Three Former Traders for Major Banks Arraigned in Foreign Currency Exchange Antitrust Conspiracy

Monday, July 17, 2017

Three United Kingdom nationals and former traders of major banks voluntarily surrendered to the FBI and were arraigned on a charge arising from their alleged roles in a conspiracy to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market, the Justice Department announced today.

A one-count indictment, filed in the U.S. District Court for the Southern District of New York on January 10, 2017, charges Richard Usher (former Head of G11 FX Trading-UK at an affiliate of The Royal Bank of Scotland plc, as well as former Managing Director at an affiliate of JPMorgan Chase & Co.), Rohan Ramchandani (former Managing Director and head of G10 FX spot trading at an affiliate of Citicorp) and Christopher Ashton (former Head of Spot FX at an affiliate of Barclays PLC) with conspiring to fix prices and rig bids for U.S. dollars and euros exchanged in the FX spot market.

The charge in the indictment carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by victims if either amount is greater than $1 million.

According to the indictment, from at least December 2007 through at least January 2013, Usher, Ramchandani and Ashton (along with unnamed co-conspirators) conspired to fix prices and rig bids for the euro – U.S. dollar currency pair. Called “the Cartel” or “the Mafia,” this group of traders carried out their conspiracy by participating in telephone calls and near-daily conversations in a private electronic chat room. Their anticompetitive behavior included colluding around the time of certain benchmark rates known as fixes, such as by coordinating their bidding/offering and trading to manipulate the price of the currency pair by the time of the fix or otherwise profit as a result of the fix price. The conspirators also coordinated their trading activities outside of fix times, such as by refraining from entering bids/offers or trading at certain times as a means of stabilizing or controlling price.

The charge in the indictment is merely an allegation, and the defendants are presumed innocent unless and until proven guilty.

This prosecution is being handled by the Antitrust Division’s New York Office and the FBI’s Washington Field Office. Anyone with information concerning price fixing or other anticompetitive conduct in the FX market should contact the Antitrust Division’s Citizen Complaint Center at (888) 647-3258, visit https://www.justice.gov/atr/report-violations or call the FBI tip line at (415) 553-7400.

CCC’s: The Sherman Act is An Unconstitutional Criminal Statute (Part II)

July 19, 2017 by Robert Connolly 2 Comments

In Part 1 of this article (here), I argued that the Sherman Act was unconstitutional as a criminal statute because it is void for vagueness.  A statute that criminalizes all restraints of trade cannot be saved by the Supreme Court explaining what Congress really must have really meant. What passed constitutional muster when the Sherman Act was a misdemeanor[1] merits another look now that the statute carries a maximum jail time of 10 years in prison.

In Part II I discuss how I think the criminal element of the Sherman Act should be fixed.

 The Heir Locators Criminal Indictment May Make This Issue Topical

I want to explain why this topic has come to mind. The Antitrust Division’s heir locators investigation/prosecution garners little attention in the world of massive international cartel investigations, but an indictment in this investigation could have major implications for criminal antitrust prosecutions.[2]  In a recent development, the trial judge ruled that the criminal case should be tried under the Rule of Reason. It is possible this development will set off a chain of events that leads to the Supreme Court revisiting what is necessary for a criminal conviction under the Sherman Act.

Heir locator firms locate potential heirs to an estate from public records and agree to help with their claim in return for a contingency fee.  The amount of the contingency fee depends on factors such as the complexity of the claim, potential recovery etc.  Since the potential heirs are located from public records, they may be contacted by more than one heir locator firm.  According to the indictment, the defendants agreed to allocate customers on a “first to contact basis.”  The firm to which the customers were allocated would pay the firm that “backed off” a percentage of the contingency recovered.  The Division has obtained two guilty pleas in the investigation but defendants Kemp & Associates and its co-owner Daniel J. Mannix were indicted in August 2016 and have pled not guilty.

The indictment appears to be a straight forward customer allocation scheme—a per seviolation.  The defendants:

  • agreed, during those conversations and other communications, that when both co-conspirator companies contacted the same unsigned heir to an estate, the co-conspirator company that first contacted that heir would be allocated certain remaining heirs to that estate who had yet to sign a contract with an Heir Location Services provider;

  • agreed that the co-conspirator company to which heirs were allocated would pay to the other co-conspirator company a portion of the contingency fees ultimately collected from those allocated heirs;

If anything is a per se violation, customer allocation should earn the title.  It eliminates price competition and it can be an easier agreement to monitor/enforce than price fixing.  If you lose a customer you were supposed to get, you know it.  But, the defendants moved that the case should be tried under the rule of reason.  The briefs in the case were filed under seal so it is impossible at this point to understand the defendants’ argument and the government’s response.  Nonetheless, on June 21, 2017 U.S. District Judge David Sam heard oral argument and then granted the defendants’ motion that the case is subject to the rule of reason. He reserved judgment on the motion to dismiss “for further disposition pending the government’s further evaluation of the case.”

I predict that the Antitrust Division will not try a criminal case under the Rule of Reason.  The government will either seek an interlocutory appeal to reverse the district court’s ruling, or drop the case.  The Division is in a tough position because three defendants have already pled guilty.[3]  The Division will not lightly walk away from a prosecution where others have already taken a plea.  On the other hand, the Antitrust Division will not want a precedent that allows the defendant to raise the reasonableness of the conduct.  Defendants have argued in previous criminal cases that the restraint should be judged under a rule of reason, but the Division has had ample authority to beat that argument back.  But, what if the defendants go for the whole enchilada, and seek not just a rule of reason trial, but a complete dismissal of the charges?   It certainly would be helpful to the defendants to have a criminal case tried under the rule of reason, but it would be a home run, or antitrust Hall of Fame material to get the indictment dismissed in its entirety as unconstitutionally void for vagueness.

