fraud), section 1503 (relating to obstruction of
justice), section 1510 (relating to obstruction of criminal in-
vestigations), section 1511 (relating to the obstruction of State
or local law enforcement), section 1951 (relating to interference
with commerce, robbery, or extortion), section 1952 (relating to
racketeering), section 1953 (relating to interstate transportation
of wagering paraphernalia), section 1954 (relating to unlawful
welfare fund payments), section 1955 (relating to the prohibi-
tion of illegal gambling businesses), sections 2314 and 2315
(relating to interstate transportation of stolen property), sec-
tions 2421-24 (relating to white slave traffic), (C) any act which
is indictable under title 29, United States Code, section 186
(dealing with restrictions on payments and loans to labor

— A-35 —

organizations) or section 501(c) (relating to embezzlement from
union funds), or (D) any offense involving bankruptcy fraud,
fraud in the sale of securities, or the fellonious manufacture,
importation, receiving, concealment, buying, selling, or other-
wise dealing in narcotic or other dangerous drugs, punishable
under any law of the United States;

(2) ‘‘State’’ means any State of the United States, the District
of Columbia, the commonwealth of Puerto Rico, any territory
or possession of the United States, any political subdivision, or
any department, agency, or instrumentality thereof;

(3) ‘‘person’’ includes any individual or entity capable of
holding a legal or beneficial interest in property;

(4) ‘‘enterprise’’ includes any individual, partnership, cor-
poration, association, or other legal entity, and any union or
group of individuals associated in fact although not a legal enti-

ty.

(5) ‘‘pattern of racketeering activity’’ requires at least two
acts of racketeering activity, one of which occurred after the ef-
fective date of this chapter and the last of which occurred within
ten years (excluding any period of imprisonment) after the com-
mission of a prior act of racketeering activity;

(6) ‘‘unlawful debt’’ means a debt (A) incurred or contracted
in gambling activity which was in violation of the law of the
United States, a State or policial subdivision thereof, or which is
unenforceable under State or Federal law in whole or in part as
to principal or interest because of the laws relating to usury, and
(B) which was incurred in connection with the business of
gambling in violation of the law of the United States, a State or
political subdivision thereof, or the business of lending money
or a thing of value at a rate usurious under State or Federal law,
where the usurious rate is at least twice the enforceable rate;

(7) ‘‘racketeering investigator’’ means any attorney or in-
vestigator so designated by the Attorney General and charged
with the duty of enforcing or carrying into effect this chapter;

—-

(8) ‘‘racketeering investigation’” means any inquiry con-
ducted by any racketeering investigator for the purpose of ascer-
taining whether any person has been involed in any violation of
this chapter or of any final order, judgment, or decree of any
court of the United States, duly entered in any case or pro-
ceeding arising under this chapter.

(9) ‘‘documentary material’’ includes any book, paper, docu-
ment, record, recording, or other material; and

(10) ‘‘Attorney General’’ includes the Attorney General of
the United States, the Deputy Attorney General of the United
States, any Assistant Attorney General of the United States, or
any employee of the Department of Justice or any employee of
any department or agency of the United States so designated by
the Attorney Gener! to carry out the powers conferred on the
Attorney General by this chapter. Any department or agency so
designated may use in investigations authorized by this chapter
either the investigative provisions of this chapter or the in-
vestigative power of such department or agency otherwise con-
ferred by law.

§ 1962. Prohibited activities

(a) It shall be unlawful for any person who has received any
income derived, directly or indirectly, from a pattern of
racketeering activity or through collection of an unlawful debt
in which such person has participated as a principal within the
meaning of section 2, title 18, United States Code, to use or in-
vest, directly or indirectly, any part of such income, or the pro-
ceeds of such income, in acquisition of any interest in, or the
establishment or operation of, any enterprise which is engaged
in, or the activities of which affect, interstate or foreign com-
merce. A purchase of securities on the open market for pur-
poses of investment, and without the intention of controlling or
participating in the control of the issuer, or of assisting another
to do so, shall not be uniawful under this subsection if the
securities of the issuer held by the purchaser, the members of his

— ee ee

— < )

immediate family, and his or their accomplices in any pattern or
racketeering activity or the collection of an unlawful debt after
such purchase do not amount in the aggregate to one percent of
the outstanding securities of any one class, and do not confer,
either in law or in fact, the power to elect one or more directors

of the issuer.
\
(b) It shall be unlawful for any person through a pattern of

racketeering activity or through collection of an unlawful debt
to acquire or maintain, directly or indirectly, any interest in or
control of any enterprise which is engaged in, or the activities of
which affect, interstate or foreign commerce.

