Should the Antitrust Division Have a Whistleblower Czar?
Well, no. Without legislation to create a criminal antitrust whistleblower statute, the Czar might have little to do. But, the Antitrust Division should make some effort, short of Czardom, to encourage bid rigging whistleblowers. As I noted in Part I (here), there is already a mechanism for a whistleblower to claim a reward for prosecuting collusion among contractors/vendors on government contracts. The bid rigging whistleblower can file a False Claims Act (qui tam) case on behalf of the government alleging that the government was ripped off by illegal collusion among the bidders. If the government recovers damages, the person who brought the suit (the Relator) can receive a percentage (10-25%) of the recovery.
As I mentioned in Part I, the Antitrust Division has brought both criminal and civil suits as a result of filed whistleblower cases. This is a pretty well-kept secret because as far as I know, the Division has never encouraged anyone to come forward as a bid rigging whistleblower or done anything to publicize the fact that whistleblowers of collusion on government contracts can and have recovered a portion of the government’s damages. The government should make some effort to attract bid rigging whistleblowers. Doing so would benefit the Antitrust Division in obvious and non-obvious ways. Below are a few ideas I think are worth discussing.
Welcoming Bid Rigging False Claims Act cases
Special Counsel for False Claims Act Cases
Over the years there has been a proliferation of counselors to the Assistant Attorney General for the Antitrust Division. One counsel, with a criminal and civil background, could be designated as the Special Counsel for False Claims Act cases. This would at least be a message to the bar that the Antitrust Division does have an interest in promoting whistleblowing on collusion on federal government contracts. This special counsel could also oversee whatever efforts the Antitrust Division does take to encourage bid rigging whistleblowing.
Create a False Claims Act web page
The Antitrust Division has a page on its website for the Leniency Program. The Antitrust Division promotes the heck out of leniency. This page is an excellent source of information about everything one would need to know about the Corporate and Individual Leniency Programs. There is also a Report Violations page on the Antitrust Division’s website. A False Claims Act page would signal the Division’s interest in possible False Claims cases as well as provide information a potential whistleblower might need to begin.
Better Coordination with Civil Division and United States Attorney’s Offices
When a False Claim Act case is filed, notice of the case and the evidence supporting it must be filed with the Attorney General of the United States. From there, the case will be assigned according to the subject matter of the alleged fraud: (i.e. health care, defense, antitrust). Perhaps this is already being done, but the Antitrust Division might be more aggressive in claiming its seat at the table for bid rigging on government contracts. A whistleblower will not file a Sherman Act case if she has information about collusion on a government contract—because there is no provision for antitrust whistleblowers. The case will be filed as a Conspiracy to Defraud the United States with the bid rigging constituting the fraud. A review of cases False Claims Act Cases on the Department of Justice website indicates that there have been a variety of False Claims Act matters that involved bid rigging yet were handled by local United States Attorney’s offices and the Civil Division of the Department of Justice, instead of the Antitrust Division.
It would be good public policy to have all potential government bid rigging cases be referred to the Antitrust Division. Pardon the institutional pride (I worked there for 34 years), but nobody can spot, investigate and prosecute a viable criminal antitrust violation (i.e. bid rigging) better than an experienced Antitrust Division Attorney. What may look like a bid rig too small for government intervention, may be spotted as the tip of the iceberg by an Antitrust Division prosecutor. Likewise, a case that may appear weak to someone else, may look quite viable to a Division prosecutor that has experience investigating cartels—and tools like the leniency program. A special counselor for False Claims Act cases would raise the profile within the Antitrust Division, the Department of Justice (and the outside bar) and may spur additional viable False Claim Act cases being referred to the Antitrust Division for a decision on whether the government should intervene and take over the prosecution.
2. The Benefits to the Antitrust Division of a Higher Profile for False Claims Act Cases
The Antitrust Division could benefit in both obvious and non-obvious ways from a higher profile on False Claim Act cases.
Filing a False Claims Act case is a risky proposition for any potential whistleblower. The blowback from being a whistleblower will likely be severe and the chances for success, especially if the government does not intervene, are far from certain. Modest changes like these suggestions are not going to lead to an avalanche of new cases. (Thus, the need for an SEC like criminal antitrust whistleblower statute as I argue in this article (here)). But, it is certainly worth a try. Nothing suggested above, and others may have additional/better suggestions, costs the government a nickel and the return on the investment may be substantial, even if just one additional cartel is uncovered. Also, while a different subject, many believe that the value of leniency has been decreasing and the number of viable leniency applications is down. While this may be coincidence, not causation, the Antitrust Division’s statistics for cases and jail sentences and fines are way down. It may be an opportune time to launch a new, if modest, initiative.
One benefit of publicizing the potential benefits of being a bid rigging whistleblower is that even if only one new case emerges, these are great cases for staff to work on. Here I speak from personal experience and my views may not be universally held, but I’m pretty sure they are held by most trial attorneys in the Antitrust Division. Government bid rigging cases are great cases to work on. They are much lower profile than say a Forex or Libor or other international cartel matters. These “big” cases have their own allure, but the front office, the Criminal Division, SEC, CFTC, foreign agencies, Batman and Robin and others all have a hand in these investigations. While it is exhilarating to work on a matter that makes the front page of the Wall Street Journal, a staff member is a small cog in the big wheel. On a government contract matter, generally speaking, the staff has more responsibility and more ownership of the matter, including possible trial experience on manageable cases. It’s a great way to learn how to investigate, take chances and take ownership. These cases also involve working with agents across the federal spectrum. These relationships can last a career and produce results over a long period of time.