A Rule of Reason Criminal Case?

One reason the defendants may have moved for a rule of reason trial is that the Supreme Court has already said that this would be permissible.  In United States v. U.S. Gypsum,[4]the Supreme Court held that in a criminal prosecution under the Sherman Act that was subject to rule of reason analysis, “action undertaken with knowledge of its probable consequences and having the requisite anticompetitive effects can be a sufficient predicate for a finding of criminal liability under the antitrust laws.”[5]  That would seem to settle the question, but the Supreme Court has been rightly flexible with stare decisis in overruling numerous other “conventional wisdom” tenets in the antitrust area.  Think vertical restraints, maximum resale price maintenance and resale price maintenance as examples.[6]  Would the Supreme Court decide that a rule of reason criminal case (or a per se case) is unconstitutional.  Would an after-the-fact rule of reason determination (after a quick look?) (or full blown inquiry?) meet the “notice” standard required for a criminal statute?  But, what about the Gypsum required showing of intent of anticompetitive conduct?  Does that save the statute?  But what does that even mean?  Anticompetitive under the “consumer welfare model?”  Measured by the Chicago School?  Post Chicago School?  School of Rock?

I have a proposal to amend the elements of a Sherman Act criminal conviction that eliminates these questions/issues and is warranted in light of the 10-year maximum jail sentence.  (And not to forget, a corporation has paid a $500 million criminal fine.)

If the Restraint is Fraudulent—It’s Criminal

Every head of the Antitrust Division in recent memory has made statements such as, “price fixing, market allocation and bid rigging steal from, and commit fraud upon, American business and customers.”[7] Similarly, an Antitrust Division official has testified, “the [criminal] cases that we are charging and prosecuting are unmistakable fraud.”[8]  Simply put, the litmus test for criminality should be whether the restraint of trade also involves fraud (i.e. a per se violation).  The substantial hammer of justice –lengthy prison sentences, Red Notices, extradition, should be reserved for when a jury finds the defendant engaged in a restraint of trade that involved fraud.

Today, criminal antitrust indictments contain an element of fraud, because of [wise] prosecutorial discretion, not because of the dictates of the statute.  But, antitrust jurisprudence could have taken the path down a fraud requirement instead of veering off to a per se rule (a conclusive presumption that takes the issue of reasonableness out of the juries’ hand), and found that the criminality in the Sherman Act is confined to those agreements that have an element of fraud. Early cases interpreting what was an unreasonable restraint of trade were heading in that direction.

What we now call per se offenses were originally called fraud.  This was recognized as early as 1875 in Craft v. McConoughy,[9] a case involving a secret scheme to fix prices among four Illinois warehouses. The court stated, “To the public the four houses were held out as competing firms for business. Secretly they had conspired together.”[10]  The scheme enabled the parties “by secret and fraudulent means, to control the price of grain.”[11]  In the seminal antitrust case of United States v. Addyston Pipe,[12] the court found secret agreements to refrain from bidding to be a form of fraud: “It is well settled that an agreement between intending bidders at a public auction or a public letting not to bid against each other, and thus prevent competition, is a fraud.”[13] In McMullen v. Hoffman,[14] the Court refused to enforce a contract when one conspirator sued for his portion of the profits from a successful collusive bidding scheme. The Court explained that the agreement “tend[ed] to induce the belief that there really is competition . . . although the truth is that there is no such competition.”[15] The Court held that “the illegal character of the agreement is founded not alone upon the fact that it tends to lessen competition, but also upon the fact of the commission of a fraud by the parties in combining their interests and concealing the same.”[16] The Court distinguished a secret agreement from a known joint venture, where “[t]he public may obtain at least the benefit of the joint responsibility. . . . The public agents know then all that there is in the transaction, and can more justly estimate the motives of the bidders, and weigh the merits of the bid.”[17]  Over a century later, in response to a question as to whether antitrust crimes are crimes of moral turpitude, Antitrust Division Assistant Attorney General Bill Baer responded that “price-fixing, bid-rigging and market allocation agreements among companies that hold themselves out to the public as competitors are inherently deceptive and defraud consumers who expect the benefit of competition.”[18]

Drawing on the wisdom of early Supreme Court decisions and the recent pronouncements of the Antitrust Division, the demarcation between a restraint of trade that can subject the violator to civil penalties and one that subjects the violator to criminal penalties is whether there was an element of fraud.  The Sherman Act should reflect this, either by amendment in Congress, or by Supreme Court further interpretation of what the government is required to prove to subject the defendant to criminal penalties.   In a criminal case the government’s burden should include proving that the agreement was a restraint of trade where the agreement was actively concealed or where the defendant held him/itself out to the public as a competitor when in fact an agreement not to compete or limit competition had been reached without the knowledge of the customer.  In a previous article, I have labeled this standard Per Se Plus.[19]

How would the heir locators indictment fare under such a standard? It is hard to know for sure but the indictment suggests that customers shopped around or there would have been no need for an agreement at all.  And when customers got quotes from more than one company, the customer would reasonably assume there was competition.  And the fraud would be, as the Supreme Court said long ago, “in [the defendants] combining their interests and concealing the same.”

Conclusion

Would requiring the government to prove an element of fraud to obtain a criminal conviction make obtaining convictions more difficult?  The answer must be yes, but as a former Antitrust Division prosecutor, to convince a jury to convict you must argue that the crime wasn’t an “unreasonable restraint of trade” whatever the heck that is—but it was fraud by the lying cheating defendants.  There are benefits to the Antitrust Division that would flow from having to prove fraud, but that’s for another post. Here, I’ll end with this.  The crime should fit the punishment; and with punishment of up to ten years in prison for an individual and hundreds of millions of dollars for a corporation, the Sherman Act needs to be amended to include an element of fraud for a criminal conviction because it is currently unconstitutional.