(c) 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 par-
ticipate, directly or indirectly, in the conduct of such
enterprise’s affairs through a pattern of racketeering activity or
collection of unlawful debt.

(d) It shall be unlawful for any person to conspire to violate
any of the provisions of subsections (a), (b), or (c) of this sec-
tion.

§1963. Criminal penalties

(a) Whoever violates any provision of section 1962 of this
chapter shall be fined not more than $25,000 or imprisoned not
more than twenty years, or both, and shall forfeit to the United
States (1) any interest he has acquired or maintained in violation
of section 1962, and (2) any interest in, security of, claim
against, or property or contractual right of any kind affording a
source of influence over, any enterprise which he has establish-
ed, operated, controlled, conducted, or participated in the con-
duct of, in violation of section 1962.

(b) In any action brought by the United States under this sec-
tion, the district courts of the United States shall have jurisdic-

— A-38 —

tion to enter such restraining orders or prohibitions, or to take
such other actions, including, but not limited to, the acceptance
of satisfactory performance bonds, in connection with any pro-
perty or other interest subject to forfeiture under this section, as
it shall deem proper.

(c) Upon conviction of a person under this section, the court
shall authorize the Attorney General to seize all property or
other interest declared forfeited under this section upon such
terms and conditions as the court shall deem proper. If a pro-
perty right or other interest is not exercisable or transferable for
value by the United States, it shall expire, and shall not revert to
the convicted person. All provisions of law relating to the
disposition of property, or the proceeds from the sale thereof,
or the remission or mitigation of forfeitures for violation of the
customs laws, and the compromise of claims and the award of
compensation to informers in respect of such forfeitures shall
apply to forfeitures incurred, or alleged to have been incurred,
under the provisions of this section, insofar as applicable and
not inconsistent with the provisions hereof. Such duties as are
imposed upon the collector of customs or any other person with
respect to the disposition of property under the customs laws
shall be performed under this chapter by the Attorney General.
The United States shall dispose of all such property as soon as
commercially feasible, making due provision for the rights of
innocent persons.

§1964. Civil remedies

(a) The district courts of the United States shall have jurisdic-
tion to prevent and restrain violations of section 1962 of this
chapter by issuing appropriate orders, including, but not limited
to: ordering any person to divest himself of any interest, direct
or indirect, in any enterprise; imposing reasonable restrictions
on the future activities or investments of any person, including,
but not limited to, prohibiting any person from engaging in the
same type of endeavor as the enterprise engaged in, the activities

— A-39 —

of which affect interstate or foreign commerce; or ordering
dissolution or reorganization of any enterprise, making due pro-
vision for the rights of innocent persons.

(b) The Attorney General may institute proceedings under
this section. In any action brought by the United States under
this section, the court shall proceed as soon as practicable to the
hearing and determination thereof. Pending final determina-
tion thereof, the court may at any time enter such restraining
orders or prohibitions, or take such other actions, including the
acceptance of satisfactory performance bonds, as it shall deem
proper.

(c) Any person injured in his business or property by reason
of a violation of section 1962 of this chapter may sue therefor in
any appropriate United States district court and shall recover
threefold the damages he sustains and the cost of the suit, in-
cluding a reasonable attorney’s fee.

(d) A final judgment or decree rendered in favor of the
United States in any criminal proceeding brought by the United
States under this chapter shall estop the defendant from denying
the essential allegations of the criminal offense in any subse-
quent civil proceedings brought by the United States.

§1965. Venue and process

(a) Any civil action or proceeding under this chapter against
any person may be instituted in the district court of the United
States for any district in which such person resides, is found, has
an agent, or transacts his affairs.

(b) In any action under section 1964 of this chapter in any
district court of the United States in which it has shown that the
ends of justice require that other parties residing in any other
district be brought before the court, the court may cause such
parties to be summoned, and process for that purpose may be
served in any judicial district of the United States by the marshal
thereof.

— A-40 —

(c) In any civil or criminal action or proceeding instituted by
the United States under this chapter in the district court of the
United States for any judicial district, subpoenas issued by such
court to compel the attendance of witnesses may be served in
any other judicial district, except that in any civil action or pro-
ceeding no such subpoena shall be issued for service upon any
individual who resides in another district at a place more than
one hundred miles from the place at which such court is held
without approval given by a judge of such court upon a showing
of good cause.

