I. INTRODUCTION

This memorandum and the accompanying exhibits and attachments relate to a wide variety of schemes and acts perpetrated by the Church of Scientology. Some of the activities of Scientology, treated as isolated occurrences, constitute overtly criminal acts, some constitute violations of public policy, and some constitute civil wrongs. However, the schemes and acts discussed, when viewed together as a "pattern," demonstrate clear, convincing and prosecutable offenses under F.S.A., Chapter 895 (Florida RICO).

Several recent events or acts when coupled with the activities of the Church of Scientology in Clearwater over the past 7 years form the basis for the conclusions and recommendations in this memorandum. The recent events are: (1) The "donation" by L. Ron Hubbard of "the vast majority of his copyrights" to a religious corporation for which "donation" Hubbard is claiming a tax deduction as a "charitable contribution." Although the authors of this report do not know precisely the amount of the claimed contribution, it is reported to be approximately 100 million dollars; (2) The transfer or "payment" by the Church of Scientology to L. Ron Hubbard of a sum reported to be in the amount of 85 million dollars in consideration of the transfer of the "E-meter rights" and other copyrights owned by Hubbard and conveyed to a recently created religious corporation called Religious Technology Center (RTC).

The gravamen or thrust of the recommendation in this memorandum is that the foregoing acts by Hubbard and his corporations, when coupled with the schemes and activities of Scientology corporations over the past 30 years nationwide, more specifically over 7 years in Clearwater at the "Flag Land Base," constitutes the "acquiring or maintaining" of an interest in an "enterprise" through "a pattern of racketeering activity," or conducting the affairs of an enterprise through "a pattern of racketeering activity," or a conspiracy to commit the foregoing offenses, all in violation of Chapter 895. The primary "racketeering activity" to be relied upon is fraud, to wit, the sale of books and courses personally owned and copyrighted by Hubbard to people in Clearwater upon representation that the payment for said books and courses constituted a charitable, tax-deductible "donation" to a legitimate, religious corporation. The specific fraud or misrepresentated fact is that it is Hubbard and not the religious corporations who (1) has received the so-called "donations," and (2) who has controlled the corporations as "shams" to generate the "donations" for himself, and (3) who has used the religious corporations (a) to promote the sale of his books and courses, (b) to create an 85 million dollar "sea org cash reserve" which has been conveyed to him and (c) to conduct specifically fraudulent acts and representations about himself and his claimed cures for disease, and specifically criminal activities to conceal the fraud, harass critics and deprive victims of legal redress.

Thousands of people in Clearwater have paid approximately 350 million dollars to the Church of Scientology of California, Inc. (California), upon the express representation that California was operating as a legitimate religious corporation and not the alter ego of Hubbard, who had supposedly resigned in 1966. For the past 7 years while California made such representations and 350 million dollars was "donated," Hubbard and the hierarchy of the Church knew that the Corporation was a front or a "sham" for Hubbard. Recently acquired tape recordings of high-level Scientology officials in a secret conference confirm precisely the foregoing facts. Said tape recording specifically uses the words "sham" and "fraud" and acknowledges illegal payments, or "inurement" to Hubbard. The tapes, together with hundreds of items of documentary evidence and extensive oral testimony provide the basis for a highly provable RICO indictment as hereinafter discussed.

In sum, the essence of the RICO fraud is that people who paid 350 million dollars to the Church of Scientology in Clearwater relying on the fact that such payments constituted tax-deductible "donations" to a legitimate, religious corporation were in actual fact, unknown to them, paying said sums to Hubbard. Hubbard used the religious corporations to conceal his commercial enterprise.

II. OUTLINE OF THE EVIDENCE

The purpose of any indictment or grand jury proceeding should be to investigate and prosecute the following persons or entities in the order presented: (1) Church of Scientology of California (California); (2) Flag Service Org, Inc. (Flag); (3) Religious Technology Center (RTC); (4) L. Ron Hubbard; and (5) Mary Sue Hubbard. Any of the many individuals also associated with the schemes and criminal activity of Scientology organizations might also be prosecuted, perhaps brought before a grand jury, immunized and made to testify. In the past, Scientology members knowledgeable of criminal actitities have oftentimes refused to testify, even after immunity because of overzealous dedication to Hubbard and the Organization. However, that position is rapidly changing. Many former members who were fanatically dedicated to Hubbard have now left and are personally engaged in major conflicts with the present hierarchy of the Church. This hierarchy has recently experienced large scale disaffection and disintegration within its ranks, Several individuals have gone to the F.B.I. in California and the Attorney General, both of which are presently engaged in an investigation of the recent developments involving the transfer of the Hubbard copyrights to RTC.

All of the money that has been made by Scientology in Clearwater, Florida in the past 7 years has been directly derived in one way or another from the Hubbard copyrights. Prior to January 1982, every course, every book, every auditing session, and therefore, every dollar earned from said course, books, and sessions, was owned by L. Ron Hubbard. Hubbard operated all of his corporations as a sham or religious front to promote the sale of his courses and books.

(A) Evidentiary Conclusions

Specific evidence now exists to prove the foregoing facts as follows:

(1) Hubbard adopted a "religious angle" to conceal a commercial and fraudulent enterprise. See affidavit of Gerald Armstrong attached hereto as Exhibit 1, quoting from Hubbard correspondence in 1954;

(2) Hubbard created and utilized corporate fronts to sell his books and courses from which he directly and indirectly (discussed infra) received income. These corporations "ignored" laws governing corporations (specifically tax-exempt corporations such as California which operated in Clearwater from 1975 to 1982) and said corporations were totally controlled by Hubbard which control constitutes a "classic case of inurement if not fraud." The foregoing quote is taken from a tape recording of Hubbard's lawyers and the highest legal official of the Church at a meeting held in September 1980. See affidavit of Armstrong attached hereto as Exhibit 1. (The tape recording is not privileged for several reasons.)