Thanks for reading.

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[1] When the per se rule was announced in United States v. Socony-Vacuum Oil Co., 310 U.S 150 (1940). a jail sentence was virtually a non-existent possibility. The maximum sentence imposed on any of the convicted individual defendants in Socony Vacuum was a fine of $1000. See Daniel A. Crane, The Story of United States v. Socony Vacuum: Hot Oil and Antitrust in the Two New Deals, in ANTITRUST STORIES 107 (Eleanor M. Fox & Daniel A. Crane eds., 2007).

[2]  U.S. v. Kemp & Associates, Inc. and Daniel J. Mannix, Case: 2:16-cr-00403, (D. Utah 2016) (DS), available at  https://www.justice.gov/atr/file/887761/download.

[3]  Richard Blake agreed to plead guilty in January 2016 as part of a proposed plea agreement between the Antitrust Division and Blake.  His company was not charged, most likely because it had received leniency. California-based Brandenburger & Davis and its president Bradley Davis agreed to plead guilty in December 2015.

[4]  438 U.S. 422 (1978).

[5]  Gypsum, 438 U.S. at 444. fn 21.

[6] The Supreme Court stated in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 899 (2007).   “Stare decisis is not as significant in this case, however, because the issue before us is the scope of the Sherman Act,” which the Court has treated as a common-law statute.  The Court has been receptive to reviewing the per se rule in light of “new circumstances and new wisdom.”  The severe loss of personal liberty and other consequences now at stake in a Sherman Act criminal case is a new circumstance that warrants an evolution in the application of the per se rule to criminal antitrust cases so that the test for liability will better match the evolution of the law on consequences

[7] Anne K. Bingaman, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, The Clinton Administration: Trends in Criminal Antitrust Enforcement, Remarks Before the Corporate Counsel Inst. (Nov. 30, 1995), available at http://www.justice.gov/atr/public/speeches/0471.htm.

[8] Scott D. Hammond, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t. of Justice, Transcript of Testimony Before the United States Sentencing Commission Concerning Proposed 2005 Amendments to Section 2R1.1 at 3 (Apr. 12, 2005), available at http://www.justice.gov/atr/public testimony/209071.pdf.

[9] 79 Ill. 346 (1875).

[10] Id. at 348.

[11] Id. at 349.

[12] 85 F. 271 (6th Cir. 1898).

[13] Id. at 293 (emphasis added) (citations omitted).

[14] 174 U.S. 639 (1899)

[15] Id. at 646.

[16] Id. at 649.

[17] Id. at 652 (citations omitted).

[18] Letter from Peter J. Kadzik, Principal Deputy Assistant Att’y Gen., U.S. Dep’t of Justice, to Senator Patrick Leahy Attaching Responses of William Baer, Assistant Att’y Gen. Antitrust Div., U.S. Dep’t of Justice to Questions for the Record Arising from the Nov. 14, 2013 Hearing of the Senate Comm. of the Judiciary Regarding Cartel Prosecution: Stopping Price Fixers and Protecting Consumers at 3 (Jan. 24, 2014) (emphasis added), available at http://www.judiciary.senate.gov/imo/media/doc/111413QFRs-Baer.pdf.

[19]  Robert E. Connolly, Per Se “Plus:” A Proposal to Revise the Per se Rule in Criminal Antitrust Cases, Antitrust, Vol. 29, No. 2, Spring 2015, p. 105.

CCC’s: For What It’s Worth…..

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Wondering what’s taking Makan so long?  Mr. Delrahim was nominated almost six months ago to head the Antitrust Division of the US Dept. of Justice.  Today, I sent the following email to Senators McConnell and Schumer:

I was sorry to hear of Senator McCain’s health problem but the lull in the health care debate provides an opportunity to hold the vote to get Makan Delrahim confirmed to head the Antitrust Division, US Dept. of Justice. I served 34 years in the Antitrust Division and I know how important Mr. Delrahim’s confirmation is to get matters in the Division moving full speed and to give guidance to the business community. The delay in Mr. Delrahim’s confirmation has generated a lot of concern that has been reported in the press. I have a widely read blog on antitrust matters [OK–that may be puffery] and I have covered also this issue (here).  Mr. Delrahim has strong bipartisan support. It would be great to show the business community that Congress can get some things done. And the dedicated career staff in the Antitrust Division would also greatly appreciate the appointment of a leader of Mr. Delrahim’s qualifications.  Thank you for your consideration.

Robert Connolly

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If you would also like to contact the Senators, they would love to hear from you!

Senator Mitch McConnell

ph: (202) 224-2541

fax: (202) 224-2499

Contact Form here

Senator Chuck Schumer 

Phone: (202) 224-6542
Fax:  (202) 228-3027

Contact Form here

Seventh Company Agrees to Plead Guilty for Fixing Prices of Electrolytic Capacitors

Tuesday, July 11, 2017

Nichicon Has Agreed to Pay $42 Million Criminal Fine

Nichicon Corporation will plead guilty for its role in a conspiracy to fix prices for electrolytic capacitors sold to customers in the United States and elsewhere, the Department of Justice announced today.

According to the one-count felony charge filed today in the U.S. District Court for the Northern District of California, Nichicon conspired with others to suppress and eliminate competition for electrolytic capacitors from as early as November 2001 until December 2011. In addition to pleading guilty, Nichicon has agreed to pay a $42 million criminal fine and cooperate with the Antitrust Division’s ongoing investigation. The plea agreement is subject to court approval.