Finally, one of the most important reasons for robust antitrust prosecutions is deterrence. If the Antitrust Division starts whistleblowers and prosecuting bid rigging cases, it should have a deterrent effect on all the bid riggers out there that are not currently being detected. Whistleblower awards on bid rigging matters should be well-publicized. There is great satisfaction in seeing taxpayer money restored (with appropriate penalties) if a successful case is brought. In a cartel case like capacitors the price of an input is raised but the impact on the final cost to consumers is small. The cumulative harm is great (and should be prosecuted), but it is very diffused. With bid rigging on government contracts the harm is focused and the recovery can be significant with both criminal and civil penalties. Also, many government bid rigging investigations can lead to finding more bid rigging and what often looks like a small matter can proliferate into a major investigation. Road construction, school milk, Defense Department contracts are just a few of the government contract cases that led to uncovering “way of life” collusion in certain industries.
Special Issues with A Big Rigging Whistleblower
Thanks for reading. Please come back for Part III.
A principle objection to an antitrust whistleblower statute is that it would undermine the credibility of a witness if she received compensation for exposing a cartel. Superficially that sounds right but doesn’t hold up when you consider the success of the Antitrust Division’s Corporate Leniency Program. Simply change “leniency applicant” to “whistleblower” and one can see that the Antitrust Division already has a form of whistleblowing; the Corporate Leniency Program which bestows rich rewards on the whistleblower. As the Antitrust Division has stated repeatedly, the value of leniency is the tens of millions of dollars it can save a company. Leniency/whistleblowing saves not only the leniency company money, but it can save multiple culpable executives from jail time in return for their cooperation: “When Calculating The Costs And Benefits Of Applying For Corporate Amnesty, How Do You Put A Price Tag On An Individual’s Freedom?” So, the government is rightfully not skittish about paying for information. It’s a necessary evil to breaking up secret cartels and hopefully deter their inception.
The reward of leniency does, of course, undermine the credibility of witnesses just as a whistleblower reward will ding the credibility of any whistleblower who testifies. If the government has only the cooperation of a leniency applicant, it is likely to: a) not bring a case; or b) lose the case it brings. But, that flaw in leniency that does not outweigh the benefits! Leniency whistleblowing almost always leads to cooperation from other subjects of the investigation. The value of leniency whistleblowing is that it starts the dominos falling of companies/individuals coming in to cooperate for the next best deal available. You don’t see many criminal antitrust trials based on a grant of leniency, because the grant of leniency to one company leads to many guilty pleas and an overwhelming case against whomever is left. A criminal antitrust whistleblower statute for individuals will work the same way.
Pardon the advertisement for a criminal antitrust whistleblower statute because this post is not about that. In writing about the need for a whistleblower statute, I may have given the impression that it is not currently possible to be a whistleblower on cartel cases. This is not true. An individual whistleblower already has a way to help the government recover damages from bidding collusion, while at the same time getting some reward for the great expense and risk in doing this. If there is bid rigging or price-fixing and the federal government is a victim of the collusion, a qui tam(whistleblower) suit can be brought seeking damages on behalf of the government. A whistleblower can file a False Claims Act case alleging that a defendant (or group of defendants as in a cartel) obtained a federal contract by means of making a material false statement. If a bid was rigged, the false statement would likely be the non-collusion affidavit filed with a vendor’s bid package. This is typically referred to as a Certificate of Independent Price Determination, or something similar. But, even without such a certification, in the context of a competitive bidding situation, there would be an implied certification that each vendor submitted his bid independently and without collusion with the other bidders, or even non-bidders if the scheme involved payoffs to a potential competitor to not bid).
A couple of things to note. To get a reward for this type of whistleblowing, it is not sufficient to simply go into the prosecutor’s office and lay out the evidence you have. Under the False Claims Act, the “Relator” [as the whistleblower is called] must file a qui tamsuit on behalf of the government alleging the government suffered damages as a result of the fraud. If damages are awarded as a result of the qui tamsuit, the Relator is entitled to between 15-25% of the amount the government recovers as a result of the bid rigging. As an example, if a Relator files a qui tamaction alleging bid rigging on a $50 million contract and the contractor repays the government $10 million in overcharges, the whistleblower should recover between $1.5 million and $2.5 million.
Once a qui tam suit is filed, the Relator’s attorneys must present the evidence they have to the government. The government will decide whether they want to intervene and take over prosecution of the fraud. If the government declines to intervene, (and the reason for declination can range from the government thinks your case is weak, or your case is fine, but they are just too busy with other matters). Even if the government declines to intervene, the Relator can still prosecute the case, and some do, but it is obviously more difficult without the government’s assistance. And in some fairly rare instances, the government can seek to have the Relator’s case dismissed if they believe it is without evidentiary merit or based on a legal theory the government doesn’t agree with.
