Takeover tactic survives legal challenge Justices leave intact ruling on 'greenmail'

February 25, 1992|By Lyle Denniston | Lyle Denniston,Washington Bureau

WASHINGTON -- "Greenmail" -- a favorite and lucrative tactic of corporate raiders -- survived its first legal challenge in the Supreme Court yesterday.

Without explanation, the court voted to leave intact a federal appeals court ruling that had blocked a claim that greenmail is a form of "white collar extortion" outlawed by the federal extortion law.

The appeals court had said that a target of greenmail by corporate raider Carl C. Icahn -- Viacom International Inc. -- had suffered no damages, and thus a lawsuit seeking a tripled monetary award against him could not go forward.

Although the practice of using greenmail in corporate takeover efforts has been criticized widely and some government officials and members of Congress have wanted to try to reform it, the U.S. government has never used the federal extortion law to bring a criminal case against the practice. Moreover, there has been no effort to ban it either by Congress or by the Securities and Exchange Commission.

Greenmail, as in the Viacom case, involves a corporate raider buying a sizable interest in a company targeted for a hostile takeover. The stock purchase is made in hopes of frightening the management into buying off the threat by paying a premium price for the raider's shares.

Viacom contended that Mr. Icahn and his affiliated companies did just that in 1986. Ultimately, the company's management bought him out with a package deal worth $79.50 a share -- some $17.50 above the price at which Viacom stock was then selling in the market.

In its lawsuit against Mr. Icahn and his affiliated firms, Viacom contended that greenmail is a form of extortion, which is made a crime under the Hobbs Act. It also contended that greenmail violates federal securities fraud laws.

It wanted to use those claimed violations as a basis for seeking tripled damages under the Racketeer Influenced and Corrupt Organizations Act -- the "RICO law" -- which the Supreme Court has allowed to be used as the basis for many economic fraud claims.

The Supreme Court, following its usual custom, gave no reasons for declining to hear the Viacom case.

The Supreme Court's order rebuffing Viacom's appeal was one of three significant actions it took yesterday on key business cases.

It also agreed to decide whether the federal anti-racketeering law -- now in wide use as the basis for ordinary economic fraud cases -- may be used against anyone other than a management figure in a company.

In addition, the court said it would rule on whether states may tax the lease of cargo containers used solely in U.S. export and import trade.

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