(d) All other process in any action or proceeding under this
chapter may be served on any person in any judicial district in
which such person resides, is found, has an agent, or transacts
his affairs.

§1966. Expedition of actions

In any civil action instituted under this chapter by the United
States in any district court of the United States, the Attorney
General may file with the clerk of such court a certificate stating
that in his opinion the case is of general public importance. A
copy of that certificate shall be furnished immediately by such
clerk to the chief judge or in his absence to the presiding district
judge of the district in which such action is pending. Upon
receipt of such copy, such judge shall designate immediately a
judge of that district to hear and determine action. The judge
so designated shall assign such action for hearing as soon as
practicable, participate in the hearings and determination
thereof, and cause action to be expedited in every way.

§1967. Evidence

In any proceeding ancillary to or in any civil action instituted
by the United States under this chapter the proceedings may be
open or closed to the public at the discretion of the court after
consideration of the rights of affected persons.

ao eon

$1968. Civil investigative demand

(a) Whenever the Attorney General has reason to believe that
any person or enterprise may be in possession, custody, or con-
trol of any documentary materials relevant to a racketeering in-
vestigation, he may, prior to the institution of a civil or criminal
proceeding thereon, issue in writing, and cause to be served
upon such person, a civil investigation demand requiring such
person to produce such material for examination.

(b) Each such demand shall —

(1) state the nature of the conduct constituting the alleg-
ed racketeering violation which is under investigation and
the provision of law applicable thereto;

(2) describe the class or classes of documentary material
produced thereunder with such definiteness and certainty
as to permit such material to be fairly identified;

(3) state that the demand is returnable forthwith or
prescribe a return date which will provide a reasonable
period of time within which the material so demanded may
be assembled and made available for inspection and copy-
ing or reproducing; and

(4) identify the custodian to whom such material shall
be made available.

(c) No such demand shall —

(1) contain any requirement which would be held to be
unreasonable if contained in a subpena duces tecum issued
by a court of the United States in aid of a grand jury in-
vestigation of such alleged racketeering violation; or

(2) require the production of any documentary evidence
which would be privileged from disclosure if demanded by
a subpoena duces tecum issued by a court of the United
States in aid of a grand jury investigation of such alleged
racketeering violations.

— A-42 —

(d) Service of any such demand or any petition filed under
this section may be made upon a person by —

(1) delivering a duly executed copy thereof to any part-
ner, executive officer, managing agent, or general agent
thereof, or to any agent thereof authorized by appoint-
ment or by law to receive service of process on behalf of
such persons, or upon any individual person;

(2) delivering a duly executed copy thereof io the prin-
cipal office or place of business of the person to be served;
or

(3) depositing such copy in the United States mail, by
registered or certified mail duly addressed to such person
at its principal office or place of business.

(e) A verified return by the individual serving any such de-
mand or petition setting forth the manner of such service shall
be prima facie proof of such service. In the case of service by
registered or certified mail, such return shali be accompanied by
the return post office receipt of delivery of such demand.

(f)(1) The Attorney General shall designate a racketeering in-
vestigator to serve as a racketeer document custodian, and such
additional racketeering investigators as he shall determine from
time to time to be necessary to serve as deputies to such officer.

(2) Any person upon whom any demand issued under this
section has been duly served shall make such material available
for inspection and copying or reproduction to the custodian
designated therein at the principal place of business of such per-
son, or at such other place as such custodian and such person
thereafter may agree and prescribe in writing or as the court
may direct, pursuant to this section on the return date specified
in such demand, or on such later date as such custodian may
prescribe in writing. Such person may upon written agreement
between such person and the custodian substitute for copies of
all or any part of such material originals thereof.

— = pe

(3) The custodian to whom any documentary material is so
delivered shall take physical possession thereof, and shall be
responsible for the use made thereof and for the return thereof
pursuant to this chapter. The custodian may cause the prepara-
tion of such copies of such documentary material as may be re-
quired for officiaui use under regulations which shall be pro-
mulgated by the Attorney General. While in the possession of
the custodian, no material so produced shall be available for ex-
amination, without the consent of the person who produced
such material, by any individual other than the Attorney
General. Under such reasonable terms and conditions as the
Attorney General shall prescribe, documentary material while in
the possession of the custodian shall be available for examina-
tion by the person who produced such material or any duly
authorized representatives of such person.

