The U.S. Supreme court opinion regarding liability of outside

accounting firms, and by extrapolation, other outside

professionals outside a business under the Racketeering Act. The

Act was originally meant to provide a tool for the taking civil

action against organized crime. However, in its early days,

because of extremely broad drafting, many civil disputes changed

from suits on the particular issue to RICO actions. This case

continues the Court's trend of narrowing the applicability of

RICO to civil disputes. In this case, which at its heart appears

to be an accounting malpractice case, the plaintiff's chose RICO.

This is quite understandable since RICO provides for treble

damages as well as attorney's fees, which may not be recoverable

in a normal civil action. The accounting firm's response to a

RICO suit is that as outside professionals they were not

"participants" who "conducted " the illegal acts which the

defendants contend occurred. This case is thus important for

various outside professionals like attorneys, actuaries and

accountants. It is also one of the longest cases to ever parse

and dissect the word "conduct." */

NOTE: Where it is feasible, a syllabus (headnote) will be

released, as is being done in connection with this case, at the

time the opinion is issued. The syllabus constitutes no part of

the opinion of the Court but has been prepared by the Reporter of

Decisions for the convenience of the reader. See United States v.

Detroit Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

REVES et al. v. ERNST & YOUNG

certiorari to the united states court of appeals for

the eighth circuit

No. 91-886. Argued October 13, 1992-Decided March 3, 1993

A provision of the Racketeer Influenced and Corrupt Organizations

Act (RICO), 18 U. S. C. 1962(c), makes it unlawful ``for any

person employed by or associated with [an interstate]

enterprise . . . to conduct or participate, directly or

indirectly, in the conduct of such enterprise's affairs through

a pattern of racketeering activity . . . ."

After respondent's predecessor, the accounting firm of Arthur

Young and Company, engaged in certain activities relating to

valuation of a gasohol plant on the yearly audits and financial

statements of a farming cooperative, the cooperative filed for

bankruptcy, and the bankruptcy trustee brought suit, alleging,

inter alia, that the activities in question rendered Arthur Young

civilly liable under 1962(c) to petitioner holders of certain of

the cooperative's notes.

Among other things, the District Court applied Circuit precedent

requiring, in order for such liability to attach, ``some

participation in the operation or management of the enterprise

itself"; ruled that Arthur Young's activities failed to satisfy

this test; and granted summary judgment in its favor on the RICO

claim. Agreeing with the lower court's analysis, the Court of

Appeals affirmed in this regard.

Held: One must participate in the operation or management of the

enterprise itself in order to be subject to 1962(c) liability.

Pp. 6-16.

(a) Examination of the statutory language in the light of

pertinent dictionary definitions and the context of 1962(c)

brings the section's meaning unambiguously into focus. Once it

is understood that the word "conduct" requires some degree of

direction, and that the word "participate" requires some part in

that direction, it is clear that one must have some part in

directing an enterprise's affairs in order to "participate,

directly or indirectly, in the conduct of such . . . affairs."

The -operation or management- test expresses this requirement in

a formulation that is easy to apply. Pp. 6-9.

(b) The "operation or management" test finds further support in

1962's legislative history. Pp. 9-13.

(c) RICO's "liberal construction" clause-which specifies that

the "provisions of this title shall be liberally construed to

effectuate its remedial purposes" -does not require rejection of

the "operation or management" test. The clause obviously seeks

to ensure that Congress' intent is not frustrated by an overly

narrow reading of the statute, but it is not an invitation to

apply RICO to new purposes that Congress never intended. It is

clear from the statute's language and legislative history that

Congress did not intend to extend 1962(c) liability beyond those

who participate in the operation or management of an enterprise

through a pattern of racketeering activity. Pp. 13-14.

(d) The "operation or management" test is consistent with the

proposition that liability under 1962(c) is not limited to upper

management. ``Outsiders" having no official position with the

enterprise may be liable under 1962(c) if they are "associated

with" the enterprise and participate in the operation or

management of the enterprise. Pp. 14-15.

(e) This Court will not overturn the lower courts' findings

that respondent was entitled to summary judgment upon application

of the "operation or management" test to the facts of this case.

The failure to tell the cooperative's board that the gasohol

plant should have been valued in a particular way is an

insufficient basis for concluding that Arthur Young participated

in the operation or management of the cooperative itself. Pp.

15-16. 937 F. 2d 1310, affirmed.

Blackmun, J., delivered the opinion of the Court, in which

Rehnquist, C. J., and Stevens, O'Connor, and Kennedy, JJ.,

joined, and in all but Part IV-A of which Scalia and Thomas, JJ.,

joined. Souter, J., filed a dissenting opinion, in which White,

J., joined.

--------

No. 91-886

--------

BOB REVES, et al., PETITIONERS v.

ERNST & YOUNG

on writ of certiorari to the united states court

of appeals for the eighth circuit

[March 3, 1993]

Justice Blackmun delivered the opinion of the Court.

