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June 15, 1984


The opinion of the court was delivered by: Prentice H. Marshall, District Judge.


According to the complaint in this action, Eagle Monitoring Systems ("Eagle"), a business that designed systems to monitor complex machinery, began as a partnership between plaintiffs H. Duane DeMent and Keith Kopp in 1971. Being inexperienced in business matters, they sought management and financial advice from defendant Richard E. Lassar and his firm, Richard E. Lasser & Associates ("Lassar & Associates"). In 1973, Lassar advised plaintiffs to incorporate. Plaintiffs did so and sold 6 2/3% of the Eagle stock to Lassar for $10,000 and 6 2/3% to a friend of Lassar for another $10,000. There is no allegation that this sale was tainted by fraud. Eagle entered into an agreement with Lassar for the payment of a monthly retainer and finder's fee for any financing Lassar obtained for Eagle.

Eagle incorporated on Lassar's advice in 1973. As it expanded, its need for financing grew; Lassar suggested that Eagle seek financing from small business investment companies ("SBICs"). Lassar arranged a loan by several SBICs including defendant Abbott Capital Corp. ("Abbott"). Under the proposed loan, the SBICs were to loan Eagle $100,000. Eagle was to grant the lenders warrants exercisable for five years or the life of the loan for 25 to 50% of Eagle's stock. The proposed agreement also imposed several restrictive covenants. According to plaintiffs, Lassar deliberately delayed the closing of the loan, though he knew Eagle's financial situation was precarious. In addition, plaintiffs allege, Lassar did not disclose to them that he was affiliated with several of the lenders, including Abbott.

At the scheduled closing of the loan, Commerce Capital Corp., another SBIC and a defendant here, objected to the agreement and insisted on additional consideration. Plaintiffs claim that this was planned in advance with an associate of Lassar as a means of coercing Eagle to give up more in return for the loan.

Because of their desperate need for financing, plaintiffs allege, they had no alternative but to accept the additional terms proposed by Commerce Capital. Lassar and Abbott added still more terms before the next closing, including an eight-year management contract between Abbott and Eagle for $4800 per year (which plaintiffs claim was a sham covering a fee that actually went to Lassar in violation of Small Business Administration regulations), more restrictive covenants, a personal guaranty of the loan by DeMent and Kopp, and a requirement that the lenders be permitted to exercise their warrants for a price based on a net worth test. Lassar, still operating under the alleged undisclosed conflict of interest, advised plaintiffs to accept the loan because there was no alternative, and plaintiffs agreed.

The rescheduled closing took place in June 1974; at that time, two more terms were added, including a term that allegedly had the effect of permitting the lenders to exercise the warrants at an extremely low cost. Plaintiffs claim that they did not comprehend the significance of the term but assented to it on Lassar's advice.

Eagle performed its obligations under the loan agreement until April 1981, though it claims that Abbott did not provide it with the management services it had contracted to provide. In April 1981, Eagle agreed to sell its assets to another company, TRW, for $3.2 million in cash and TRW's assumption of Eagle's operating liabilities. The lenders then elected to exercise their warrants and tendered $240 for 25% of Eagle's stock. In light of the TRW proposal, the stock was actually worth $800,000.*fn1 Plaintiffs claim that the $240 price relied on by the lenders was not the correct price for exercise of the warrants. Eagle refused to honor the warrants, and the proceeds from the TRW acquisition were placed in trust. Eagle commenced this action at or about the same time.

Plaintiffs' amended complaint is stated in nine counts and alleges violations of various federal and Illinois statutes, common law torts, and breaches of contract. Defendants have moved for summary judgment on counts 1 and 3. Count 1 arises under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-68 (1982); count 3 arises under §§ 12 F & I of the Illinois Securities Act, Ill.Rev.Stat. ch. 121 1/2, §§ 137.12 F, I (1983). RICO

  a. An order pursuant to 18 U.S.C. § 1961(a)
  preventing and restraining defendants from committing
  further violations of 18 U.S.C. § 1962, and
  ordering them to divest themselves of any purported
  interest in EMS Liquidating Corporation [which was
  formed after the sale of Eagle's assets to TR];
  b. Awarding EMS Liquidating Corporation three times
  the actual damages it has sustained as a result of
  defendants' unlawful conduct, which damages include:
      i. All excessive interest paid lenders pursuant
    to the Abbott Loan Agreement;
      ii. All management fees paid Abbott pursuant to
    the Abbott Loan Agreement;
      iii. All director's fees paid Abbott pursuant to
    the Abbott Loan Agreement;
      iv. All consulting fees paid Lassar & Associates
    and/or Lassar individually, at any time; and
      v. Any and all existing or potential equity lost
    by Eagle pursuant to lenders' exercise or attempted

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