“Including today’s charge, the Antitrust Division has now charged seven companies and ten individuals for participating in a long-running conspiracy to fix the price of a critical component in electronic devices used by millions of American consumers,” said Director of Criminal Enforcement Marvin Price of the Justice Department’s Antitrust Division. “But our investigation is not over. We are continuing to pursue the companies and executives who conspired to undermine competition in this vital industry.”

Electrolytic capacitors store and regulate electrical current in a variety of electronic products, including computers, televisions, car engines and airbag systems, home appliances and office equipment.

Today’s charge results from ongoing federal antitrust investigations being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Field Office into price fixing, bid rigging and other anticompetitive conduct in the capacitor industry. Anyone with information related to the focus of this investigation should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258, visit https://www.justice.gov/atr/report-violations, or call the FBI tip line at 415-553-7400.

CCC: Some Comments from Brent Snyder, former Antitrust Division Criminal Deputy, as he Heads to the Hong Kong Competition Commission

Some Comments from Brent Snyder, former Antitrust Division Criminal Deputy, as he Heads to the Hong Kong Competition Commission

If you ever wanted to sell a student on pursuing a career in antitrust because of the interesting possibilities, Brent Snyder’s career (which is far from over) would be a good case in point.  Mr. Snyder graduated with Honors from the University of Texas School of Law, where he was an Associate Editor of the Texas Law Review. After completing a federal judicial clerkship, he began practicing as a private commercial litigator and in 2001 became a partner at Perkins Coie, a large Seattle law firm.  Mr. Snyder joined the Antitrust Division United States Department of Justice in 2003.   In June 2017 Mr. Snyder stepped down from the Antitrust Division and will be heading to Hong Kong.  On June 19, 2017, the Hong Kong Competition Commission announced the appointment of Mr. Snyder as its next Chief Executive Officer (CEO) for a term of three years commencing 4 September 2017 (here).

Mr. Snyder had a remarkably successful career with Antitrust Division.  He started in 2003 as a trial attorney.  He was involved, both as a trial attorney and as a supervisor, in many successful cartel investigations and prosecutions.  He was part of the team that conducted the TFT-LCD international cartel investigation, which culminated in a conviction and a $500 million fine against AU Optronics.  Several AUO executives were also convicted and sentenced to lengthy prison terms.  From 2013 until his departure, Mr. Snyder served as the Deputy Assistant Attorney General for Criminal Enforcement overseeing all of the Division’s criminal investigations, prosecutions, leniency and other policy work.

Mr. Snyder is known to his friends as someone whose career has always focused on positions that would be interesting, provide new challenges and allow him to make a meaningful contribution.  On these scores, his going to Hong Kong is not surprising.  Hong Kong has a relatively new but robust competition enforcement regime. Full enforcement of the Hong Kong Competition Ordinance began only a little over 18 months ago and the Competition Commission has had positive results already.  Some of these results are outlined in the Commission’s March 2017 newsletter, “Competition Matters.”  The Competition Commission also has a very helpful website.

The Hong Kong Competition Commission has been very innovative during its short history.  The Commission created an educational video on “Fighting Bid Rigging Cartels,” which can be viewed here on You Tube.  The Commission’s “Fighting Bid-rigging Cartels” Campaign was named a winner in the category “Engaging through results: Successful experience in planning, implementing and monitoring advocacy strategies” in the Competition Advocacy Contest organised by the International Competition Network (ICN) and the World Bank Group (here).

Mr. Snyder will bring a great deal of valuable experience and perspective to the Hong Kong Competition Commission. Before heading off to Hong Kong, Mr. Snyder kindly agreed to answer a few questions about his experiences to date.

Q.     Can you talk about an experience you had in the Antitrust Division that might be your fondest memory?

First, thank you for the opportunity to contribute to Cartel Capers!  Your blog has been a great and influential addition to the antitrust landscape and facilitates discussion and thinking on important topics in our field. I appreciate your interest and am happy to answer your questions.

I suppose I should have an easy answer to this question, but it is hard to pick from so many great experiences over the years.  Anyone who has worked in the Division understands what a special place it is and the exciting things its attorneys get to do.

Running through the Honolulu airport to serve a grand jury subpoena on someone trying to hightail it out of the country, the excitement of trial wins, a karaoke celebration party with the AUO team, kayaking on a bio-luminescent bay in Puerto Rico with the Peake trial team, any number of memorable drop-in interviews, planning a successful undercover operation, and, most recently, a surprise farewell party complete with a hula dancer, ukulele player and Aloha-attired Division friends (people seem to think I have a thing for Aloha shirts for some reason 😉) all come to mind.

They all have one thing in common — that I was fortunate to be part of great teams. I can’t separate any memory from the fantastic people with whom I shared the experiences and accomplishments. Experiencing those things with people I like and respect are my fondest memories. I was just so fortunate to work for and with talented, hardworking, dedicated public servants who also are fun and have a great sense of humor (and/or high tolerance for mine). Anyone who knows me knows that I value that last part especially highly!

Q.     You’ve had several different positions in the Division, starting out as a trial attorney, rising to Criminal Deputy and even being Acting Assistant Attorney General for a time.  For the trial staff, what do you think are the biggest challenges they face today in cartel enforcement?