This case requires us once again to interpret the provisions of

the Racketeer Influenced and Corrupt Organizations (RICO) chapter

of the Organized Crime Control Act of 1970, Pub. L. 91-452, Title

IX, 84 Stat. 941, as amended, 18 U. S. C. 1961-1968 (1988 ed. and

Supp. II). Section 1962(c) makes it 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 participate, directly or indirectly, in the conduct of

such enterprise's affairs through a pattern of racketeering

activity . . . . The question presented is whether one must

participate in the operation or management of the enterprise

itself to be subject to liability under this provision.

I

The Farmer's Cooperative of Arkansas and Oklahoma, Inc. (the

Co-Op), began operating in western Arkansas and eastern Oklahoma

in 1946. To raise money for operating expenses, the Co-Op sold

promissory notes payable to the holder on demand. Each year,

Co-Op members were elected to serve on its board. The board met

monthly but delegated actual management of the Co-Op to a general

manager. In 1952, the board appointed Jack White as general

manager.

In January 1980, White began taking loans from the Co-Op to

finance the construction of a gasohol plant by his company, White

Flame Fuels, Inc. By the end of 1980, White's debts to the Co-Op

totaled approximately $4 million. In September of that year,

White and Gene Kuykendall, who served as the accountant for both

the Co-Op and White Flame, were indicted for federal tax fraud.

At a board meeting on November 12, 1980, White proposed that the

Co-Op purchase White Flame. The board agreed. One month later,

however, the Co-Op filed a declaratory action against White and

White Flame in Arkansas state court alleging that White actually

had sold White Flame to the Co-Op in February 1980. The

complaint was drafted by White's attorneys and led to a consent

decree relieving White of his debts and providing that the Co-Op

had owned White Flame since February 15, 1980.

/* A fairly unusual point. A suit in name only as the parties

agreed to the result before filing. */

White and Kuykendall were convicted of tax fraud in January

1981. See United States v. White, 671 F. 2d 1126 (CA8 1982)

(affirming their convictions). Harry Erwin, the managing partner

of Russell Brown and Company, an Arkansas accounting firm,

testified for White, and shortly thereafter the Co-Op retained

Russell Brown to perform its 1981 financial audit. Joe Drozal, a

partner in the Brown firm, was put in charge of the audit and Joe

Cabaniss was selected to assist him. On January 2, 1982, Russell

Brown and Company merged with Arthur Young and Company, which

later became respondent Ernst & Young.

One of Drozal's first tasks in the audit was to determine White

Flame's fixed-asset value. After consulting with White and

reviewing White Flame's books (which Kuykendall had prepared),

Drozal concluded that the plant's value at the end of 1980 was

$4,393,242.66, the figure Kuykendall had employed. Using this

figure as a base, Drozal factored in the 1981 construction costs

and capitalized expenses and concluded that White Flame's 1981

fixed-asset value was approximately $4.5 million. Drozal then

had to determine how that value should be treated for accounting

purposes. If the Co-Op had owned White Flame from the beginning

of construction in 1979, White Flame's value for accounting

purposes would be its fixed-asset value of $4.5 million. If,

however, the Co-Op had purchased White Flame from White, White

Flame would have to be given its fair market value at the time of

purchase, which was somewhere between $444,000 and $1.5 million.

If White Flame were valued at less than $1.5 million, the Co-Op

was insolvent. Drozal concluded that the Co-Op had owned White

Flame from the start and that the plant should be valued at $4.5

million on its books.

/* No comment here from the court. However, from reading this

opinion one can come to the conclusion that this is an unusual.

*/

On April 22, 1982, Arthur Young presented its 1981 audit report

to the Co-Op's board. In that audit's Note 9, Arthur Young

expressed doubt whether the investment in White Flame could ever

be recovered. Note 9 also observed that White Flame was

sustaining operating losses averaging $100,000 per month. See

Arthur Young & Co. v. Reves, 937 F. 2d 1310, 1318 (CA8 1991).

Arthur Young did not tell the board of its conclusion that the

Co-Op always had owned White Flame or that without that

conclusion the Co-Op was insolvent.

On May 27, the Co-Op held its 1982 annual meeting. At that

meeting, the Co-Op, through Harry C. Erwin, a partner in Arthur

Young, distributed to the members condensed financial statements.

These included White Flame's $4.5 million asset value among its

total assets but omitted the information contained in the audit's

Note 9. See 937 F. 2d, at 1318-1319. Cabaniss was also present.

Erwin saw the condensed financial statement for the first time

when he arrived at the meeting. In a 5-minute presentation, he

told his audience that the statements were condensed and that

copies of the full audit were available at the Co-Op's office.

In response to questions, Erwin explained that the Co-Op owned

White Flame and that the plant had incurred approximately $1.2

million in losses but he revealed no other information relevant

to the Co-Op's true financial health.

/* The statement made by the accountant is a true one. However,

it again appears that the Court is pointing this out to show that

this is perhaps irregular. */

The Co-Op hired Arthur Young also to perform its 1982 audit.