(3) The fraudulent representations made by the corporations about Hubbard's background and credentials, together with Hubbard's illegal control of Scientology organizations constitute the primary misrepresentations upon which millions of dollars have been paid in Clearwater by individuals who relied upon said fraudulent representations. The foregoing is a matter of overwhelming documented, evidentiary proof. See, e.g., Exhibit 2 attached.

(4) The Hubbards, California, Flag and now RTC have, for a period of 30 years in Clearwater, systematically engaged pursuant to the written policy of Hubbard and his corporations in a variety of schemes and acts as follows:

(a) To make false representations about Hubbard's background and credentials (Exhibit 2);

(b) To make false representations about the confidentiality of auditing information (see Exhibit 3 attached);

(c) To use confidential auditing information in a systematic scheme to extort the legal rights and redress of individuals by (i) coercing written confessions, (ii) requiring the execution of legal releases and (iii) requiring the execu- tion of promissory notes which are represented to be a legally enforceable debt (see discussion infra);

(d) To expend moneys for non-charitable and oftentimes criminal purposes when said moneys were solicited and collected upon the representation that California, Flag, etc. were (i) charitable corporations and (ii) expending said funds for charitable purposes (see discussion, infra);

(e) To systematically engage, pursuant to written policy (i.e., Fair Game) in harassive, abusive and oftentimes specifically criminal acts for the purpose of perpetrating and concealing (i) non-charitable purposes, (ii) expenditure of funds for non-charitable purposes, (iii) obstructing and hindering the legal redress of de-frauded individuals and, (iv) silencing opposition and critics. The foregoing constituted violations of public policy and direct violations of the tax-exempt charter granted to California and Flag by the State of Florida based upon applications submitted pursuant to F.S.A. 496.045 (repealed eff. July 1, 1982);

(f) To systematically violate a federal judgment dated September 1972 which mandated a "Warning" in 11 point leaded type on the title page or cover page of every publication. The purpose of the "Warning" was to prevent fraudulent representations from being made and relied upon by unsuspecting victims. The case of U.S. v. Article of Device, (discussed infra) specifically found that the representations in Scientology publications were false and fraudulent;

(g) To fraudulently conceal Hubbard's control of California and Flag for the purpose of (i) maintaining charitable tax-exempt status to generate tax free income, and (ii) shielding Hubbard from criminal or civil liability for the acts of the corporation

(5) The purpose of the schemes and acts Set forth in paragraph (4) above was (i) to make money for Hubbard through fraudulent and specifically criminal means, i.e., a "pattern of racketeering activity," (ii) and to use a re- ligious front to acquire or maintain an enterprise engaged in "racketeering activity", i.e., fraud.

III. OUTLINE OF THE LAW

The Florida RICO Act (RICO) is modeled after the Federal RICO Act. The purpose of RICO is to prohibit the use of a "pattern" or series of criminal acts to "conduct" or "acquire" an organization or "enterprise." RICO is generally designed to prosecute sophisticated financial transactions that have their basis in sophisticated fraud or other criminal activity. The Florida RICO Act is considerably broader than federal RICO, and, perhaps, most importantly in the context of the problems presented by the Church of Scientology, Florida RICO covers a broad scope of predicate crimes as "racketeering activity" and provides broad penalties, including a fine three times the gross value gained from racketeering activity and forfeiture of assets acquired by racketeering activity.

(A) Prohibited Activities

It is prohibited under Florida RICO to:

(1) use or invest proceeds derived from a "pattern of racketeering activity" to establish or operate an enterprise or to acquire real property;

(2) acquire or maintain any interest or control in an enterprise or real property through a "pattern of racketeering activity";

(3) participate as an employee or associate in any enterprise through a "pattern of racketeering activity"; or

(4) conspire or endeavor to violate any of the above probibited activities.

 

(B) "Racketeering Activity"

Florida RICO defines "racketeering activity more broadly than federal RICO. First, Florida RICO incorporates all of the crimes recited in federal RICO as "racketeering activity." These federal crimes include crimes of violence such as murder, kidnapping, etc., but more importantly for purposes of the present case, they involve (1) extortion, (2) mail fraud, (3) wire fraud, and (4) "racketeering" under two related federal statutes. The foregoing crimes became highly applicable to the present case as will be discussed infra, because Scientology has violated each and every one of them in a systematic, continuing pattern. Moreover, there are numerous federal case precedents, particularly for mail fraud, which involved far less significant or substantial fraud than present here, but where convictions were obtained and upheld.

Florida RICO also includes a broad list of predicate crimes as racketeering activity, which predicate crimes are -11- chargeable under seventeen chapters and twenty-five sections of the Florida statutes including (1) extortion (F.S.A. §836.05); (2) misleading advertising (F.S.A. §8l7.4l); (3) schemes to defraud (F.S.A. §817.035); (4) organized fraud (F.S.A. §8l7.036); (5) theft by false pretenses (F.S.A. §8l2.0l4); (6) misleading solicitation of payments (F.S.A. §817.061); (7) obtaining of promissory note by false pretenses (F.S.A. §8l7.54).