It is a great time to be a Trial Attorney because the Division has a number of really exciting investigations and plenty of cases going to trial.  But, as always, there are challenges.  I think some of the significant ones are:

  • Keeping up with the work, especially while the Division has so many cases in litigation, which pulls resources away from investigations;
  • The complexity of several of the schemes and industries under investigation, such as LIBOR and the foreign exchange spot market;
  • Coordinating and harmonizing investigations with an increasingly greater number and variety of enforcement and regulatory agencies, especially non-competition enforcement agencies; and
  • Keeping up with ever evolving technologies that cartelists are using to communicate and that are difficult to detect and penetrate.

I have been proud to see the Division’s attorneys overcome every challenge with determination and dedication and fully expect them to have a continued track record of great success in the future.

Q.     Overall, what do you think is the biggest challenge facing the Antitrust Division in its primary mission of cartel enforcement?

You raise one of them below — keeping the incentive strong to seek  leniency.

Another challenge is that the Division has lost many of its most experienced attorneys through retirements, office closures, and other attrition over the past several years.  Although the Division was able to hire a large number of exceptionally talented attorneys, the lost experience cannot immediately be replicated. The good news is that this challenge should be short term in nature. Recent trials and investigations have provided opportunities for the new attorneys to get tremendous experience, and the Division is on its way to having a really deep pool of accomplished prosecutors to go along with a skilled group of managers.

Finally, as I mentioned above, there is a much more crowded enforcement landscape today than there was even a few years ago. I am referring less to the emergence of new competition enforcers than to investigations involving a greater number and variety of other domestic and foreign enforcement agencies and regulators.  This results in greater harmonization challenges, and these investigations no doubt complicate the leniency calculus for companies that may face non-antitrust exposure from those regulators and enforcers for the same or related conduct.

Q.     Is there any one area of international enforcement harmonization or cooperation you’d hope to see improvement in among the world’s cartel enforcement agencies?

I think the quality and quantity of international cooperation is better than it has ever been. The Antitrust Division now routinely communicates and coordinates with enforcement agencies that it had little or no interaction with just a few years ago. I think this is testament to the rate at which agencies around the world are maturing and becoming involved in international investigations.

If there is one area that I would like to see improved, it would be in the area of witness interviews. As I have said at other times, I think enforcers can do a better and more efficient job of coordinating the timing of and approach to witness interviews among enforcement agencies. This would not only benefit our investigations but also be more cost effective and efficient for the witnesses and cooperating companies.

Q.     Do you think “leniency” has lost some of its appeal to potential cooperators? If so, can/should anything be done about that?

I don’t think leniency has lost its appeal. For a company confronted with exposure to a cartel offense and the resulting large fines, civil liability, and incarceration for executives, it is still a great opportunity.  And, I believe that companies and their counsel still see it as one.

But, as I mentioned above, the decision to seek leniency is undoubtedly more complicated than it has ever been as a result not only of the proliferation of competition enforcement agencies but also the more frequent involvement of other types of enforcement agencies and regulators in parallel investigations of the same conduct.  The proliferation of enforcement agencies increases the potential cost and burden of seeking leniency, and the involvement of other enforcement agencies and regulators increases the risk of liability not covered by leniency.

I think the expense and burden of multi-jurisdictional cartel investigations can be addressed through greater coordination and efficiency enhancements among competition enforcement agencies. I think that harmonizing leniency with non-competition enforcement agencies and regulators presents greater challenges, but I believe it will become easier as they have more experience with leniency and see its results.  I saw improvements in this area during my years as DAAG.

Finally, the best way to make leniency attractive is to prove you can and will detect and prosecute cartels even without a leniency applicant. The Antitrust Division has an excellent track record of doing so, and cartelists who choose not to seek leniency face a real risk of detection and prosecution.

Q.     As mentioned above with “Fighting Bid Rigging Cartels” video the Hong Kong Competition Commission has been innovative and active in public outreach.  Do you think that kind of outreach can be duplicated in the United States?

I have been really impressed by innovative public outreach efforts in other jurisdictions, such as Hong Kong, and have often wondered if they can be replicated here. Unfortunately, I am doubtful that they can be replicated here because the U.S. is so large and the channels for communicating to the general population are diffuse or prohibitively expensive.

Nonetheless, the Antitrust Division has prioritized making public outreach more systematic and diverse than in the past. I don’t think we’ll see any national ad campaigns or public service announcements from the Division, but I do think it will be finding ways to get in front of a greater number of groups and constituents than in the past.

I think this outreach is very important not only from the perspective of developing investigative leads but also to educate the public regarding the illegality of cartel offenses.  In 2015, Prof. Andreas Stephan of the University of East Anglia published an interesting survey of public attitudes to price fixing in the UK, Germany, Italy, and the U.S. which showed that the U.S. lags behind the other jurisdictions in knowledge that cartel conduct is illegal.  Outreach can certainly help with this.

Q.     You no doubt had many possible very lucrative opportunities upon leaving the Department of Justice.  Why did you chose to go to work with the Hong Kong Competition Commission? 

I thought it was an incredible and interesting opportunity to go from one of the most established and experienced agencies in the world to one of the newest. You’ve already noted that the Hong Kong Competition Commission has shown itself to be innovative and thoughtful during its relatively short existence. I am excited to get to contribute to what Stanley Wong, Rose Webb, and others have already begun to build there and hope to make good use of my experience at the Antitrust Division.

It should come as no surprise that I think the Antitrust Division is the finest competition enforcement agency in the world, but I jokingly told Acting Assistant Attorney General Andrew Finch that we’re going to try to knock them back to second best. 😀

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Thanks Brent.  Best of luck in the new position in Hong Kong!

CCC’s: Where’s Makan?