The 1982 report, presented to the board on March 7, 1983, was

similar to the 1981 report and restated (this time in its Note 8)

Arthur Young's doubt whether the investment in White Flame was

recoverable. See 937 F. 2d, at 1320. The gasohol plant again

was valued at approximately $4.5 million and was responsible for

the Co-Op's showing a positive net worth. The condensed

financial statement distributed at the annual meeting on March

24, 1983, omitted the information in Note 8. This time, Arthur

Young reviewed the condensed statement in advance but did not act

to remove its name from the statement. Cabaniss, in a 3-minute

presentation at the meeting, gave the financial report. He

informed the members that the full audit was available at the

Co-Op's office but did not tell them about Note 8 or that the

Co-Op was in financial difficulty if White Flame were written

down to its fair market value. Ibid.

In February 1984, the Co-Op experienced a slight run on its

demand notes. On February 23, when it was unable to secure

further financing, the Co-Op filed for bankruptcy. As a result,

the demand notes were frozen in the bankruptcy estate and were no

longer redeemable at will by the noteholders.

II

On February 14, 1985, the trustee in bankruptcy filed suit

against 40 individuals and entities, including Arthur Young, on

behalf of the Co-Op and certain noteholders. The District Court

certified a class of noteholders, petitioners here, consisting of

persons who had purchased demand notes between February 15, 1980,

and February 23, 1984. Petitioners settled with all defendants

except Arthur Young. The District Court determined before trial

that the demand notes were securities under both federal and

state law. See Robertson v. White, 635 F. Supp. 851, 865 (WD

Ark. 1986). The court then granted summary judgment in favor of

Arthur Young on the RICO claim. See Robertson v. White, Nos.

85-2044, 85-2096, 85-2155, and 85-2259 (WD Ark. Oct. 15, 1986),

App. 198-200. The District Court applied the test established by

the Eighth Circuit in Bennett v. Berg, 710 F. 2d 1361, 1364 (en

banc), cert. denied, sub nom. Prudential Ins. Co. of America v.

Bennett, 464 U. S. 1008 (1983), that 1962(c) requires some

participation in the operation or management of the enterprise

itself. App. 198. The court ruled: "Plaintiffs have failed to

show anything more than that the accountants reviewed a series of

completed transactions, and certified the Co-Op's records as

fairly portraying its financial status as of a date three or four

months preceding the meetings of the directors and the

shareholders at which they presented their reports." We do not

hesitate to declare that such activities fail to satisfy the

degree of management required by Bennett v. Berg. Id., at

199-200. The case went to trial on the state and federal

securities fraud claims. The jury found that Arthur Young had

committed both state and federal securities fraud and awarded

approximately $6.1 million in damages. The Court of Appeals

reversed, concluding that the demand notes were not securities

under federal or state law. See Arthur Young & Co. v. Reves, 856

F. 2d 52, 55 (1988). On writ of certiorari, this Court ruled that

the notes were securities within the meaning of 3(a)(10) of the

Securities Exchange Act of 1934, 48 Stat. 882, as amended, 15 U.

S. C. 78c(a)(10). Reves v. Ernst & Young, 494 U. S. 56, 70

(1990).

/* It's hard to see what the Court of appeals could have been

thinking about as such promissory notes are garden variety

securities. Any payment of money, which the return thereon is

contingent on the management of others is a security. Notes for a

co-op of this source are clearly securities. */

On remand, the Court of Appeals affirmed the judgment of the

District Court in all major respects except the damages award,

which it reversed and remanded for a new trial. See 937 F. 2d,

at 1339-1340. The only part of the Court of Appeals' decision

that is at issue here is its affirmance of summary judgment in

favor of Arthur Young on the RICO claim. Like the District

Court, the Court of Appeals applied the operation or management

test articulated in Bennett v. Berg and held that Arthur Young's

conduct did not rise to the level of participation in the

management or operation of the Co-op. See 937 F. 2d, at 1324.

The Court of Appeals for the District of Columbia Circuit also

has adopted an operation or management test. See Yellow Bus

Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, 286

U. S. App. D.C. 182, 188, 913 F. 2d 948, 954 (1990) (en banc),

cert. denied, 501 U. S. ___ (1991). We granted certiorari, 502

U. S. ___ (1992), to resolve the conflict between these cases and

Bank of America National Trust & Savings Assn. v. Touche Ross &

Co., 782 F. 2d 966, 970 (CA11 1986) (rejecting requirement that a

defendant participate in the operation or management of an

enterprise).

III

In determining the scope of a statute, we look first to its

language. If the statutory language is unambiguous, in the

absence of `a clearly expressed legislative intent to the

contrary, that language must ordinarily be regarded as

conclusive.' United States v. Turkette, 452 U. S. 576, 580

(1981), quoting Consumer Product Safety Comm'n v. GTE Sylvania,

Inc., 447 U. S. 102, 108 (1980). See also Russello v. United

States, 464 U. S. 16, 20 (1983). Section 1962(c) makes it

unlawful for any person employed by or associated with any

enterprise . . . "to conduct or participate, directly or

indirectly, in the conduct of such enterprise's affairs through a

pattern of racketeering activity . . . ." The narrow question in

this case is the meaning of the phrase "to conduct or

participate, directly or indirectly, in the conduct of such

enterprise's affairs." The word conduct is used twice, and it

seems reasonable to give each use a similar construction. See

Sorenson v. Secretary of the Treasury, 475 U. S. 851, 860 (1986).