As previously stated, the thrust of any RICO indictment should be based upon fraud although other crimes are discussed herein. Fraud has been broadly defined under the federal mail fraud statute which is incorporated in Florida RICO. The mail fraud statute, Title 18 U.S.C. Section 1341 makes it unlawful to send through the mail false or fraudulent representations. The cases decided under this section have broadly construed the elements of the crimes of mail fraud, and there exists substantial case precedent to uphold an indictment for fraud under the Florida RICO predicate crimes chargeable under Florida law or under the federal mail fraud statute.

In the leading case of Blachly v. U.S., 380 F.2d 665 (5th Cir., 1969), the Court stated that the law does not attempt to define "fraud" since it needs no definition and is as old as falsehood and as versatile as human ingenuity. To constitute fraud, all that is necessary is that a scheme be reasonably calculated to deceive persons of ordinary prudence and comprehension. Id. The term "scheme to de- fraud" within 18 U.S. §1341 means the intentional use of false or fraudulent representations for the purpose of giving a valuable undue advantage or working some injury to something of value held by another. U.S. v, Mandel, 415 F.Supp. 997 (D.C. Md. 1976). Deceitful concealment of material facts is fraud within section 1341.U.S. v. Bush, 322 F.2d 641 (1975) cert. den. 424 U.S. 977. Reckless disregard for truth or falsity or statement of half truths is sufficient to sustain a conviction. U.S. v. Farris, 614 F.2d 634 (Cir., 1979) cert. den. 100 S.Ct. 3022. Lustiger v. U.S. 386 F.2d 132 (Cir. 1967). Fraudulent representations resulting in convictions have included (1) inflating of salary claim forms by a nursing home operator, (U.S. v. Collins, 596 F.2d 166 (1979); (2) representations that divorces obtained by nonresidents were valid, (U.S. v. Edwards, 458 F.2d 875 (5th Cir., 1972); (3) statements in sales literature for an executive recruitment business that overstated the number of applications received and companies dealt with U.S. v. Uhrig, 443 F.2d 238 ( Cir., 1971); (4) false statements as to climate, crops, improvements, etc. in sale of 10 acre farms constitute fraud (U.S. v. New South Farm C Kane Co., 241 U.S. 64 (1916); (5) scheme to sell water softeners by referral selling plan requiring no cash investment was a fraudulent scheme, (Blackley v. U.S., supra); (6) breach of fiduciary duty to disclose material information. (U.S. v. Bronaton, 658 F.2d 920 (2nd Cir.,1981); (7) the use of inside information for personal gain is a criminal fraud under §1341. U.S. v. Keane, 522 F.2d 534 (Cir., 1975), Post v. U.S., 407 F.2d 319 (1968); (8) the making of "religious representations" which are not sincerely held constitutes mail fraud (U.S. v. Ballard, 322 U.S. 78 (1943). U.S.V. Carruthers

In the famous Ballard case supra, the defendants were convicted of mail fraud for making false representations to solicit money through the mails. These representations generally related to the claim that the defendants were "divine messengers" sent to heal and cure incurable diseases. Many of the representations made were clearly of a religious character, yet the Supreme Court of the United States held that the defendants could be convicted of mail fraud if the representations made were based on "beliefs" not "sincerely held."

It should be noted that it is not recommended that indictments be based upon Hubbard's claims to cure disease which Scientology now states have a religious character, but rather upon representations of a non-religious type.

Although Hubbard's claims to cure disease have been adjudicated to be false or fraudulent in the case of U.S. v. Article or Device, infra, the following representations should be the basis of an indictment:

(1) Hubbard's scientific and educational qualifications and credentials,.

(2) Hubbard's role in the operation of the Church of Scientology corporations;

(3) Hubbard's receipt of Church money and control of Church corporations;

(4) The solicitation of moneys and labor based on Hubbard's copyrights by using a charitable corporation to obtain money for Hubbard under the guise of religious "donations."

(5) The failure to disclose a material fact to a person making a "donation" to Scientology corporation. The material fact is the failure to insert the "Warning" required by the case of U.S. v. Article or Device, 333 F.Supp. 357 (D.C. Wash., 1971), discussed infra.

Although the gravamen of any indictment should be the misrepresentation that "donations" were for Scientology corporations when in fact they were for Hubbard who operated the corporations as shams, it can be proved almost conclusively that Hubbard misrepresented his background and qualifications, his control of the Church, and that the required "Warning" was not given. These facts will be discussed under the discussion of several predicate crimes infra at P. 31. The ensuing discussion relates to the "donation"/Hubbard copyright issue.

IV. "DONATIONS" TO A RELIGIOUS CORPORATION VS. PAYMENTS TO HUBBARD

In order to obtain a conviction for fraud against both the corporations involved and the Hubbards, the Government should prove that the Corporations and Hubbard misrepresented a material fact upon which someone relied in the "donation" of money or "donation" of labor to Scientology. The material fact misrepresented is that the payment of money to California was in fact a "donation." The "donation" was not a "donation" because the corporations were not operated as tax-exempt, religious corporations under either Florida law or federal law!

Under Florida law (F.S.A. §496.06) "[N]o charitable organization...shall expend funds raised for charitable purposes for non-charitable purposes. A charitable organization includes a religious organization which is not "bona-fide" or does not qualify under Section 501(c) (3) of the Internal Revenue Code. The Florida statute has been repealed effective July 1, 1982, but for the past 7 years, (the operative dates of the statute), California has not operated in Florida as a bona-fide religious tax-exempt organization under Section 501(c) (3).