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In case you’ve forgotten, on June 8, 2017  the Senate Judiciary Committee voted overwhelmingly in favor of the nomination of Makan Delrahim, President Donald Trump’s pick to be the Assistant Attorney General in charge of the Antitrust Division of the USDOJ.   The committee approved Mr. Delrahim’s nomination by a vote of 19-1. Once approved by the committee, the nomination should go before the full Senate.  But, Mr. Delrahim still has not been brought up for a confirmation vote in the Senate.  Sad.

This is a very unfortunate situation for the nations’ top competition law enforcement body.   The work of the Division goes on as staffs continue investigations and time sensitive decisions are still made. But, it is an added stress and drain on morale to lack leadership; especially when the leadership will likely be enthusiastically received by at least most staff members.  And, not just Mr. Delrahim awaits getting on board; the new Assistant Attorney General will bring in his team to fill out the “front office.”

The delay in confirming Mr. Delrahim has been lamented in two recent articles.  In a June 25, 2017 opinion article in The Hill, DC attorney David Balto wrote:

Delrahim is not controversial and is regarded by both Republicans and Democrats to be perfect for the job. He has a strong reputation as a pragmatist with real world experience to guide the tough enforcement decisions the division faces. Time to get Trump’s new Antitrust Cop on the Beat

Another article referred to the fact that until Mr. Delrahim is appointed and able to fill out his staff, the direction and priorities of the Antitrust Division under Trump are not known.  In a June 30, 2017 BNA Law article Liz Crampton notes:

The long-term agenda of the Justice Department remains unknown as Makan Delrahim, nominee to lead the division, is still awaiting Senate confirmation three months after President Donald Trump named him.   Justice Dept. Antitrust Division Treads Lightly Absent Leader  

Mr. Delrahim can provide the kind of guidance the business community counts on, but is currently lacking.

Here’s hoping something as non-controversial but important as Mr. Delrahim’s confirmation vote can dodge through the dysfunction in DC and get taken care of very soon.

Thanks for reading.

CCC’s: The Sherman Act is Unconstitutional as a Criminal Statute: (Part 1)

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If you get lost, sometimes you must go back and start again from the beginning. I’ve been a bit lost on whether the Sherman Act is unconstitutional as a criminal statute. It is well accepted that per se violations of the Sherman Act can be prosecuted criminally.  An individual can be sentenced to up to ten years in prison.  But, is the accepted learning on this issue wrong?  I think I’ve found my way to the Sherman Act being unconstitutional as a criminal statute.[1]

Forget everything you know about Supreme Court jurisprudence involving the criminal application of the Sherman Act (that was easy for me).  Take a look at the statute:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

Can you advise your client what exactly is declared to be illegal?  And watch his face show even more alarm when you explain that whatever it is that he can’t do, if he does do it, the penalty is up to 10 years in prison.[2]   The Sherman Act is void for vagueness.  Justice Sutherland explained the void for vagueness doctrine in Connally v. General Construction Co, 269 U.S. 385, 391 (1926):

The terms of a penal statute…must be sufficiently explicit to inform those who are subject to it what conduct on their part will render them liable to its penalties….and a statue which either forbids or requires the doing of an act so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application violates the first essential of due process of law.

The Sherman Act does not sufficiently inform business people (including foreigners) what conduct can land them in jail or on a Red Notice.  This must be true because even the Supreme Court has said the Sherman Act cannot possibly mean what it says because every contract is in restraint of trade, and every contract cannot be illegal.  Thus, the first Supreme Court triage on the Sherman Act was that only “unreasonable restraints” of trade were prohibited.[3]  But, that doesn’t clear things up too much—What is an unreasonable restraint of trade?  Under the Rule of Reason, a restraint is unlawful only, if after an inquiry to balance the pro-competitive benefits of the agreement versus its anticompetitive effects, the agreement is found to unreasonably restrain trade.  But can you find someone guilty of a crime after weighing the pro-competitive and anticompetitive effects of the agreement?  That doesn’t seem like the notice required by due process either.  Further Supreme Court surgery on the Sherman Act separated out per se violations–restraints of trade that are so highly unlikely to have any redeeming competitive benefits, that the restraints (price-fixing, bid rigging and customer/market allocation) are per se illegal.  As a result, juries are charged in a criminal antitrust case that they do not need to find that the restraint was unreasonable, but simply that the defendant(s) entered into an agreement to fix prices, which, by judicial fiat, is per se unreasonable.

Does the per se rule solve the void for vagueness problem?  The conventional wisdom is that it has.  But changed circumstances sometimes compel a “fresh look” at accepted wisdom.  It is time for that fresh look.  The changed circumstance that comes to mind is that the Sherman Act is no longer a misdemeanor.  It is not a “gentlemen’s crime” meriting a slap on the wrist with a mild scolding from the judge.[4]  The Sherman Act, as a criminal statute, provides for an individual to be sentenced to up to 10 years in jail.  And the ten years is not just theoretical; the Antitrust Division sought a 10-year prison sentence for the CEO of AU Optronics after his conviction.  While the ten-year sentence was not achieved, the record prison sentence for a criminal antitrust violation is now 5 years. [5]

I am not a constitutional scholar, but I do have a blog so I’ll opine what I think is wrong with the Sherman Act as a criminal statute.[6]  First, the Supreme Court cannot save a criminal statute by grafting on elements such as condemning only “unreasonable” restraints of trade, and further holding that only certain types of agreements are per se unreasonable.  But even if the Supreme Court could address the void for vagueness doctrine by holding that only certain restraints are per se illegal, this violates another constitutional tenet; the Supreme Court takes away the issue from the jury with an unrebuttable presumption.  Charles D. Heller has written on this subject and argued that the current practice of instructing the jury that price-fixing is per se illegal, i.e., presumptively unreasonable, is unconstitutional.  The jury should be the fact-finder of whether a restraint is unreasonable.[7]  Finally, the definition of a per se offense is that the restraint (price-fixing for e.g.) is so highly likely to be anticompetitive that there is no inquiry as to whether the actual restraint the defendant is charged with was anticompetitive.  This may be fine for a civil case, but in a criminal case the defendant must be allowed to argue that the charged restraint was the exception to the rule.  Instead, in a criminal case the jury may be charged:

It is not a defense that the parties may have acted with good motives, or may have thought that what they were doing was legal, or that the conspiracy may have had some good results.