As a verb, conduct means to lead, run, manage, or direct.

Webster's Third New International Dictionary 474 (1976).

Petitioners urge us to read conduct as "carry on", Brief for

Petitioners 23, so that almost any involvement in the affairs of

an enterprise would satisfy the conduct or participate

requirement. But context is important, and in the context of the

phrase "to conduct . . . [an] enterprise's affairs", the word

indicates some degree of direction.

The dissent agrees that, when conduct is used as a verb, it is

plausible to find in it a suggestion of control. Post, at 2. The

dissent prefers to focus on conduct as a noun, as in the phrase

participate, directly or indirectly, in the conduct of [an]

enterprise's affairs. But unless one reads conduct to include an

element of direction when used as a noun in this phrase, the word

becomes superfluous. Congress could easily have written

participate, directly or indirectly, in [an] enterprise's

affairs, but it chose to repeat the word conduct. We conclude,

therefore, that as both a noun and a verb in this subsection

conduct requires an element of direction.

The more difficult question is what to make of the word

participate. This Court previously has characterized this word

"as a ter[m] . . . of breadth." Russello, 464 U. S., at 21-22.

Petitioners argue that Congress used participate as a synonym for

aid and abet. Brief for Petitioners 26. That would be a term of

breadth indeed, for aid and abet comprehends all assistance

rendered by words, acts, encouragement, support, or presence.

Black's Law Dictionary 68 (6th ed. 1990). But within the context

of 1962(c), participate appears to have a narrower meaning. We

may mark the limits of what the term might mean by looking again

at what Congress did not say. On the one hand, to

participate . . . in the conduct of . . . affairs must be broader

than to conduct affairs or the participate phrase would be

superfluous. On the other hand, as we already have noted, to

participate . . . in the conduct of . . . affairs must be

narrower than to participate in affairs or Congress' repetition

of the word conduct would serve no purpose. It seems that

Congress chose a middle ground, consistent with a common

understanding of the word participate-- to take part in.

Webster's Third New International Dictionary 1646 (1976). Once

we understand the word conduct to require some degree of

direction and the word participate to require some part in that

direction, the meaning of 1962(c) comes into focus. In order to

participate, directly or indirectly, in the conduct of such

enterprise's affairs, one must have some part in directing those

affairs. Of course, the word participate makes clear that RICO

liability is not limited to those with primary responsibility for

the enterprise's affairs, just as the phrase directly or

indirectly makes clear that RICO liability is not limited to

those with a formal position in the enterprise, but some part in

directing the enterprise's affairs is required. The operation or

management test expresses this requirement in a formulation that

is easy to apply.

IV

A

This test finds further support in the legislative history of

1962. The basic structure of 1962 took shape in the spring of

1969. On March 20 of that year, Senator Hruska introduced S.

1623, 91st Cong., 1st Sess., which combined his previous

legislative proposals. See Lynch, RICO: The Crime of Being a

Criminal, Parts I & II, 87 Colum. L. Rev. 661, 676 (1987); Blakey

& Gettings, Racketeer Influenced and Corrupt Organizations

(RICO): Basic Concepts Criminal and Civil Remedies, 53 Temp. L.

Q. 1009, 1017 (1980). S. 1623 was titled the "Criminal

Activities Profits Act" and was directed solely at the investment

of proceeds derived from criminal activity. It was 2(a) of this

bill that ultimately became 1962(a). On April 18, Senators

McClellan and Hruska introduced S. 1861, 91st Cong., 1st Sess.,

which recast S. 1623 and added provisions that became 1962(b) and

(c). See Blakey, The RICO Civil Fraud Action in Context:

Reflections on Bennett v. Berg, 58 Notre Dame L. Rev. 237, 264,

n. 76 (1982). The first line of S. 1861 reflected its expanded

purpose: to prohibit the infiltration or management of legitimate

organizations by racketeering activity or the proceeds of

racketeering activity.

On June 3, Assistant Attorney General Will Wilson presented

the views of the Department of Justice on a number of bills

relating to organized crime, including S.1623 and S. 1861, to the

Subcommittee on Criminal Laws and Procedures of the Senate

Committee on the Judiciary. Wilson criticized S. 1623 on the

ground "that it is too narrow in that it merely prohibits the

investment of prohibited funds in a business, but fails to

prohibit the control or operation of such a business by means of

prohibited racketeering activities." Measures Related to

Organized Crime: Hearings before the Subcommittee on Criminal

Laws and Procedures of the Senate Committee on the Judiciary,

91st Cong., 1st Sess., 387 (1969) (emphasis added). He praised

S. 1861 because the "criminal provisions of the bill contained in

Section 1962 are broad enough to cover most of the methods by

which ownership, control and operation of business concerns are

acquired." Ibid. See Blakey, supra, at 258, n. 59.