In order to qualify as a legitimate tax-exempt organization in Florida between 1975 and the present which would entitled California to make said representation and solicit "donations," California had to fulfill the following "operational test" requirements:

(1) California must have operated exclusively for religious purposes between 1975 and the present;

(2) No part of the earnings of California could have inured to the benefit of Hubbard, his wife or family;

(3) The activities of California of a commercial, profit making, criminal or those violative of public policy must not have been more than an insubstantial part of its overall activities as to conclude that it was not operated exclusively for tax-exempt purposes.

After a lengthy trial, the Tax Court of the United States is in the process of rendering an opinion as to whether California violated any of the three foregoing requirements for the tax years 1970, 1971, and 1972. Additionally, the I.R.S. has made a jeopardy assessment for the years 1973, 1974, and 1975. The bulk of the documents seized by the F.B.I. in the raid on California in July 1977, involve the years 1975-1977. Therefore, the existing documentary evidence of non tax-exempt, criminal and public policy violations relates mostly to the years 1975-1977, although there is overwhelming testimonial evidence from 1975 to the present of such violations. In other words, if the I.R.S. succeeds in its case for the years 1970-1972, the denial of exempt status for the succeeding years will be almost conclusive. Likewise, proof of the non-tax exempt character of California in a criminal fraud (RICO) prosecution for the years 1975-1982 as outlined here will be almost axiomatic. Of course, the ultimate proof of such commercial, profit making, activities and personal aggrandizement of Hubbard is the transfer of 85 million dollars of sea org reserves to him.

The foregoing fact, the tape recordings previously mentioned, the documents in the possession of Gerald Armstrong, and the defection of numerous high ranking members together with the F.B.I. documents seized, and the evidence used in the I.R.S. trial create a sound factual basis to prove a staggering fraud case. Indeed, the highest concentration of such fraud activity in the past 7 years has been in Clearwater! That fraud coupled with the operations against former Mayor Cazares, the use of charitable funds for such purposes, the use of funds to defend the criminal cases in Washington (Hubbard specifically authorized this as revealed in the Armstrong documents) together with the "stipulation of evidence" signed by Mary Sue Hubbard and 8 other co-defendants all proves that California violated the "operational test," and thereby committed a fraud in soliciting "donations" in Clearwater. Hubbard's recent transfer of the copyrights and acquisition of 85 million dollars of California's money in consideration of the transfer of the E-meter and copyrights, proves the fraudulent nature of the scheme from the inception, to wit, Hubbard used California's religious front to sell his books and courses, promote their value, then used the value in them created by a religious corporation to acquire a personal fortune. This is fraud.

Attached hereto as Exhibit 4 are several memoranda of the I.R.S. relating to the almost conclusive proof that California violated all 3 parts of the "operational test" as hereinbefore stated. The State's Attorney for Pinellas County need only duplicate in part the case prepared by the I.R.S., add the highly explosive evidence of the Hubbard copyright transaction, and add the violation of predicate crimes hereinafter discussed, and the viability of a RICO indictment becomes apparent. This is particularly true in Clearwater where California engaged in the largest, most commercially motivated, most profit oriented, and most criminal activities (or at least those in violation of public policy) than in any other location in the United States.

V. THE EVIDENCE TO PROVE THE "DONATION"/HUBBARD RELIGIOUS FRONT FRAUD

The following evidence exists to prove the fore- going RICO indictment:

(1) Gerald Armstrong

Tape recordings as previously stated; 1954 letter from Hubbard to Helen O'Brien re: using the "religious angle"; 1977-78 letters from Hubbard to Leonard Boudin authorizing payment of California moneys to defend Mary Sue, et al (it is believed this amounted to more than 6 million dollars); Hubbard's naval records proving his falsified naval background to wit, he did not serve four years in combat or cure war wounds through Dianetics and Scientology which he discovered; many documents showing Hubbard's control of Scientology corporation, falsified credentials, false medical and health history (which Hubbard represented to be perfect to sell his materials); oral testimony that Hubbard controlled everything at least up to March 1980, and used California as a "sham" or alter ego, that Church members or "public" in Clearwater were routinely deceived as to Hubbard's background and control, that Church members in Clearwater were abused, denied proper food, and deceived as to how the Church operated. Armstrong is fully cooperative and will voluntarily appear before a grand jury.

(2) Kima Douglas

Oral testimony that Hubbard controlled absolutely all phases of Scientology, that money was couriered for him throughout the world, that California purchased property in the names of straws, that Hubbard had exclusive control of all large bank accounts, that Hubbard's health history was falsified to public members, that Hubbard's doctor filled out hundreds of blank prescriptions illegally, that Hubbard implemented hundreds of fraudulent plans to hide his control of Scientology, many of which she participated in, that Hubbard knew about and authorized many of the criminal operations for which his wife was convicted. Douglas is marginally cooperative, has provided the foregoing information to the 3 authors of this report, is presently fearful of her involvement and would probably cooperate. She could prove the I.R.S. case with her testimony alone.

(3) Laurel Sullivan

Participated in the taped conversations; oral testimony that Hubbard implemented the "MCCS Mission" to hide the fact that California was a sham or his alter ego of which "Mission" she was in charge; has preliminary testimony of the copyright transaction although she left before it was outlined in full; knows about numerous finan- cial transactions/illegal control of religious corporations as Hubbard front organizations; she could prove the entire I.R.S. case with her testimony; she is on the fence, inclined toward co-operation with law enforcement, in regular contact with Armstrong and would probably cooperate.