This seems like a very odd jury instruction for a crime that carries a ten-year maximum prison sentence, especially when one considers that many of the defendants in criminal antitrust indictments are foreigners.[8]

In short, the Sherman Act is void for vagueness.  But, if the Act does pass the void for vagueness hurdle by grafting on the per se rule, juries should decide whether the restraint in question is unreasonable, and that inquiry should not be contained by a presumption the restraint was per se unreasonable if it was price-fixing, bid rigging or market allocation.  If these standards were applied, however, the Sherman Act would be unworkable.  If juries decided, in an after the fact deliberation, whether a restraint was unreasonable, the void for vagueness doctrine would trump a conviction.  Sad.  Very sad.

My solution to the problem, if there really is a problem, will come as soon as I figure it out—but no later than next week– in Part II.

Thanks for reading.  Comments would be much appreciated, but maybe hold your fire until after Part II?

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[1]  I am not the first to reach this conclusion.  The work of several other authors who find likewise is mentioned in the post.

[2]   Maybe this language that is in Sherman Act indictments will clear things up: “For the purpose of forming and carrying out the charged combination and conspiracy, the defendant and his co-conspirators did those things that they combined and conspired to do.”  To be fair, the indictments then “bullet point” a list of acts the defendant(s) engaged in to carry out the conspiracy.

[3]   Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911).

[4]   I was a brand new Antitrust Division attorney in one trial where we obtained convictions not too long after Sherman Act had been made a felony.  At sentencing, the first convicted defendant got a wicked tongue lashing, but the judge said that, due to his youth and relative inexperience, he would not be sentenced to prison.  The next defendant—ditto on the tongue lashing—but the judge found he should not be sentenced to prison because he was elderly and now retired.

[5]  Frank Peake was sentenced to 5 years in prison for his participation in a conspiracy to fix the prices on cargo shipped by water between the United States and Puerto Rico.  See,  https://www.justice.gov/opa/pr/former-sea-star-line-president-sentenced-serve-five-years-prison-role-price-fixing-conspiracy.  Foreign executives are frequent defendants in criminal antitrust cases and may be put on a Red Notice with dire consequences simply by being indicted.

[6]   For a more scholarly article that takes a look at the void for vagueness doctrine and its implications for the Sherman Act, see Sherman Act and Avoiding Void-for Vagueness, Matthew G. Sipe, posted May 16, 2017, available at, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2968933&download=yes.

[7]  See Charles D. Weller, The End of Criminal Antitrust Per se Conclusive Presumptions, 58 ANTITRUST BULL. 665 (2013).

[8]   Some strict liability crimes (i.e., statutory rape) can have no intent element but the Sherman Act is not a strict liability crime.

3C’s Recommended Amicus Brief on Section One Summary Judgment Standard

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Here is a link to a brief filed by a number of professors asking the Supreme Court to clarify the standard to be applied by districts courts to a defendant’s motion for summary judgment in a Section One antitrust case,  evergreen – petition for certiorari – amicus brief – filed copy – 4.21.17 – evergreen partnering group v. pactiv corp.  The petition notes:

“[C]ircuit courts are mired in an abiding difference of opinion concerning the appropriate interpretation of the summary judgment paradigm in cases brought under Section 1 of the Sherman Act as applied to circumstantial evidence.”

The professors are going to bat for plaintiff Evergreen, which had its group boycott claimed dismissed on summary judgment. The amicus brief argues that the First Circuit incorrectly applied the Matsushita standard that requires the plaintiff to produce evidence that “tends to exclude the possibility of independent conduct.” The brief goes on to argue say this strict standard should only be applied where the defendants’ conduct is arguably pro-competitive (like the price cutting in Matsushita). In this case, the brief argues, the correct standard, is found in Eastman Kodak Industry Co. v. Image Technical Services Inc.,: whether the plaintiff has produced evidence that the defendants’ conduct is unreasonable.

From the brief:

The Second, Third, Fifth, Sixth, Seventh, Ninth, and Tenth Circuits “have narrowed the application of Matsushita’s “tends to exclude the possibility of independent conduct” test to situations where the plaintiff ’s theory: (1) is implausible; and (2) challenges pro-competitive conduct….The First, Fourth, Eighth, and Eleventh Circuits, however, do not interpret Kodak as a limitation on Matsushita’s “tends to exclude” test. These courts universally apply the test to all motions seeking entry of summary judgment on a conspiracy claim under Section 1, regardless of whether plaintiff’s theory makes economic sense or there is little or no risk of chilling pro-competitive behavior.”

The brief notes that Judge Posner has been critical of the Matsushita “tends to exclude the possibility of independent conduct” standard for requiring the plaintiffs to disprove the defendants’ case with a “sweeping negative.” Richard Posner, Antitrust Law, 100 (2d ed. 2001).  The brief also quotes a Judge Posner opinion:

“That would imply that the plaintiff in an antitrust case must prove a violation of the antitrust laws not by a preponderance of the evidence, not even by proof beyond a reasonable doubt (as indeed is required in criminal antitrust cases), but to a 100 percent certainty, since any lesser degree of certitude would leave a possibility that the defendant was innocent.”