With alterations not relevant here, S. 1861 became Title IX of

S. 30. The House and Senate Reports that accompanied S. 30

described the three-part structure of 1962: (1) making unlawful

the receipt or use of income from `racketeering activity' or its

proceeds by a principal in commission of the activity to acquire

an interest in or establish an enterprise engaged in interstate

commerce; (2) prohibiting the acquisition of any enterprise

engaged in interstate commerce through a `pattern' of

`racketeering activity;' and (3) proscribing the operation of any

enterprise engaged in interstate commerce through a `pattern' of

`racketeering activity.' H.R. Rep. No. 91-1549, p. 35 (1970); S.

Rep. No. 91-617, p. 34 (1969) (emphasis added). In their comments

on the floor, members of Congress consistently referred to

subsection (c) as prohibiting the operation of an enterprise

through a pattern of racketeering activity and to subsections (a)

and (b) as prohibiting the acquisition of an enterprise.

Representative Cellar, who was Chairman of the House Judiciary

Committee that voted RICO out in 1970, described 1962(c) as

proscribing the "conduct of the affairs of a business by a person

acting in a managerial capacity, through racketeering

activity." 116 Cong. Rec. 35196 (1970) (emphasis added).

Of course, the fact that members of Congress understood

1962(c) to prohibit the operation or management of an enterprise

through a pattern of racketeering activity does not necessarily

mean that they understood 1962(c) to be limited to the operation

or management of an enterprise. Cf. Turkette, 452 U. S., at 591

(references to the infiltration of legitimate organizations do

not "requir[e] the negative inference that [RICO] did not reach

the activities of enterprises organized and existing for criminal

purposes." It is clear from other remarks, however, that

Congress did not intend RICO to extend beyond the acquisition or

operation of an enterprise. While S. 30 was being considered,

critics of the bill raised concerns that racketeering activity

was defined so broadly that RICO would reach many crimes not

necessarily typical of organized crime. See 116 Cong. Rec.

18912-18914, 18939-18940 (1970) (remarks of Sen. McClellan).

Senator McClellan reassured the bill's critics that the critical

limitation was not to be found in 1961(1)'s list of predicate

crimes but in the statute's other requirements, including those

of 1962:

The danger that commission of such offenses by other

individuals would subject them to proceedings under

title IX [RICO] is even smaller than any such danger

under title III of the 1968 [Safe Streets] [A]ct, since

commission of a crime listed under title IX provides

only one element of title IX's prohibitions. Unless an

individual not only commits such a crime but engages in

a pattern of such violations, and uses that pattern to

obtain or operate an interest in an interstate

business, he is not made subject to proceedings under

title IX. 116 Cong. Rec., at 18940.

Thus, the legislative history confirms what we have already

deduced from the language of 1962(c) that one is not liable under

that provision unless one has participated in the operation or

management of the enterprise itself.

B

RICO's liberal construction clause does not require rejection

of the operation or management test. Congress directed, by

904(a) of Pub. L. 91-452, 84 Stat. 947, see note following 18

U. S. C. 1961, p. 438, that the provisions of this title shall be

liberally construed to effectuate its remedial purposes. This

clause obviously seeks to ensure that Congress' intent is not

frustrated by an overly narrow reading of the statute, but it is

not an invitation to apply RICO to new purposes that Congress

never intended. Nor does the clause help us to determine what

purposes Congress had in mind. Those must be gleaned from the

statute through the normal means of interpretation. The clause

'only serves as an aid for resolving an ambiguity; it is not to

be used to beget one.' Sedima, S. P. R. L. v. Imrex Co., 473 U.

S. 479, 492, n. 10 (1985), quoting Callanan v. United States, 364

U. S. 587, 596 (1961). In this case it is clear that Congress

did not intend to extend RICO liability under 1962(c) beyond

those who participate in the operation or management of an

enterprise through a pattern of racketeering activity.

V

Petitioners argue that the "operation or management" test is

flawed because liability under 1962(c) is not limited to upper

management but may extend to "any person employed by or

associated with [the] enterprise." Brief for Petitioners 37-40.

We agree that liability under 1962(c) is not limited to upper

management, but we disagree that the operation or management test

is inconsistent with this proposition. An enterprise is operated

not just by upper management but also by lower-rung participants

in the enterprise who are under the direction of upper

management. An enterprise also might be operated or managed by

others associated with the enterprise who exert control over it

as, for example, by bribery.

The United States also argues that the operation or management

test is not consistent with 1962(c) because it limits the

liability of outsiders who have no official position within the

enterprise. Brief for United States as Amicus Curiae 12 and 15.