The Antitrust Division has actually had successful criminal prosecutions that began based on evidence provided by a whistleblower who had filed a False Claims Act suit. The Antitrust Division neither publicizes the fact that whistleblowing rewards are available for exposing bid rigging on government contracts (and most states have similar False Claims Act statutes) and does not publicize when a whistleblower has successfully recovered damages for the government or himself. When I was Chief of the Philadelphia Office of the Antitrust Division we prosecuted several cases where the investigation began as a result of a whistleblower False Claims Act case. A publicly documented example of this was in 2012 when the Antitrust Division settled a civil bid rigging case where two companies were charged with rigging contracts for Bureau of Land Management gas leases. Because of the collusion, SG Interests and Gunnison Energy Corp. overcharged the government for leases by bidding less than they would have if they bid competitively. Each company paid a settlement of $550,000 in a civil case brought by the Antitrust Division. The government’s case was based on a qui tamcase filed in 2009 by a former vice president of one of the companies. See, Justice Department Settlement Requires Gunnison Energy and SG Interests to Pay the United States a Total of $550,000 for Antitrust and False Claims Act Violations.
Also, there was a False Claim Act case filed in the Puerto Rican ocean shipping cartel matter. That investigation resulted in the longest jail sentence ever received by an individual convicted of a Sherman Act violation–5 years. Again, the fact that a whistleblower case was filed is not well known, but the following is an excerpt from an Antitrust Division appellate brief as Mr. Peake appealed his conviction:
Stallings, a former Sea Star executive, was the government’s first cooperator in its investigation into the shipping conspiracy, although he did not testify at Peake’s trial. Stallings’s [whistleblower] lawsuit sought damages for “injuries to the United States Government resulting from Defendants’ fraudulent course of conduct and conspiracy to allocate customers, rig bids, fix rates, surcharges and other fees for Puerto Rican Cabotage which resulted in the submission of false or fraudulent claims to the Government. 
The Antitrust Division noted in its brief:
The qui tam provisions of the False Claims Act permit whistleblowers (known as “relators”) to bring certain fraud claims on behalf of the United States. 31 U.S.C. § 3730(b). These actions “are filed under seal and remain that way for at least 60 days” to give “the government an opportunity to assess the relator’s complaint and decide whether to intervene and assume primary responsibility for prosecuting the case.” United States ex rel. Heineman-Guta v. Guidant Corp., 718 F.3d 28, 30 (1st Cir. 2013) (citing 31 U.S.C. § 3730(b)(2), (b)(4), (c)(1)). Regardless of whether the government intervenes, a relator is entitled to a portion of the proceeds from the lawsuit. 31 U.S.C. § 3730(d).
Coming Next in Part II: Should There Be an Antitrust Division “Whistleblower Czar?”
 To be honest, another reason there are so few criminal antitrust trials is the prohibitive cost and the draconian “trial penalty” a convicted defendant is likely to face for demanding his day in court.
 It would be far more efficient if a whistleblower could simply provide the information he has to the government and cooperate in the investigation. This is among the reasons Ms. Justice and I are advocating an SEC style whistleblower statute.
 It is unquestioned that a scheme to rig bids not only violation the Sherman Act, but is a conspiracy to defraud the government where the government’s money is at stake.
 31 U.S. Code § 3730 (d)Award to Qui Tam Plaintiff. — (1) If the Government proceeds with an action brought by a person under subsection (b), such person shall, subject to the second sentence of this paragraph, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action. Where the action is one which the court finds to be based primarily on disclosures of specific information (other than information provided by the person bringing the action) relating to allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, the court may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation. Any payment to a person under the first or second sentence of this paragraph shall be made from the proceeds. Any such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.
Yesterday John Pecman gave his last public talk as Commissioner of Competition for the CanadianCompetition Bureau. The remarks were made at the Canadian Bar Association’s Spring Conference in Toronto. Mr. Pecman became acting Commissioner in 2012 and was subsequently named Commissioner. In his final remarks (here), Mr. Pecman discussed the four goals he had as Commissioner and the successes the agency achieved in realizing those goals:
“Looking at this job, I saw four must-do things to make the transition work:
Adopt a shared compliance approach;
Increase our guidance;
Enhance our domestic and international partnerships; and
Restructure the organization through an internal realignment.”
As always, Mr. Pecman was candid in describing areas where improvement was needed. For example:
“Simply put, the Bureau’s current cartel model is inefficient.
It ties up Bureau resources and leads to poor outcomes. It needs to be examined and repaired, in keeping with the approach adopted by a number of our international counterparts, like the ACCC, who have employed “dual track” approaches to proceeding against hard-core cartels.”
Lastly, I was happy to see that Mr. Pecman and I share a strong support of “whistleblower” programs to prevent, destabilize and prosecute cartels. Mr. Pecman stated:
Finally, I firmly support establishing a stand-alone “whistleblower” program, similar to the model employed by the Ontario Securities Commission and some of our international counterparts, which would provide financial rewards to whistleblowers who provide information and meet certain eligibility requirements. This would be an extremely effective enforcement tool for addressing the most egregious and most challenging anti-competitive behaviour to detect.