(4) Bill Franks

Oral testimony to prove several criminal acts; he was the highest official in the Church between May 1980 and September 1981; he was kidnapped and held against his will by a group led by David Mescavige who is now in control of the Church; his testimony would prove everything that could be testified to by Douglas and Sullivan with more evidence of Guardian's Office activities which Douglas and Sullivan would not know about. He is leaning towards cooperation, would testify if immunized, and would be partially cooperative.

(5) Martin Samuels

One of the defendants in the Christofferson case who has now defected. One of the oldest and most respected Scientologists in the world; Samuels has recently defected and is considering meeting with the F.B.I. regarding perjury in the Christofferson case. He would have highly authentic testimony of the solictation practices of California to send people to Clearwater (Flag), together with evidence of the "religous front" used to make money in the guise of "donations." He should be fully cooperative, although he should be approached as soon as possible.

(6) Bob Chambers, Alan Waiters, Bert Coyden, Brown McKee

Oral testimony similar to Martin Samuels re: solicitation of the public to send to Clearwater, etc.

(7) Vaughn Young

One of the highest Guardian's Office agents in the world; knows most facts about most overt criminal operations in Clearwater and elsewhere; he reportedly has gone to the F.B.I. in Los Angeles in early December 1982. The F.B.I. should be contacted there for his cooperation.

(8) William Ryan

Oral testimony re: Flag Treasurer when Scientology landed in Clearwater 1975/1976; would testify of financial transactions at the time including use of fraudulent front groups - United Churches of Florida.

(9) Scott Mayer

Was hired by I.R.S. as a "consultant" during I.R.S. case; participated in hundreds of fraudulent, illegal and quasi-criminal acts for Hubbard and California; could prove almost entire RICO fraud case on the "donation" issue alone. Fully cooperative.

(10) Edward Walters

Oral testimony similar to Scott Mayer re: operating practices of Scientology. Participated in some criminal acts in Las Vegas, Nevada as an agent of California; detailed testimony of religious front including "religious image check sheet," "Minister's Mock-Up," role of California, publications, and solicitation practices of California for Flag in Clearwater. Fully cooperative.

(11) La Venda Van Schaick, David Ray, Tonja Burden, Ann Rosenblum, Laurie Taverna, Robert Dardeno, Warren Friske

Oral testimony of a variety of frauds, public policy violations, crines, solicitation practices, personal abuse, etc., to prove that California did not operate exclusively for religious purposes. All of them are cooperative. Affidavits of most are attached as Exhibit 5.

(12) All I.R.S. witnesses in I.R.S. case v. California. Transcripts and witnesses are available.

(13) Ron DeWolf

Oral testimony to prove that Hubbard created California as a religious front to commit fraud. Son of Hubbard - fully cooperative

(14) Documentary Evidence

(a) Tape recordings/Armstrong

(b) Armstrong documents

(c) Stipulation of Evidence

(d) Clearwater Operations from seized F.B.I. documents Exhibit 6 attached

(e) Church of Scientology policies re: burglary, infiltration, theft, lying, cheating, harassment and blackmail. See Exhibit 7 attached

(f) Church of Scientology policies re: use of auditing information - See Exhibit 3 attached and discussed infra

(g) I.R.S. audits re: California financial transactions

(h) November 7, 1982 document re: "donation" of copyrights - Exhibit 8 attached

(i) Articles of Organization of RTC attached as Exhibit 8

VI. PROBLEMS IN PROOF OF INDICTMENT

The major problem in the proof of the recommended indictment is evidence of the final consummation of the Hubbard copyright transaction. Although it is not necessary to prove the copyright transaction to prove the fraudulent motive of the "donations" vis-a-vis Hubbard's control of California and the false representations about himself, it is the most explosive evidence, and provides the "frosting on the cake." It proves Hubbard's intent to use the religious front as a guise to make money for himself. There are 5 individuals who have direct knowledge of the copyright transaction. They are (1) David Miscavige; (2) Lyman Spurlock; (3) James Isaacson; (4) Norman Starkey; (5) Pat Broeker.

Spurlock and Isaacson are currently under investigation by an Arizona Grand Jury for using Hubbard's moneys in a transaction involving one Jan Goergen and Intercaps Ltd. Isaacson could be the weak link. If given immunity, he may testify.

The Los Angeles F.B.I. should be contacted to arrange a meeting with Isaacson. All of the foregoing individuals currently control the Church of Scientology and Hubbard's bank accounts. They are all hostile.

VII. EXTORTION AS A PREDICATE CRIME UNDER RICO

As previously stated, extortion is prohibited by F.S.A. §836.05, it is a predicate crime under RICO, and it is a predicate crime under federal RICO. It is also a crime under federal racketeering statutes, 18 U.S.C. §1951, 1952, which statutes are also predicate crimes under federal RICO, 18 U.S.C. §1961.

Title 18 U.S.C. Section 1951 makes it unlawful to "affect commerce" by threats, violence, robbery or extortion. As defined in Section (b) (2) of the statute extortion "means the obtaining of property from another with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official "right." Any conduct which causes a state of mind of fear of financial loss constitutes extortion under the statute, U.S. v. Kramer, 355 F.2d 891( Cir. 1966) cert. den. in part and granted in part 384 U.S. 100.

Title 18 U.S.C. §1952 (racketeering) makes it a criminal offense to travel in interstate commerce or use the mails to distribute the proceeds of any unlawful activity or promote or carry on any unlawful activity.

