NCPA - National Center for Policy Analysis

Government Stings Can Ruin Honest Entrepreneurs

February 9, 2000

Should an above-board businessman who was the victim of a federal sting operation be compensated if the sting caused him physical and financial problems? That is a question being debated in the courts in the wake of a suit by Houston aerospace businessman Anthony P. Hodgson and two partners.

  • An FBI agent using the alias John Clifford contacted Hodgson in 1992 with offers of venture capital for two start-up companies he owned along with his partners.
  • Hodgson was never the focus of the investigation, code named Lightning Strike, which sought to uncover kickbacks and other business crimes in the aerospace industry -- but the three men were enlisted to help FBI agents "meet potential subjects for investigation."
  • After the undercover agent offered one of the partners a lucrative job managing a planned island resort, the partner severed his ties with the aerospace firms.
  • Uncovering the scam and taking the matter to court, the three partners argued that the investigation cost them valuable time working on bogus project proposals, diverted their attention from potentially viable projects, split up their partnership, hurt their credibility and destroyed their businesses.

The U.S. Court of Appeals for the Fifth Circuit ruled last fall that law enforcement officers can be held liable if with deliberate indifference they harm "an innocent nontarget." The court said that the legal doctrine called qualified immunity will no longer protect agents in sting operations who hurt innocent third parties.

However, the court affirmed the dismissal of Hodgson's claims, stating that the FBI agents were entitled to -- but had not received -- notice that they could be held liable. His partners' claims were rejected on a technicality.

Hodgson vows to take his case all the way to the Supreme Court.

Source: Geanne Rosenberg, "FBI Casts a Wide Net With Plenty of Tangles," New York Times, February 9, 2000.


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