I have written numerous posts on Cartel Capers in support of whistleblower legislation (here) (here). They are summarized in an article I coauthored with a former Antitrust Division colleague, Kimberly Justice. The article, “It’s a Crime There Isn’t A Criminal Antitrust Whistleblower Statute” can be found here.
Thanks for reading. And many thanks to John Pecman for his long service on behalf of consumers and competition law enforcement. Congratulations John on your successful stewardship!
Below is a post that I wrote with a friend and former Antitrust Division colleague, Karen Sharp. The post originally appeared in Law 360 Competition (here). I am reposting for those that don’t have access to the article.
On August 17, 2016, a Utah grand jury returned a one count Sherman Act indictment against Kemp & Associates, Inc. and Daniel J. Mannix, a Kemp corporate officer. According to the indictment, the conspiracy was an agreement to “allocate customers of Heir Location Services sold in the United States” that began as early as September 1999 and continued as late as January 29, 2014.
Heir location service companies identify heirs to estates of intestate decedents and, in exchange for a contingency fee, develop evidence and prove heirs’ claims to an inheritance in probate court. The indictment charged that there was an allocation scheme whereby the defendants agreed with a competing heir location service company that the first company to contact an heir would be allocated certain remaining heirs to the estate and, in return, would pay the other company a portion of the collusive contingency fees collected from the heirs.
In pretrial orders issued last August, U.S. District Court Judge David Sam, 1) dismissed the indictment as time barred by the five-year statute of limitations; and 2) held that if there were a trial, the agreement would not be considered per se, but instead judged by the jury under the Rule of Reason. The Antitrust Division is challenging both rulings on appeal in the Tenth Circuit. In this article we discuss the court’s ruling that the indictment was time barred by the statute of limitations.
A full exposition of the facts can be found in the indictment, Judge Sam’s Memorandum Decision and Order, the government’s opening brief in the Tenth Circuit, and the defendants’ response. But in short, the relevant facts are these:
There was a written allocation agreement between competing heir location service companies to divide certain customers.
On July 30, 2008, defendant Mannix wrote to Kemp & Associates colleagues in an email: “The ‘formal’ agreement that we have had with [Blake & Blake] for the last decade is over.”
There were in fact no other heirs allocated after July 30, 2008.
Payments made by previously allocated customers, however, occurred within the Sherman Act five-year statute of limitations period preceding the indictment.
The government argues on appeal that the conspiracy did not end on July 30, 2008 when the agreement was abandoned but continued based on the “payments theory.” The payments theory is straightforward: conspirators rig bids, fix prices and/or allocate customers to reap the higher prices that come from eliminating/restraining competition. As long as a conspirator is being paid as a result of the illegal agreement, the conspiracy continues.
The government has the weight of authority and specifically, Tenth Circuit precedent, on its side. The government argues on appeal that Judge Sam “mistakenly concluded that the alleged conspiracy ended after the last customers were allocated, rather than continuing as long as the conspirators collected and distributed payments from the contracts with the allocated customers.” The indictment specifically alleged that as part of the customer allocation conspiracy, the defendants “accepted payment for Heir Location Services sold to heirs in the United States at collusive and noncompetitive contingency fee rates.” The indictment alleges that the conspiracy continued at least as late as January 29, 2014, which is the date when, according to the defendants’ motion to dismiss the indictment, “a large team of law enforcement agents and prosecutors served subpoenas on, and sought to interview, many of the Company’s employees.”
The payments theory is well accepted, including in the Tenth Circuit. United States v. Evans & Associates Construction Co. was a bid-rigging case where the contract was rigged outside the statute of limitations, but the defendant received payments for the work done on the contract within the statute period. The Tenth Circuit in Evans concluded that “the statute did not begin to run until after the successful contractor accepted the last payment on the contract.” According to the court, “the Sherman Act violation was ‘accomplished both by the submission of noncompetitive bids and by the request for and receipt of payments at anti-competitive levels.’” Similarly, in the more recent case of United States v. Morgan, the Tenth Circuit held that “the distribution of the proceeds of a conspiracy is an act occurring during the pendency of the conspiracy.”
Judge Sam did not agree that the indictment before him alleged a conspiracy that would properly invoke the payments theory. He concluded that the primary purpose of the anticompetitive agreement was the allocation of customers. According to Judge Sam, “[i]t then follows that any conspiratorial agreement ceased to exist once the allocation of customers through the [agreed-upon] Guidelines ceased.” Judge Sam distinguished the heir locators’ agreement from the bid-rigging agreement in Evans, stating, “[T]he evidence in Evans and Morgan shows that the central purpose of the conspiracy was to obtain wrongful proceeds or money. While the Indictment here mentions the payment of proceeds, Ind. ¶¶ 11 (h), (i), the central purpose of the conspiracy charged was not ‘economic enrichment.’” Judge Sam found, without even a hearing or trial, that the “central purpose” of the heir locators’ allocation agreement was not “economic enrichment.” The statute of limitations, therefore, expired on July 30, 2013, five years after defendant Mannix sent an internal Kemp & Associates email abandoning the allocation agreement.