The United States correctly points out that RICO's major purpose

was to attack the "infiltration of organized crime and

racketeering into legitimate organizations," S. Rep. No. 91-617,

at 76, but its argument fails on several counts. First, it

ignores the fact that 1962 has four subsections. Infiltration of

legitimate organizations by outsiders is clearly addressed in

subsections (a) and (b), and the operation or management test

that applies under subsection (c) in no way limits the

application of subsections (a) and (b) to outsiders. Second,

1962(c) is limited to persons "employed by or associated with an

enterprise," suggesting a more limited reach than subsections (a)

and (b), which do not contain such a restriction. Third, 1962(c)

cannot be interpreted to reach complete outsiders because

liability depends on showing that the defendants conducted or

participated in the conduct of the enterprise's affairs, not just

their own affairs. Of course, outsiders may be liable under

1962(c) if they are associated with an enterprise and participate

in the conduct of its affairs that is, participate in the

operation or management of the enterprise itself but it would be

consistent with neither the language nor the legislative history

of 1962(c) to interpret it as broadly as petitioners and the

United States urge.

In sum, we hold that "to conduct or participate, directly or

indirectly, in the conduct of such enterprise's affairs,"

1962(c), one must participate in the operation or management of

the enterprise itself.

VI

Both the District Court and the Court of Appeals applied the

standard we adopt today to the facts of this case, and both found

that respondent was entitled to summary judgment. Neither

petitioners nor the United States have argued that these courts

misapplied the "operation or management" test. The dissent

argues that by creating the Co-Op's financial statements Arthur

Young participated in the management of the Co-Op because

`financial statements are management's responsibility.' Post, at

5, quoting 1 CCH AICPA Professional Standards, SAS No. 1, 110.02

(1982). Although the professional standards adopted by the

accounting profession may be relevant, they do not define what

constitutes management of an enterprise for the purposes of

1962(c).

In this case, it is undisputed that Arthur Young relied upon

existing Co-Op records in preparing the 1981 and 1982 audit

reports. The AICPA's professional standards state that an

auditor may draft financial statements in whole or in part based

on information from management's accounting system. See 1 CCH

AICPA Professional Standards, SAS No. 1, 110.02 (1982). It is

also undisputed that Arthur Young's audit reports revealed to the

Co-Op's board that the value of the gasohol plant had been

calculated based on the Co-Op's investment in the plant. See App.

in No. 87-1726 (CA8), pp. 250-251, 272-273. Thus, we only could

conclude that Arthur Young participated in the operation or

management of the Co-Op itself if Arthur Young's failure to tell

the Co-Op's board that the plant should have been given its fair

market value constituted such participation. We think that

Arthur Young's failure in this respect is not sufficient to give

rise to liability under 1962(c).

The judgment of the Court of Appeals is affirmed.

It is so ordered.

In the word conduct, the Court today finds a clear

congressional mandate to limit RICO liability under 18 U. S. C.

1962(c) to participants in the operation or management of a RICO

enterprise. Ante, at 6-9. What strikes the Court as clear,

however, looks at the very least hazy to me, and I accordingly

find the statute's liberal construction provision not irrelevant,

but dispositive. But even if I were to assume, with the

majority, that the word conduct clearly imports some degree of

direction or control into 1962(c), I would have to say that the

majority misapplies its own "operation or management" test to the

facts presented here. I therefore respectfully dissent.

The word conduct occurs twice in 1962(c), first as a

verb, then as a noun.

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 participate, directly or

indirectly, in the conduct of such enterprise's affairs

through a pattern of racketeering activity or

collection of unlawful debt. 18 U. S. C. 1962(c).

Although the Court is surely correct that the cognates should

receive consistent readings, see ante, at 7, and correct again

that context is important in coming to understand the sense of

the terms intended by Congress, ibid., the majority goes astray

in quoting only the verb form of conduct in its statement of the

context for divining a meaning that must fit the noun usage as

well.

Thus, the majority reaches its pivotal conclusion that in the

context of the phrase `to conduct . . . [an] enterprise's

affairs,' the word indicates some degree of direction. Ibid.

(footnote omitted). To be sure, if the statutory setting is so

abbreviated as to limit consideration to the word as a verb, it

is plausible to find in it a suggestion of control, as in the

phrase "to conduct an orchestra."

(Even so, the suggestion is less than emphatic, since even

when -conduct- is used as a verb, [t]he notion of direction

or leadership is often obscured or lost; e.g. an investigation is

conducted by all those who take part in it. 3 Oxford English

Dictionary 691 (2d ed. 1989) (emphasis in original).)