Threats to expose alleged homosexual activities for the purpose of obtaining money constitute "extortion" within Section 1952. U.S. v. Nardello, 393 U.S. 286 (1969). U.S. v. Hughes, 411 F.2d 461 (2nd Cir., 1967), cert. den. 396 U.S. 461. Extortion was committed where a defendant elicited personal information from a victim and then sought to use it against him. U.S. v. Schwartz, 398 F.2d 464 Cir., 1968) cert, den., 393 U.S. 1062, Exploitation of the fear of economic loss constitutes attempted extortion in violation of Section 1951. U.S. v. Furey, 491 F.Supp. 1048 (D.C.Pa. 1980). Fear of economic loss is sufficient even if the interest threatened is an anticipated one. U.S. v. Rabbitt, 583 F.2d 1014 ( Cir., 1978).

The cases cited above uphold the basis for a RICO indictment against the Scientology corporations and the Hubbards for (a) the use of confidential information, (b) to gain an unlawful advantage, (c) by exploiting the fear that the information will be used. In some cases, the economic loss is the fear of seeking refunds of money, payment for labor, or loss of legal avenues of redress.

Customers of the Church of Scientology, who have come to Clearwater have provided money or labor to Scientology in consideration of receiving "auditing" on the written and oral promise that it would be strictly confidential. Hundreds of such individuals have given detailed information relating to their financial, health, drug, sexual and criminal history. Generally, public members receive auditing in consideration of the payment of money, and staff members receive auditing in consideration of their labor. All are guaranteed confidentiality at the time the information is given.

Auditing is very expensive, costing in the range of $100 - $200 per hour, and it is generally undertaken based on representations that it will raise I.Q., cure disease, cure drug problems, etc. In general, the reason that most individuals undertake it are secular and not religious, and the Scientology publications promoting auditing have been held to be secular. See U.S. v. Article or Device, 333 F.Supp. 357 (D.Dist. Col., 1971)

When an individual who has received auditing seeks (1) to leave the Church, or (2) to get his money back, pursuant to written policy, the auditing files are "culled" by agents of the Guardian's Office, not auditors, and all potentially embarassing or criminal information is reduced to writing and the person is required to sign the statement containing the information, before being allowed to leave or receive a refund. At the same time that the person is required to sign the foregoing "confession," he is required to sign a legal release or waiver of all of his legal rights against the Church. Thus, the person forfeits his legal rights based on the fact that the Church has possession of highly confidential information reduced to a signed confession. This practice not only violates the promise made to the person of non-disclosure, it constitutes an extortionate use of confidential information to obtain forfeiture of the person's legal rights.

Where a staff member is involved, there is an added extortionate element to the entire scheme. Staff members who desire to leave not only sign (1) the confession, and (2) a legal release but also (3) a promissory note to the Church legally obligating them to pay for the cost of any auditing received while a staff member. Such individuals are told that the promissory notes, called "Freeloader's debt" are legally enforceable. Therefore, the staff member who seeks to leave not only has his legal rights extorted from him by the use of signed confessions, but also by the use of promissory notes creating legal obligations. The extortionate character of the entire scheme becomes more significant in light of the fact that the Church claims that all payments of money and the providing of services are "donations." A gift or a donation, of course, is not a legally enforceable debt.

An added extortionate element occurs when the individual is told about the "Fair Game Doctrine" which is a policy of Scientology to "lie to, cheat, sue or destroy" any of its opponents. Many former members will testify that the juxtaposition of the Fair Game Policy with the signed confession policy creates such a fear or threat that they do not pursue legal redress.

The purpose of F.S.A. §836.05 (1979) is to provide criminal sanctions for the making of malicious threats to another to compel such person to refrain from doing any act against his will. State v. McInnes, 153 So.2d 854, 856, (Fla. 1963). The types of malicious threats made unlawful by F.S.A. §836.05 (1979) that are applicable to the activities of the Church of Scientology relative to the recited facts are:

1) To accuse another of any crime or offense;

2) To injure the reputation of another;

3) To expose another to disgrace;

4) To disclose any secret affecting another.

The critical element in the proof of the foregoing "threats" is the intent to compel the person so threatened to refrain from doing any act against his will. State v. McInnes, 153 So.2d 854, 856 (Fla. 1963), F.S.A. §836.05 (1979). See federal cases previously cited.

The Church of Scientology through its agents has just recently demonstrated the extortionate scheme by disclosing a "confession" signed by David Ray, a witness in the Clearwater hearings.

Mr. Ray's confession included disclosure of information that:

1) accused Mr. Ray of a crime;

2) injured Mr. Ray's reputation;

3) exposed Mr. Ray to disgrace;

4) exposed secrets affecting Mr. Ray.

The disclosures took place after all elements of the crime of extortion were committed, and constitute proof of intent to use confidential information for extortionate purposes. The gravamen of the scheme, or the making of the "malicious threat" is the act of reducing the confidential auditing information to writing while obtaining a legal release. The victim has forfeited his legal rights under the threat of exposure of the "confession." See, Kervin v. Clark, 396 S.2d 1203, 1203-04, (1981).

In many cases, the victim is actually told that the confession will be used against him/her if the person "attacks" the Church of Scientology, by demanding a refund, bringing a suit, speaking out in the press, etc. In some cases, the person is not actually told what will be done with the "confession," but is subtly made to understand that it will be used against him/her, In either case, the combination and sequence of the acts of (1) extracting confidential information from the person; (2) reducing the information to a "confession" and (3) execution of a legal release at the same time, constitutes a "malicious threat," and the elements of the crime are complete.