In our opinion the judge was grasping at straws to distinguish (and extinguish) this case from Evans to avoid application of the payments theory. Payments by allocated heir locator customers seem like payments made on rigged contracts. Since the judge also found this to be a Rule of Reason case, he apparently felt that the agreement on balance was procompetitive–and not designed to generate supra competitive profits. The court’s logic seems to be a real-life application of the “bad facts make bad law” principle. But, there was simply no record on which to base a finding that the payments made and accepted by defendants and their co-conspirators within the statute were merely administrative tasks that “bore no relation to customer allocation.”
A Better Way to Judge The Validity of Using a Payments Theory To Extend the Statute
The Judicial Concern with Prosecutorial Delay
Judge Sam was clearly troubled by the fact that the defendants were indicted in August 2016, several years after the five-year statute of limitations would have appeared to have run on an agreement that was abandoned in July 2008. Moreover, since there was no fixed time when an estate distribution would be finalized, there was no telling when the statute of limitations would begin to run in this type of case. The court noted:
“Additionally, the government has identified 269 allegedly affected estates, the administration of which consisted of a series of ordinary, non-criminal events that could last many years. In contrast, Evans involved the bid for one contract which was bid, granted, completed and fully paid within the two years. [citation omitted] . . .. This arbitrariness is not consistent with the very reasons limitations periods exist in criminal cases.”
In bid-rigging cases, the outer limits of the statute of limitations is at least defined by the length of the contract. But here, as the court noted, the payments theory could extend the statute of limitations for an unknown, and possibly very long time.
2. The “Payments Theory” as a Due Process Violation
A more direct and fair method to address the concern that Judge Sam and other courts may have with an indefinite extension of a statute of limitations is to consider the application of the payments theory as a possible violation of due process. Does extending the statute of limitations for an indefinite and arbitrary period deprive the defendants of due process?
The Supreme Court has recognized that prosecutorial delay may constitute a due process violation but has set an extremely high bar for a would-be successful defendant. In United States v. Marion, the Court held that in order for the Due Process Clause of the Fifth Amendment to require dismissal of an indictment the defendant must show that the pre-indictment delay:
1) caused substantial prejudice to the defendant’s rights to a fair trial; and
2) that the delay was an intentional device to gain tactical advantage over the accused.
There is a critical difference, however, between the facts in Marion and the heir location services case. In Marion there was a three-year delay between the commission of the crime and the charged case. The defendants alleged this delay was a prejudicial due process violation. But, the case was still brought within the statute of limitations. However, where, as here, the application of a payments theory leads to an arbitrary and indefinite extension of the statutorily set limitations period, Marion can be distinguished. We suggest it would be appropriate to apply a different/lesser test in this case. The near-impossible-to-meet prong of showing that the prosecution intentionally engaged in delay tactics to gain an advantage should be dropped. Instead, the defendants should be required to make the Marion showing of substantial prejudice suffered by the application of the payments theory. A showing of substantial prejudice would require for example a witness’ death or illness, loss of physical evidence, or a witness who was once available is now not available; i.e., something more than a general allegation that memories fade with time.
Another aspect of due process that can arise in payments theory cases, and may be what really troubles courts, is that an individual who is the subject or target of a criminal antitrust investigation is often without a job and can find it difficult to get one while possible legal charges hang over his or her head. A company may also suffer negative financial consequences while a “cloud of suspicion” from a grand jury investigation lingers. Being a subject/target of an antitrust criminal investigation is an incredibly stressful and expensive ordeal. If this status is going to continue, perhaps indefinitely, past the traditional statute of limitations, there should be a very good reason. Depending on the circumstance, a judge, like Judge Sam, may find that the delay in bringing a case was a due process violation of the defendants’ property rights—the right to earn a living.
We also suggest, however, that if the defendant can make a showing of substantial prejudice, the government should have the opportunity to explain why there was a need to resort to a payments theory. Was the crime or industry investigated very complex? Did the subjects themselves stonewall the investigation and cause delays? Did the defendants successfully conceal the conspiracy until very near the typical running of the statute? If the government has a satisfactory explanation of why it has resorted to the payments theory, and especially if the defendant’s conduct during the investigation contributed to the delay, then the court should find no due process violation.
The due process analysis we are suggesting is, of course, a deviation from the two-step test the Supreme Court established in Marion, but it is based on a valid distinction from Marion—but for the payments theory, the heir locators’ indictment is barred. A balancing of the prejudice to the defendant versus the government’s need to use the payments theory, is a more appropriate way for a court to decide whether a case is time-barred than by finding that the ultimate goal of a customer allocation scheme was not economic enrichment.
Some Thoughts on the Case as Former Prosecutors
Another benefit of a due process analysis is that it would help explain why the government brought a case that is facially so far out of the statute of limitations. One might conclude, and perhaps Judge Sam did, that the government was simply negligent, and the defendants should not bear the cost of that negligence. After all, the allocation agreement itself was in the form of written “Guidelines,” and the directive ending the “formal” agreement was in a July 2008 email. The defendants further allege that two disgruntled former Kemp & Associates employees (and potential witnesses) first approached the Antitrust Division in 2008 or 2009. By all appearances, this seems like a relatively easy conspiracy to “uncover” and prove, so why did the Antitrust Division wait until it had to rely on a payments theory to bring an indictment?