In any event, the context is not so limited, and several

features of the full subsection at issue support a more inclusive

construction of -conduct.- The term, when used as a noun, is

defined by the majority's chosen dictionary as, for example,

-carrying forward- or -carrying out,- Webster's Third New

International Dictionary 473 (1976), phrases without any

implication of direction or control. The suggestion of control

is diminished further by the fact that 1962(c) covers not just

those -employed by- an enterprise, but those merely -associated

with- it, as well. And associates (like employees) are prohibited

not merely from conducting the affairs of an enterprise through a

pattern of racketeering, not merely from participating directly

in such unlawful conduct, but even from indirect participation in

the conduct of an enterprise's affairs in such a manner. The

very breadth of this prohibition renders the majority's reading

of -conduct- rather awkward, for it is hard to imagine how the

-operation or management- test would leave the statute with the

capacity to reach the indirect participation of someone merely

associated with an enterprise. I think, then, that this

contextual examination shows -conduct- to have a long arm,

unlimited by any requirement to prove that the activity includes

an element of direction. But at the very least, the full context

is enough to defeat the majority's conviction that the more

restrictive interpretation of the word -conduct- is clearly the

one intended.

What, then, if we call it a tie on the contextual analysis?

The answer is that Congress has given courts faced with uncertain

meaning a clear tie-breaker in RICO's liberal construction

clause, which directs that "the provisions of this title shall be

liberally construed to effectuate its remedial purposes." Pub.

L. 91-452, 904(a), 84 Stat. 947, note following 18 U. S. C. 1961.

We have relied before on this express admonition to read RICO

provisions broadly, see Sedima, S. P. R. L. v. Imrex Co., 473 U.

S. 479, 497-498 (1985), and in this instance, the liberal

construction clause plays its intended part, directing us to

recognize the more inclusive definition of the word conduct, free

of any restricting element of direction or control. Because the

Court of Appeals employed a narrower reading, I would reverse.

Even if I were to adopt the majority's view of 1962(c), however,

I still could not join the judgment, which seems to me

unsupportable under the very "operation or management" test the

Court announces. If Arthur Young had confined itself in this

case to the role traditionally performed by an outside auditor, I

could agree with the majority that Arthur Young took no part in

the management or operation of the Co-op.

/* Useful in the future for attorney's defending RICO claims that

"the role of an outside auditor" is not within RICO's scope,

according to all of the justices. */

But the record on summary judgment, viewed most favorably to

Reves, shows that Arthur Young created the very financial

statements it was hired, and purported, to audit. Most

importantly, Reves adduced evidence that Arthur Young took on

management responsibilities by deciding, in the first instance,

what value to assign to the Co-op's most important fixed asset,

the White Flame gasohol plant, and Arthur Young itself conceded

below that the alleged activity went beyond traditional auditing.

Because I find, then, that even under the majority's "operation

or management test" the Court of Appeals erroneously affirmed the

summary judgment for Arthur Young, I would (again) reverse.

For our purposes, the line between managing and auditing is

fairly clear. In describing the respective responsibilities of

management and auditor, Arthur Young points to the Code of

Professional Conduct developed by the American Institute of

Certified Public Accountants (AICPA). Brief for Respondent 31.

This auditors' code points up management's ultimate

responsibility for the content of financial statements: "The

financial statements are management's responsibility. The

auditor's responsibility is to express an opinion on the

financial statements. Management is responsible for adopting

sound accounting policies and for establishing and maintaining an

internal control structure that will, among other things, record,

process, summarize, and report financial data that is consistent

with management's assertions embodied in the financial

statements. . . . The independent auditor may make suggestions

about the form or content of the financial statements or draft

them, in whole or in part, based on information from management's

accounting system." 1 CCH AICPA Professional Standards, SAS No.

1, 110.02 (1982). In short, management chooses the assertions to

appear in financial statements; the auditor "simply expresses an

opinion on the client's financial statements." Brief for

Respondent 30. These standards leave no doubt that an accountant

can in no sense independently audit financial records when he has

selected their substance himself. See In re Thomas P. Reynolds

Securities, Ltd., Exchange Act Release No. 29689, 1991 SEC Lexis

1855, *6-*7 (Sept. 16, 1991) (A company may, of course, rely on

an outside firm to prepare its books of account and financial

statements. However, once an accounting firm performs those

functions, it has become identified with management and may not

perform an audit).

The evidence on summary judgment, read favorably to Reves,

indicates that Arthur Young did indeed step out of its auditing

shoes and into those of management, in creating the financial

record on which the Co-op's solvency was erroneously predicated.

The Co-op's 1980 financial statement gave no fixed asset value

for the White Flame gasohol plant (although the statement did say

that the Co-op had advanced the plant $4.1 million during 1980,

App. in No. 87-1726 (CA8), pp. 291, 295), and there is no

indication that a valuation statement occurred anywhere else in

the Co-op's records at that time. When Arthur Young accepted the

job of preparing the Co-op's financial statement for 1981, the

value to be given the plant was a matter of obvious moment.

Instead of declaring the plant's valuation to be the Co-op's

responsibility, and instead even of turning to management for

more reliable information about the plant's value, Arthur Young

basically set out to answer its own questions and to come up with

its own figure for White Flame's fixed asset value. In doing so,

it repeatedly made choices calling for the exercise of a judgment

that belonged to the Co-op's management in the first instance.