Evidence

The following individuals have specific evidence of the policy of extortion and all of the witnesses previously recited have general knowledge of such policies on this issue:

1) David Ray;

2) Tonja Burden;

3) Ann Rosenblum;

4) Gerald Armstrong;

5) Scott Mayer;

6) Edward Walters;

7) Janie Peterson;

8) Carol Garrity;

9) La Venda Van Schaick;

10) William Ryan

We recommend that the State Attorney's Office initiate a grand jury investigation for the crimes of extortion, conspriracy to commit extortion and violation of the Florida RICO statute, consisting of extortion as a "racketeering activity."

VIII. SCIENTOLOGY AUDITING SALES, E-METER SALES AND BOOKS AND COURSES SALES CONSTITUTE VIOLATIONS OF FLORIDA STATUTES TEIAT MAKE IT UNLAWFUL TO OBTAIN PROPERTY BY FALSE PRETENSES SCHEMES TO DEFRAUD, FALSE ADVERTISING

Within the State of Florida, L. Ron Hubbard and the Church of Scientology have been advertising and claiming in their publications Scientology "auditing" and "processing" can cure various physical and mental illnesses. Such claims have been disseminated through-out the state by numerous Scientology books and pamphlets, including Dianetics, The Modern Science of Mental Health. Alleged curative effects of Scientology have also been orally promoted by employees of Scientology whose duties include the solicitation of funds and new members through the dissemination of health claims.

Fees are charged for auditing sessions and for processing. The fees paid are substantial and they may vary dependent upon the financial assets of the person.

In 1972, a Federal District Court Judgment in the case of United States v. Article or Device, 333 F.Supp. 357 (D.C. Wash. D.C. 1971) issued the following "Order":

"1. E-meters shall be used or sold or distributed only for use in bona fide religious counseling.

2. Each E-Meter shall bear the following warning, printed in 11-point leaded type, permanently affixed to the front of the E-Meter so that it is clearly visible when the E-Meter is used, sold, or distributed:

The E-Meter is not medically or scientifically used for the diagnosis, treatment, or prevention of any disease. It is not medically or scientifically capable of improving the health or bodily functions of anyone.

3. Any and all items of written printed, or graphic matter which directly of indirectly refers to the E-Meter or to Dianetics and/or Scientology and/or auditing or processing shall not be further used or distributed unless and until the item shall bear the following prominent printed warning permanently affixed to said item of the outside front cover or in the title page in letters no smaller than 11-point leaded type.

WARNING

The device known as a Hubbard Electrometer, or E-Meter, used in auditing, a process of Scientology and Dianetics, is not medically or scientifically capable of improving health or bodily functions of anyone."

The foregoing Order has never been complied with by the Church of Scientology. Thousands of individuals have paid money to the Church of Scientology, provided auditing information, or provided labor without receiving the "Warning" required in the foregoing "Order." Although the Church does print a "religious disclaimer" in some of its books, the "disclaimer" does not comply with the Federal Judgment. Moreover, in some publications, such as "Dianetics, The Modern Science of Mental Health", there is not even a disclaimer. In its full page advertisements in the Clearwater Sun, the Church failed to print the required "Warning."

The Church of Scientology, by reason of the failure to comply with the Federal Judgment is guilty of violating the following Florida statutes:

1) F.S.A. §8l7.41: Misleading Advertising Pro- hibited;

2) F.S.A. §817.035(2): Schemes to Defraud;

3) F.S.A. §8l7.036: Organized Fraud;

4) F.S.A. §8l2.0l4(l)(b): Theft by False Pre tenses; and

5) F.S.A. §895.02(1) (a)15, 16: The Florida RICO, which is inclusive of the charges filed in points 1) - 2) immediately above.

Scientology's Violation of F.S.A S817.41: Midleading Advertising Prohibited

In the Article or Device case, supra, the United States District Court found that Scientology literature contained misleading and false claims stating that such claims were,

"...false - in short a fraud. Contrary to representations made, there is absolutely no scientific or medical basis in fact for the claimed cures attributed to E-Meter auditing." United States v. Article or Device, 333 F.Supp. 357, 359 (D.C. D.C. 1971)

The failure to include the "Warning" required by Judgment in newspaper advertisements in the Clearwater Sun is "misleading advertising" in connection with which money or property has been paid, all of which is a violation of F.S.A. c.817.41(1). See Major v. State, 180 So.2d 335, 337 (Fla. 1965).

Violations of F.S.A. §817.035(2), F.S.A. §8l7.036 and F.S.A. §8l2.0l4(2) (a), Obtaining Property by False Pretenses

The above criminal statutes require proof that a defendant has wrongfully acquired property by false pretenses. The Church of Scientology has made false representations of past or existing facts about the cure of physical and mental disorders and it has failed to comply with the decree in United States v. Article or Device. Millions of dollars have been paid to the Church of Scientology in Clearwater by people who (1) relied upon the claimed cures of physical illness and (2) did not receive the "Warning" required by Article of Device. All elements of the foregoing statutes can be proven by the simple failure to give the required "Warning." Latti v. State, 364 So.2d 828, (Fla. 1978), Green v. State, 190 So.2d 614, (Fla. 1966). Property was obtained by false pretenses because misrepresentations about physical cures without the "Warning" constituted: (1) a misrepresentation of an existing fact, (the fact is the required "Warning," and the "misrepresentation" is the failure to give said "Warning"); (2) with knowledge of its falsity, (the Church knew it was required to give it per the Federal Judgment); (3) with intent to defraud (books and services were sold for money); and (4) people relied upon the misrepresentation (if people were warned, they would not have paid). Ex Parte Stirrup, 19 So.2d 712, (Fla. 1944).