In re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d 781, 787 (7th Cir. 1999) (Posner, C.J.).

The brief concludes:

“In sum, the decision below illustrates and intensifies confusion among the lower courts about the Matsushita standard for Section 1 antitrust claims at summary judgment. The question is critical; private enforcement is essential to maintaining the correct balance between under and over deterrence to foster healthy competition. But when it comes to Matsushita, inconsistency in its application is now the rule, rather than the exception. For these reasons, the Court should clarify the standard, resolve the circuit split, and emphasize that the correct interplay between Matsushita and Kodak properly limits the “tends to exclude” summary judgment standard to cases where the alleged conspiracy is economically irrational and the conduct is pro-competitive.”

Whichever side of the “v.” you are on [plaintiff or defendant] the brief is a useful read for the discussion of the differences among the circuits on the proper standard for summary judgment.

Evergreen is represented by Richard Wolfram  who earlier had filed a petition for certiorari with Supreme Court. A copy of the petition can be found here.

Thanks for reading.

International Shipping Executives Indicted for Colluding on Bids and Rates

Tuesday, June 27, 2017
Eleven Executives and Four Companies Have Been Charged in Ocean Shipping Investigation

 

An indictment of three shipping executives was unsealed in U.S. District Court in Baltimore, the Department of Justice announced today.

Anders Boman, Arild Iversen, and Kai Kraass have been charged with participating in a long-running conspiracy to allocate certain customers and routes, rig bids, and fix prices for the sale of international ocean shipments of roll-on, roll-off cargo to and from the United States and elsewhere, including the Port of Baltimore. A federal grand jury returned the indictment in November 2016.

Boman, a citizen of Sweden, and Iversen, a Norwegian citizen, are former executives of Wallenius Wilhelmsen Logistics AS (WWL). Kraass, a German citizen, is a current WWL executive. Including the charges announced today, eleven executives have been charged in the investigation to date. Four have pleaded guilty and been sentenced to serve prison terms. Others remain international fugitives. WWL has pleaded guilty and been sentenced to pay a $98.9 million fine. Three other companies have also pleaded guilty, resulting in total collective criminal fines over $230 million.

The indictment alleges that Boman, Iversen, and Kraass conspired with their competitors to allocate certain customers and routes for the shipment of cars and trucks, as well as construction and agricultural equipment. The defendants accomplished their scheme by, among other things, attending meetings in Baltimore County and elsewhere during which they agreed not to compete against each other, by refraining from bidding or by agreeing on the prices they would bid for certain customers and routes. In addition, Boman, Iversen, and Kraass agreed with competitors to fix, stabilize, and maintain rates charged to customers of international ocean shipping services. The customers affected by the conspiracy included U.S. companies.

“The indictment unsealed today is yet another step in the Division’s efforts to restore competition in the shipping industry,” said Acting Assistant Attorney General Andrew Finch of the Justice Department’s Antitrust Division. “WWL has pleaded guilty. Now we are working to ensure that its executives who conspired to suppress competition at the expense of American consumers will be held accountable.”

“These indictments are the continuation of a long-term effort by the FBI’s Baltimore Field Office to secure our nation’s economy against collusion in the shipping industry, to ensure competition in the market place and to protect US companies from these deceptive practices.” said Special Agent in Charge Gordon B. Johnson.

Today’s announcement is the result of an ongoing federal antitrust investigation into price fixing, bid rigging, and other anticompetitive conduct in the international roll-on, roll-off ocean shipping industry, which is being conducted by the Antitrust Division’s Washington Criminal I Section and the FBI’s Baltimore Field Office, along with assistance from the U.S. Customs and Border Protection Office of Internal Affairs, Washington Field Office/Special Investigations Unit.

Former Packaged Seafood Executive Pleads Guilty to Price Fixing

Wednesday, June 28, 2017

A former senior vice president of sales for a packaged seafood company pleaded guilty for his role in a conspiracy to fix the price of packaged seafood, such as canned tuna, sold in the United States, the Department of Justice announced today.

According to documents filed in this case, Stephen Hodge and his co-conspirators agreed to fix the prices of packaged seafood from as early as 2011 through 2013. He pleaded guilty to a one-count criminal information filed on May 30, 2017, in U.S. District Court for the Northern District of California in San Francisco. Hodge has agreed to pay a criminal fine and cooperate with the Antitrust Division’s ongoing investigation. He will be sentenced by the court at a later date.

“With today’s plea, the Antitrust Division continues to send a strong signal that senior executives will be held accountable for their actions,” said Acting Assistant Attorney General Andrew Finch of the Justice Department’s Antitrust Division. “The division, along with our law enforcement colleagues, will continue to investigate price fixing among packaged seafood companies and the executives who worked at those companies.”

“The FBI will not tolerate the reprehensible behavior of company executives who abuse the trust of the American public for personal gain,” said FBI San Francisco Division Special Agent in Charge John F. Bennett. “We, along with our Justice Department partners, are dedicated to our ongoing investigations into price fixing and will bring these companies to justice.”

According to court documents, Hodge and his co-conspirators discussed the prices of packaged seafood sold in the United States and agreed to fix the prices of those products. Hodge and his co-conspirators negotiated prices and issued price announcements for packaged seafood in accordance with the agreements they reached. Including Hodge, three executives have pleaded guilty for their participation in this conspiracy. Bumble Bee Foods LLC has also been charged for its role in the price-fixing conspiracy. Bumble Bee Foods has a court appearance scheduled for August 2, 2017.

Today’s plea is the result of an ongoing federal antitrust investigation into the packaged seafood industry, which is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Field Office.