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 Biloxi, Mississippi physician was sentenced today to 42 months in prison for his involvement in a $3 million compounding pharmacy fraud scheme.
Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division; U.S. Attorney D. Michael Hurst Jr. of the Southern District of Mississippi; Special Agent in Charge Christopher Freeze of the FBI’s Jackson, Mississippi Field Division; Acting Special Agent in Charge Thomas J. Holloman III of IRS Criminal Investigation’s (IRS-CI) New Orleans Field Office and Special Agent in Charge John F. Khin of the Defense Criminal Investigative Service’s (DCIS) Southeast Field Office made the announcement.
Albert Diaz, M.D., was sentenced by U.S. District Judge Keith Starrett of the Southern District of Mississippi. Restitution to TRICARE and other insurance companies will be determined at a later date. On March 2 after a five-day jury trial, Diaz was convicted of one count of conspiracy to commit health care fraud and wire fraud, four counts of wire fraud, one count of conspiracy to distribute and dispense a controlled substance, four counts of distributing and dispensing a controlled substance, one count of conspiracy to falsify records in a federal investigation and five counts of falsification of records in a federal investigation.
According to evidence presented at trial, between 2014 and 2015, Diaz participated in a scheme to defraud TRICARE and other insurance companies by prescribing medically unnecessary compounded medications, some of which included ketamine, a controlled substance, to individuals he had not examined. The evidence further demonstrated that, based on the prescriptions signed by Diaz, Advantage Pharmacy in Hattiesburg, Mississippi, dispensed these medically unnecessary compounded medications and sought and received reimbursement from TRICARE and other insurance companies totaling more than $3 million. The trial evidence further demonstrated that in response to a TRICARE audit, Diaz falsified patient records to make it appear as though he had examined patients before prescribing the medications.
The FBI, IRS-CI, the Defense Criminal Investigative Service, the U.S. Department of Health and Human Services Office of Inspector General, the Mississippi Bureau of Narcotics and other government agencies investigated the case. Trial Attorneys Kate Payerle and Jared Hasten of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mary Helen Wall of the Southern District of Mississippi are prosecuting 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.
Today, a federal jury convicted Kevin Patrick Mallory, 61, a former Central Intelligence Agency case officer of Leesburg, Virginia, on espionage charges related to his transmission of classified documents to an agent of the People’s Republic of China.
Assistant Attorney General for National Security John C. Demers, U.S. Attorney G. Zachary Terwilliger for the Eastern District of Virginia and Assistant Director in Charge Nancy McNamara of the FBI’s Washington Field Office made the announcement after Senior U.S. District Judge T.S. Ellis III accepted the verdict.
“It is a sad day when an American citizen is convicted of spying on behalf of a foreign power,” said Assistant Attorney General Demers. “This act of espionage was no isolated incident. The People’s Republic of China has made a sophisticated and concerted effort to steal our nation’s secrets. Today’s conviction demonstrates that we remain vigilant against this threat and hold accountable all those who put the United States at risk through espionage.”
“There are few crimes in this country more serious than espionage,” said U.S. Attorney Terwilliger. “This office has a long history of holding those accountable who betray their country and try and profit off of classified information. This case should send a message to anyone considering violating the public’s trust and compromising our national security by disclosing classified information. We will remain steadfast and dogged in pursuit of these challenging but critical national security cases.”
“This trial highlights a serious threat to U.S. national security,” said Assistant Director in Charge McNamara. “Foreign intelligence agents are targeting former U.S. Government security clearance holders in order to recruit them and steal our secrets. This case should send a message to foreign intelligence services and those caught up in their web: we are watching and we will investigate and prosecute those who willfully violate their obligations to protect national security secrets. I want to start by thanking the prosecutors of the U.S. Attorney’s Office, the trial attorneys of the Justice Department and particularly the special agents, analysts and professional staff of the FBI’s Washington Field Office for their hard work.”
According to court records and evidence presented at trial, in March and April 2017, Mallory travelled to Shanghai and met with an individual, Michael Yang, whom he quickly concluded was working for the People’s Republic of China Intelligence Service (PRCIS). During a voluntary interview with FBI agents on May 24, 2007, Mallory stated that Yang represented himself as working for a People’s Republic of China think tank, however Mallory stated that he assessed Yang to be a Chinese Intelligence Officer.
Mallory, a U.S. citizen who speaks fluent Mandarin Chinese, told FBI agents he travelled to Shanghai in March and April to meet with Yang and Yang’s boss. After Mallory consented to a review of a covert communications (covcom) device he had been given by Yang in order to communicate covertly with Yang, FBI agents viewed a message from Mallory to Yang in which Mallory stated that he could come in the middle of June and he could bring the remainder of the documents with him at that time. Analysis of the device, which was a Samsung Galaxy smartphone, also revealed a handwritten index describing eight different documents later determined to be classified. Four of the eight documents listed in the index were found stored on the device, with three being confirmed as containing classified information pertaining to the same U.S. government agency. One of those documents was classified TOP SECRET, while the remaining two documents were classified SECRET. FBI analysts were able to determine that Mallory had completed all of the steps necessary to securely transmit at least four documents via the covcom device, one of which contained unique identifiers for human sources who had helped the U.S. government.