(4) Whenever any aitorney has been designated to appear on
behalf of the United States before any court or grand jury in
any case or proceeding involving any alleged violation of this
chapter, the custodian may deliver to such attorne such
documentary material in the possession of the custodian as such
attorney determines to be required for use in the presentation of
such case or proceeding on behalf of the United States. Upon
the conclusion of any such case or proceeding, such attorney
shall return to the custodian any documentary material so
withdrawn which has not passed into the control of such court
or grand jury through the introduction thereof into the record
of such case or proceeding.

(5) Upon the completion of —

(i) the racketeering investigation for which any
documentary material was produced under this chapter,
and

(ii) any case or proceeding arising from such investiga-
tion, the custodian shall return to the person who produc-
ed such material all such material other than copies thereof

aa ee

made by the Attorney General pursuant to this subsection
which has not passed into the control of any court or grand
jury through the introduction thereof into the record of
such case or proceeding.

(6) When any documentary material has been produced by
any person under this section for use in any racketeering in-
vestigation, and no such case or proceeding arising therefrom
has been instituted within a reasonable time after completion of
the examination and analysis of all evidence assembled in the
course of such investigation, such person shall be entitled, upon
written demand made upon the Attorney General, to the return
of all documentary material other than copies thereof made pur-
suant to this subsection so produced by such person.

(7) In the event of the death, disability, or separation from
service of the custodian of any documentary material produced
under any demand issued under this section or the official relief
of such custodian from responsibility for the custody and con-
trol of such material, the Attorney General shall promptly—

(i) designate another racketeering investigator to serve
as custodian thereof, and

(ii) transmit notice in writing to the person who produc-
ed such material as to the identity and address of the suc-
cessor so designated.

Any successor so designated shall have with regard to such
materials all duties and responsibilities imposed by this section
upon his predecessor in office with regard thereto, except that
he shal! not be held responsible for any default or dereliction
which occurred before his designation as custodian.

(g) Whenever any person fails to comply with any civil in-
vestigative demand duly served upon him under this section or
whenever satisfactory copying or reproduction of any such
material cannot be done and such person refuses to surrender
such material, the Attorney General may file, in the district
court of the United States for any judicial district in which such

oe

person resides, is found, or transacts business, and serve upon
such person a petition for an order of such court for the en-
forcement of this section, except that if such person transacts
business in more than one such district such petition shall be fil-
ed in the district in which such person maintains his principal
place of business, or in such other district in which such person
transacts business as may be agreed upon by the parties to such
petition.

(b) Within twenty days after the service of any such demand
upon any person, or at any time before the return date specified
in the demand, whichever period is shorter, such person may
file, in the district court of the United States for the judicial
district within which such person resides, is found, or transacts
business, and serve upon such custodian a petition for an order
of such court modifying or setting aside such demand. The time
allowed for compliance with the demand in whole or in part as
deemed proper and ordered by the court shall not run during the
pendency of such petition in the court. Such petition shall
specify each ground upon which the petitioner relies in seeking
such relief, and may be based upon any failure of such demand
to comply with the provisions of this section or upon any con-
stitutional or other legal right or privilege of such person.

(i) At any time during which any custodian is in custody or
control of any documentary materia! delivered by any person in
compliance with any such demand, such person may file, in the
district court of the United States for the judicial district within
which the office of such custodian is situated, and serve upon
such custodian a petition for an order of such court requiring
the performance by such custodian of any duty imposed upon
him by this section.

(j) Whenever any petition is filed in any district court of the
United States under this section, such court shall have jurisdic-
tion to hear and determine the matter so presented, and to enter
each order or orders as may be required to carry into effect the
provisions of this section.

—s oe

APPENDIX E

Petitioner’s Subsidiary and Affiliated Companies

Tiffany Industries, Inc. is the parent company of the follow-
ing wholly-owned subsidiary corporations:

Centralia Container Corp., d/b/a *‘Concen Corp.’’
Modulo 3 Inc.
Tiffany Industries Americus Corp.

Tiffany Industries Americas, S.A., Inc.
(a wholly-owned subsidiary of Tiffany Americus
Corp.)

Tiffany Industries Americas, C.A., Inc.
(a wholly-owned subsidiary of Tiffany Americus
Corp.) .

Tiffany Industries Americus, Ltd.
(a wholly-owned subsidiary of Tiffany In-
dustries Americas, C.A., Inc.)

TRULOCK Machinery Fair, Inc.
TRULOCK Southern, Inc.

Vuetech Corp.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_0125%3A1. Public record. Not legal advice.