Arthur Young realized it could not rely on White Flame's 1980

financial statement, which had been prepared by a convicted felon

(who also happened to be the Co-op's former accountant), see

Arthur Young & Co. v. Reves, 937 F. 2d 1310, 1316-1317 (CA8

1991), and an internal memo that appears in the record shows that

Arthur Young had a number of serious questions about White

Flame's cost figures for the plant. See App. in No. 87-1726

(CA8), pp. 1189-1191. Nonetheless, Arthur Young essentially

invented a cost figure that matched, to the penny, the phony

figure that Kuykendall, White Flame's convicted accountant, had

created. App. 138-140. With this invented cost figure in hand,

Arthur Young then proceeded to decide, again without consulting

management, when the Co-op had acquired White Flame. Although the

Co-op's 1980 financial statement indicated an acquisition of

White Flame in February 1980, as did a local court decree, see

App. in No. 87-1726 (CA8), pp. 295, 1212-1214, Arthur Young

adopted a blatant fiction-- that the Co-op [had] owned the entire

plant at its inception in May, 1979-- in order to justify

carrying the asset on [the Co-op's] books at its total cost, as

if the Co-op had built it from scratch. App. 137. Apparently,

the idea that the Co-op had owned the gasohol plant since 1979

was reflected nowhere in the Co-op's books, and Arthur Young was

solely responsible for the Co-op's decision to treat the

transaction in this manner.

Relying on this fiction, the unreality of which it never shared

with the Co-op's Board of Directors, let alone the membership,

Arthur Young prepared the Co-op's 1981 financial statement and

listed a fixed asset value of more than $4.5 million for the

gasohol plant. App. in No. 87-1726 (CA8), p. 238. Arthur Young

listed a similar value for White Flame in the Co-op's financial

statement for 1982. Id., at 261. By these actions, Arthur Young

took on management responsibilities, for it thereby made

assertions about the fixed asset value of White Flame that were

derived, not from information or any figure provided by the

Co-op's management, but from its own financial analysis.

Thus, the District Court, after reviewing this evidence,

concluded that petitioners could show from the record that Arthur

Young had -created the Co-op's financial statements.- App. 199.

The court also took note of evidence supporting petitioners'

allegation that Arthur Young had participated in the creation of

condensed financial statements that were handed out each year at

the annual meeting of the Co-op. Ibid. Before the Court of

Appeals, although Arthur Young disputed petitioners' claim that

it had been functioning as the Co-op's de facto chief financial

officer, Supplemental Reply Brief on Remand for Appellant in No.

87-1726 (CA8), p. 2, it did not dispute the District Court's

conclusion that Reves had presented evidence showing that Arthur

Young had created the Co-op's financial statements and had

participated in the creation of condensed financial statements.

Supplemental Brief on Remand for Appellant in No. 87-1726 (CA8),

p. 20. Instead, Arthur Young argued that "[e]ven if, as here,

the alleged activity goes beyond traditional auditing, it was

neither an integral part of the management of the Co-op's affairs

nor part of a dominant, active ownership or managerial role."

Id., at 21 (emphasis added).

It was only by ignoring these crucial concessions, and the

evidence that obviously prompted them, that the Court of Appeals

could describe Arthur Young's involvement with the Co-op as

limited to the audits, meetings with the Board of Directors to

explain the audits, and presentations at the annual meetings.

937 F. 2d, at 1324. And only then could the court have ruled

that, as a matter of law, Arthur Young's involvement with the

Co-op did not rise to the level required for a RICO violation,

which it described (quoting Bennett v. Berg, 710 F. 2d 1361 (CA8

1983)) as requiring only "some participation in the operation or

management of the enterprise itself." Ibid. (internal quotes

omitted).

But petitioners' evidence and respondent's concessions of

activity going beyond outside auditing can neither be ignored nor

declared irrelevant. As the Court explains today, `outsiders'

may be liable under 1962(c) if they are `associated with' an

enterprise and participate in the conduct of its affairs "that

is, participate in the operation or management of the enterprise

itself . . . ." Ante, at 15 (emphasis in original). Thus, the

question here is whether Arthur Young, which was associated with

the Co-op, participated in the Co-op's operation or management.

As the Court has noted, participate should be read broadly in

this context, see ante, at 8 (citing Russello v. United States,

464 U. S. 16, 21-22 (1983)), since Congress has provided that

even indirect participation will suffice.

Cf. Sedima, S. P. R. L. v. Imrex Co., 473 U. S., at 497-498

(Congress' self-consciously expansive language supports the

conclusion that RICO is to be read broadly).

The evidence petitioners presented in opposing the motion for

summary judgment demonstrated Arthur Young's participation in

this broad sense. By assuming the authority to make key

decisions in stating the Co-op's own valuation of its major fixed

asset, and by creating financial statements that were the

responsibility of the Co-op's management, Arthur Young crossed

the line separating outside auditors from inside financial

managers. Because the majority, like the Court of Appeals,

affirms the grant of summary judgment in spite of this evidence,

I believe that it misapplies its own operation or management

test, and I therefore respectfully dissent.