As former prosecutors we can speculate—and it is just speculation– as to why the case was brought using a payments theory to extend the statute. One possibility that comes to mind is that the government believes that the conspiracy was not abandoned in July 2008. Perhaps the government has evidence that additional customers were allocated after July 2008 and that the conspiracy in fact continued until the date the defendants received the subpoenas. Was the Mannix email withdrawing from the conspiracy just a cover and the allocation actually continued “underground?” The government may simply have found it expedient to go with the payments theory rather than disprove the withdrawal email beyond a reasonable doubt. This, of course, is just speculation–there may be other valid reasons why a payments theory was necessary. But, often the public facts do not tell the entire story. The Antitrust Division brought a case that appeared to be a straightforward per se customer allocation agreement and used the well accepted payments theory to bring the case within the statute of limitations. Without a trial or a record of any sort, there is no way to tell whether this was a sound exercise of prosecutorial discretion or not.
The Tenth Circuit may reverse Judge Sam on the statute of limitations issue, in which case the rule of reason versus per se issue will take center stage. Or the appeals court may agree with Judge Sam and limit the payments theory to situations, like Evans, where there is a fixed contract performance time that limits the payments theory extension of the statute of limitations. But, even in this situation, contracts typically have delays, so the idea of a “fixed contract time” may be somewhat illusory. While it is not the law currently, our suggestion is that rather than have courts chip away at the legally sound payments theory based on dubious distinctions, defendants should challenge, and courts should assess the fairness of, the government’s use of the payments theory on the basis of due process; i.e., balancing the harm to the defendants against the justification offered by the government for relying on this theory to extend the statute.
Bob Connolly is a partner with GeyerGorey LLP. He is the former chief of the Antitrust Division’s Philadelphia Field Office and served for 34 years in the Antitrust Division. He publishes a blog, Cartel Capers.
Karen Sharp is a former trial attorney with the DOJ Antitrust Division, where she investigated and prosecuted national and international antitrust matters for 25 years. She also served as a special assistant United States attorney in the Eastern District of California. Most recently she was counsel for Wilson Sonsini Goodrich & Rosati in San Francisco. Ms. Sharp can be reached at Sharpkj100@gmail.com.
United States v. Kemp & Associates, Inc., et al., No. 2:16-cr-00403 (D. Utah Aug. 17, 2016) (David Sam J.)16-
 The indictment can be found on the Antitrust Division’s website at https://www.justice.gov/atr/file/887761/download.
 The Antitrust Division already had a significant setback on the “payments theory” in United States v. Grimm, 738 F.3d 498 (2d Cir. 2013), a case where the jury returned guilty verdicts for fixing of municipal bonds. The last bond fixed was outside the five-year statute of limitations, but payments on the fixed bonds could extend over the life of the bonds—up to thirty years. The Second Circuit could not accept this extreme extension of the statute of limitations and reversed the convictions ruling that a “[criminal] conspiracy ends notwithstanding the [later] receipt of anticipated profits where the payoff merely consists of a lengthy, indefinite series of ordinary, typically noncriminal, unilateral actions.” Id. at 502 (quotation marks, ellipses, and brackets omitted).
On April 9, the Department of Justice’s Antitrust Division will hold a public roundtable discussion to explore the issue of corporate antitrust compliance and its implications for criminal antitrust enforcement policy.
The roundtable will provide a forum for the Antitrust Division to engage with inside and outside corporate counsel, foreign antitrust enforcers, international organization representatives, and other interested parties on the topic of antitrust compliance. Participants will discuss the role that antitrust compliance programs play in preventing and detecting antitrust violations, and ways to further promote corporate antitrust compliance. The format of the program will be a series of panel discussions with featured speakers. Audience participation in the discussions will be encouraged.
A Detroit-area doctor was sentenced to 180 months in prison today for his role in a $26 million health care fraud scheme that involved billing Medicare for nerve block injections that were never provided and efforts to circumvent Medicare’s investigation of the fraudulent scheme. A co-conspirator who owned a medical billing company was previously sentenced to 10 years in prison.
Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting U.S. Attorney Daniel L. Lemisch of the Eastern District of Michigan, Special Agent in Charge David P. Gelios of the FBI’s Detroit Division, Special Agent in Charge Lamont Pugh III of the U.S. Department of Health and Human Services Office of Inspector General’s (HHS-OIG) Chicago Regional Office and Special Agent in Charge Manny Muriel of Internal Revenue Service Criminal Investigation (IRS-CI) made the announcement.
Johnny Trotter M.D., 42, of Bloomfield Hills, Michigan, was sentenced today by U.S. District Judge George C. Steeh of the Eastern District of Michigan. The owner of the medical billing company, Elaine Lovett, 61, of Detroit, was sentenced by Judge Steeh on Sept. 26. Judge Steeh also ordered each defendant to pay $9,199,946 in restitution and scheduled a hearing tomorrow on forfeiture. Trotter and Lovett were convicted in April 2017 after a four-week jury trial of one count of conspiracy to commit health care fraud and wire fraud, and three counts of health care fraud. Trotter was remanded to custody pending a detention hearing tomorrow.