The following Florida statutes support criminal actions under the foregoing facts:

a) F.S.A. §8l2.0l4(l)(b): Theft by false pretenses, See, Lash v. State, 399 So.2d 534, 535 (D.Fla. 1981). The Church of Scientology should be charged with grand theft of the first degree, punishable as a felony of the second degree because the "property taken has a value of $20,000 or more, F.S.A. §812.014(9)(1977). When the value of the property taken is valued at less than $20,000 but more than $100, then the Church of Scientology should be charged with grand theft of the second degree and a felony of the third degree, punishable as provided in ss. 775.082, 775.083, and 775.084. F.S.A. §812.014(2)(b)1(1977).

b) The Church of Scientology is also guilty of violating F.S.A. §817.035(2) (1977). By engaging in a systematic course of conduct with the intent to obtain property by false pretenses from 10 or more persons, and by obtaining money from 1 or more of such persons, the Church is guilty of a felony of the third degree. F.S.A. §817.035(2) (1977). To support a prosecution under this section, state must prove the identify of at least one person from whom the Church of Scientology obtained money without giving the required "Warning." F.S.A. 817.035(3).

c) By obtaining property of a aggregate value of $50,000 or more from misrepresentations made to 5 or more people who paid money, the Church of Scientology should be charged with violating F.S.A. §8l7.036(l). The crime of organized fraud is a felony of the first degree, punishable as provided in s. 775.082, s. 775.083 or s. 775.084.

Evidence:

Any or all of the witnesses previously set forth can provide testimony to prove the foregoing crimes.

IX. PUBLISHED AND ORAL REPRESENTATIONS ABOUT THE ACADEMIC AND PROFESSIONAL CREDENTIALS OF L. RON HUBBARD AND HUBBARD'S RESEARCH BACKGROUND HAVE BEEN OVERTLY MISREPRESENTED UPON WHICH HUNDREDS OF PEOPLE HAVE RELIED PAID MONEY AND BEEN DEFRAUDED

In written pulbications and in systematic oral lectures, the Church of Scientology has overtly misrepresented the following facts about L. Ron Hubbard:

1) He is a graduate of George Washington University;

2) He is a graduate of Princeton University;

3) He is a Nuclear Physicist;

4) He is a Medical Doctor (by inference);

5) He engaged in 30 years of research to write "Dianetics";

6) He is a naval war hero who served r years in combat;

7) He was "crippled" and "blinded" from "war wounds" and cured himself with "Dianetics";

8) He was twice pronounced dead;

9) He has achieved "perfect" physical and mental health with "Dianetics."

All of the foregoing representations are overtly false and easily susceptible of exact proof. Hundreds of individuals have paid millions of dollars in Clearwater in specific reliance upon the foregoing representations. Indeed, if there is any one set of facts upon which people have relied in the payment of money to the Church of Scientology, it is the qualifications of Hubbard.

Perhaps the most recent false representation about Hubbard upon which hundreds of people have paid millions of dollars is the representation and sale of the course, "The Happiness Rundown," allegedly created, written and copyrighted by L. Ron Hubbard. This course is presently being sold in Clearwater for large sums of money varying from $2,000 to $12,000. In fact, "The Happiness Rundown" was written by one, David Mayo, not Hubbard. People who have purchased "The Happiness Rundown" have done so not only on the representation that it was written by Hubbard, but also on their reliance upon Hubbard's background and qualifications.

The misrepresentations about Hubbard violate the following statutes:

1) F.S.A. §8l7.4l: Misleading Advertising Prohibited;

2) F.S.A. §817.035(2): Schemes to Defraud;

3) F.S.A. §817.036: Organized Fraud;

4) F.S.A. §812.014(l)(b): Theft by False Pretenses;

5) F.S.A. §895.02(l) (a) 15, 16: The Florida RICO statute which is inclusive of the charges filed in points 1 - 4 above.

X. MISREPRESENTATIONS ABOUT THE CONFIDENTIALIY OF AUDITING

Perhaps the most overtly fraudulent representation made by the Corporations and the Hubbards is that auditing information is confidential between the auditor and the person being audited. The witnesses and the documents available to prove the staggering scope of this hoax are overwhelming. All of the individuals set forth herein as potential witnesses could either testify about the practices of the Church to use auditing information in breach of the representation or about the policy to do it.

Millions of dollars have been paid for auditing based on said representations of confidentially, This representation of confidentiality standing alone, could uphold convictions under most of the fraud statutes previously recited and, therefore, under RICO. Indeed, the evidence set forth in Exhibit 3 attached and the affidavits attached as Exhibit 5 prove that the Church of Scientology has systematically engaged in the procurement of confidential information with false representations of confidentiality. The outrageous scope of the fraud perpetrated in Clearwater in the collection of said information and the subsequent reduction of information to signed confessions is not only fraudulent on its face, it has prevented thousands of people from obtaining legal redress or refunds of their money, because they are aware that the Church would use it against them pursuant to the Fair Game Doctrine.

LIST OF EXHIBITS

(1) Armstrong Affidavit

(2) Hubbard background material

(3) Confidentiality of Auditing

(4) I.R.S. Memo

(5) Affidavits

(6) Clearwater "Non tax-exempt purposes" as proved by F.B.I. documents

(7) Church of Scientology "policies" re: non tax-exempt purposes as proved by F.B.I. documents

(8) RTC and November 7 document