According to the evidence presented at trial, from May 2008 until May 2014, Trotter and Lovett knowingly submitted fraudulent bills for services that they knew had not been provided, mainly nerve block injections. Additionally, after Medicare imposed a requirement in 2009 that required Trotter’s claims to undergo a medical review prior to payment, Trotter and Lovett conspired to circumvent Medicare’s fraud investigation of Trotter by creating sham medical practices, the evidence showed. To continue to receive payment for services that were not provided, Trotter and Lovett concealed their involvement with these practices from Medicare, and instead recruited their family members and employees to serve as straw owners of the companies, the evidence further showed.
The FBI, HHS-OIG and IRS-CI investigated the case, which was brought as part of the Medicare Fraud Strike Force under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of Michigan. Fraud Section Assistant Chiefs Malisa Dubal and Allan Medina, as well as Trial Attorneys Tom Tynan and Jacob Foster, prosecuted the case.
The Fraud Section leads the Medicare Fraud Strike Force, which is part of a joint initiative between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. The Medicare Fraud Strike Force operates in nine locations nationwide. Since its inception in March 2007, the Medicare Fraud Strike Force has charged over 3,500 defendants who collectively have falsely billed the Medicare program for over $12.5 billion.
I’ve received several comments on the idea of an Antitrust Whistleblower Statute. Some of the top comments are:
Didn’t you retire? No.
Well, you should have. I sometimes think the same thing, but what could be more fun than being an antitrust lawyer?
Your website design stinks and for a nominal fee I can fix it and help you lose weight. I’m not worried about the website design. But, please email me with the weight loss help.
There were concerns that, particularly with international cartels, a whistleblower award could be excessive. We agree that some allowance should be made to address this possibility. John Connor offered this helpful comment: “What is an appropriate standard for the size of the award? Using a percentage the employer’s fine is likely to be excessive. What about 5 or 10 years’ of the whistle-blower’s compensation?”
There were some questions as to whether cartel whistleblower bounty provisions exist in other countries. That is a good question. We are researching that and will follow up.
Several people noted that an antitrust whistleblower idea is not a new idea and has never received support in the past from the Antitrust Division or Congress. This is true, and we may get nowhere with our proposal this time. But, as we’ve noted, the leniency “cash cow” is slowing down and the SEC whistleblower provision has been a huge success (by most people’s estimation). Sometimes persistence pays off and the time may have come has come for a successful antitrust whistleblower push. And, I may humbly suggest that Kimberly Justice and I may have some insights based on our many years with the Antitrust Division that have not been considered before. We’ll see.
The Grassley-Leahy Criminal Antitrust Anti-Retaliation Act of 2017, was just passed unanimously in the Senate. The legislation would make it unlawful for an employer to retaliate against an employee who reports a violation of antitrust laws or a crime connected to antitrust laws. This is the third time this legislation has passed the Senate unanimously, but it has never even been taken up by the House.
Kimberly Justice and I wrote an article published in Global Competition Review arguing that it is time for an “Antitrust Whistleblower Statute.” [The article is behind a pay firewall (here).] Kimberly and I will be expanding on this idea in Cartel Capers blog posts over the next two weeks. Below is the first installment. We explain why cartels are a great pond to be fishing in for informants, but a little “whistleblower” bait is needed.
Over the last several years, Senators Chuck Grassley and Patrick Leahy have introduced antitrust whistleblower legislation that has passed in the Senate but died in the House. Their proposed legislation would grant job protection to antitrust whistleblowers. The legislation that Ms. Justice and I are proposing would go further; besides retaliation protection, we would offer potential financial reward to a whistleblower who initiated a successful cartel prosecution.
The time is right for antitrust whistleblower legislation. In 1993, the Antitrust Division revised its Corporate Leniency policy, setting the stage for similar, successful, legislation/polices to be enacted around the world. Amnesty/Leniency rewards an entire company and its cooperating executives with non-prosecution for coming forward and reporting cartel behavior. But leniency applications are slowing down—at least that is the perception of many observers—as the cost of obtaining leniency in terms of corporate time and attorney fees, in an expanding universe of jurisdictions, has would-be applicants reassessing the cost/benefit analysis. A whistleblower statute would not replace, nor in our opinion undercut, leniency policies, but would add a new tool to uncover cartels that exist, and deter new cartels from forming.
There are two features of cartels that are key to understanding why an antitrust whistleblower statute would be a potent and needed weapon in the fight against cartels:
1) There are many potential whistleblowers in virtually every price-fixing/bid rigging conspiracy. The culpability level of the many players ranges from Masters (top-level) to Sherpas (working group guy). Offering a potential whistleblower reward to a single cartel member still leaves a target rich enforcement of culpable executives to focus on; but
2) It is costly for a potential whistleblower to come forward. Any member of a cartel, even the least culpable, faces the possibility of significant jail time. In order for a low-level cartel participant to come forward, he needs to engage a qualified attorney and negotiate a non-prosecution agreement with the Antitrust Division. This is an expensive, potentially life changing decision. Long-term unemployment may well follow. Hefty attorney fees surely will. Even the most desirable whistleblower—one with no culpability at all, such as a secretary, or customer– will not ensnare herself in a cartel investigation without some means to cover significant attorney costs and reap some compensation for doing “the right [but very costly] thing.”
Ms. Justice and I worked on two investigations which highlight these points. The first was an international cartel investigation involving both US and foreign companies. Within each company there were many executives—some retired—that had enough knowledge of the cartel that had they come forward, an investigation would have been opened. If a single whistleblower had come forward, there still would have been many culpable individuals and companies left to prosecute.
Another prosecution involved a typical bid rigging scheme on a government contract. This type of scheme is usually initiated by the owner/senior member of the company (who would not be eligible for whistleblower status). But, it is also typical that an estimator who knows the boss has schemed with a competitor(s) is told to bump up the prices to reflect the agreement. The estimator is liable as a participant in the cartel, but would make an excellent whistleblower.
Given almost any cartel, international or local, a lower level employee could come forward and likely receive a non-prosecution/cooperation deal under the Antitrust Division’s current Individual Leniency Policy. But the Individual Leniency Policy is almost never used because a rational person would likely prefer to lay low and hope the crime never gets uncovered than come forward, likely lose his job and have to pay an attorney to negotiate with the Antitrust Division for immunity. Being an Antitrust Division witness is a marriage that lasts longer than many real marriages. Criminal antitrust investigations take years, and if it is an international matter, a whistleblower will be called on to be interviewed by many jurisdictions around the globe. Without some incentive of a reward, an individual would almost certainly not “volunteer” to assist in a cartel investigation. Even a non-culpable witness/whistleblower such as a customer in whom a salesperson confided or a corporate administrative assistant who saw/heard incriminating information is not likely to come forward to the Antitrust Division on his/her own.
There are many potential antitrust whistleblowers. But the disincentives to come forward voluntarily are significant. Some “bait” is needed to entice a whistleblower: protection from job retaliation and a financial incentive that would cover the significant costs of cooperation and perhaps even provide an “informants’’ bounty.” The False Claims Act, the SEC and other whistleblower statutes are successful because individuals with knowledge can engage an attorney to guide them through the process in exchange for a possible award of attorney fees and a contingency fee. The whistleblower’s attorney can develop the potential whistleblower’s claim, negotiate with the government, and represent the potential whistleblower throughout the process, all without an upfront cost to the potential whistleblower. A former employee, for example, maybe one who has been fired or downsized—would have a way to report illegal conduct without assuming a tremendous legal bill—and even have a financial incentive to do so.
In the next blog post we will discuss some of the objections that have been raised to an antitrust whistleblower statute and why we think none of these concerns are serious enough to kill the whistleblower idea. But, first, we’ll wrap this segment up by noting a couple of the benefits of a whistleblower statute which may be obvious:
A whistleblower can start a criminal cartel investigation with an insider’s view of the agreement and who is party to it. A single whistleblower does not preclude the Antitrust Division from also offering leniency, as it is unlikely one witnesses can provide indictable evidence. But, whistleblower evidence/assistance should lead to an efficient investigation that preserves the most culpable cartel members for prosecution.
Like leniency, as the whistleblower tool gets used and generates publicity, it will be effective in deterring cartels from even forming. This effect is not capable of measurement, but it is logical that if a single member of a cartel (particularly lower-level Sherpas who may not be crazy about carrying out the Master’s scheme) has a means to report the cartel and be rewarded for actionable information, cartel members will have another reason to think twice before engaging in criminal antitrust behavior.
More to come. Thanks for reading.
 Where the government is a victim of a fraud—and bid rigging is a fraud—a whistleblower case can currently be brought under the False Claims Act. There are occasional instances of bid rigging whistleblower case. But, it would be better to have these types of cases covered by a particular antitrust whistleblower statute and better publicized with an Antitrust Division Office Whistleblower Office.
Kimberly Justice and I have written an article arguing that it is time for an “Antitrust Whistleblower Statute.” The article was published in Global Competition Review, but is behind a paid firewall (here). Kimberly and I will be expanding on this idea in Cartel Capers blog posts over the next two weeks. The first installment will be on Monday and explain why cartels are a great pond to be fishing in for informants, but a little “whistleblower” bait is needed. Other topics will include:
1) An evaluation of the objections to an antitrust whistleblower statute;
2) A survey of whistleblower related incentives offered by foreign competition agencies;
3) A preview of what an antitrust whistleblower statute should look like; and
4) If we receive comments/feedback, we’d like to collect and post them together.
As Evergreen [First Circuit case] explained in its petition, and as applies equally in Valspar [Third Circuit case], to require that the plaintiff show by a preponderance of evidence on summary judgment that a jury would find in its favor effectively pre-empts the role of the jury, infringes on the Seventh Amendment right of the plaintiff, and is illogical, in effect raising the bar by requiring that the plaintiff satisfy the preponderance standard at both the summary judgment phase and at trial. Inquiring minds may wonder — will Valspar be the vehicle where the Court finally addresses these issues?
The plaintiff in Valspar just filed a Petition for Panel Rehearing and Rehearing En Banc in the Third Circuit. Echoing the comments made by Mr. Wolfram, appellant’s petition states:
En banc review is necessary because the panel’s decision eviscerates the protections of Section 1 of the Sherman Antitrust Act by making an unprecedented summary judgment standard for plaintiffs trying to prove a price-fixing conspiracy by circumstantial evidence in the Third Circuit. A majority of the panel incorrectly created a new “more likely than not” standard to evaluate circumstantial evidence at summary judgment.