Evidence presented at trial included surveillance video from a FedEx store in Leesburg where Mallory could be seen scanning the eight classified documents and a handwritten table of contents onto a micro SD card. Though Mallory shredded the paper copies of the eight documents, an SD card containing those documents and table of contents was later found carefully concealed in his house when it was searched on June 22, 2017, the date of his arrest. A recording was played at trial from June 24, 2017, where Mallory could be heard on a call from the jail calling his family to ask them to search for the SD card.
Mallory has held numerous positions with various government agencies and several defense contractors, including working as a covert case officer for the CIA and an intelligence officer for the Defense Intelligence Agency. As required for his various government positions, Mallory obtained a Top Secret security clearance, which was active during various assignments during his career. Mallory’s security clearance was terminated in October 2012 when he left government service.
Mallory was convicted of conspiracy to deliver, attempted delivery, delivery of defense information to aid a foreign government, and making material false statements. He faces a maximum penalty of life in prison when sentenced on Sept. 21. The statutory maximum penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Assistant U.S. Attorneys John T. Gibbs and Colleen E. Garcia of the Eastern District of Virginia, and Trial Attorney Jennifer Kennedy Gellie of the National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.
Real estate investors Kevin Moore, Chad Nichols, and Terry Tolar pleaded guilty today for their roles in a conspiracy to rig bids at public real estate foreclosure auctions in Mississippi, the Department of Justice announced.
Including Moore, Nichols, and Tolar, five real estate investors have pleaded guilty in this conspiracy. Separate felony charges against Moore, Nichols, and Tolar were filed on April 3, 2018, in the U.S. District Court for the Southern District of Mississippi.
“Today’s guilty pleas send a strong signal that the Division will prosecute and hold accountable those who conspire to corrupt the competitive process and harm the American consumer,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division. “We extend our thanks to our law enforcement partners, with whom we will continue to investigate bid-rigging crimes in Mississippi—and throughout the United States.”
“Individuals who harm homeowners and defraud companies by cheating our foreclosure system to enrich themselves will face swift and certain criminal prosecution in Mississippi,” said United States Attorney D. Michael Hurst, Jr. for the Southern District of Mississippi. “I applaud the FBI and the Antitrust Division for their tenacity and perseverance in pursuing these criminal actions and shutting this illegal scheme down.”
“Violations of the Sherman Act not only impact America’s financial institutions and distressed homeowners but also damage our free market society as a whole,” said Special Agent in Charge Christopher Freeze of the FBI in Mississippi. “We hope that others participating in this type of corruption understand that the FBI and Department of Justice will continue to protect Americans from price fixing and bid rigging that harm our economy.”
According to court documents, from at least as early as January 12, 2012, through at least as late as April 19, 2017, Moore conspired with others to rig bids, designating a winning bidder to obtain selected properties at public real estate foreclosure auctions in the Southern District of Mississippi. Nichols participated in the conspiracy from as early as April 14, 2010, through as late as February 25, 2015, and Tolar’s participation began as early as January 12, 2012, through as late as March 31, 2017. Co-conspirators made and received payoffs in exchange for their agreement not to bid.
The Department said that the primary purpose of the conspiracy was to suppress and restrain competition in order to obtain selected real estate offered at public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with any remaining proceeds paid to the homeowner. According to court documents, these conspirators paid and received money in connection with their agreement to suppress competition, which artificially lowered the price paid at auction for such homes.
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act charge may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either amount is greater than the statutory maximum fine.
The investigation is being conducted by the Antitrust Division’s Washington Criminal II Section and the FBI’s Gulfport Resident Agency, with the assistance of the U.S. Attorney’s Office for the Southern District of Mississippi. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact Antitrust Division prosecutors in the Washington Criminal II Section at 202-598-4000, or visit https://www.justice.gov/atr/report-violations.
Two Tennessee health care executives were charged in an indictment unsealed today for their alleged participation in a $4.6 million Medicare kickback scheme involving durable medical equipment (DME).
Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Don Cochran of the Middle District of Tennessee, Special Agent in Charge Derrick Jackson of the U.S. Department of Health and Human Services Office of Inspector General’s (HHS-OIG) Atlanta region, Special Agent in Charge John F. Khin of the U.S. Department of Defense Criminal Investigative Service’s (DCIS) Southeast Field Office and Director Mark Gwyn of the Tennessee Bureau of Investigation (TBI) Medicaid Fraud Control Unit made the announcement.
John Davis, 40, of Brentwood, Tennessee, and Brenda Montgomery, 69, of Camden, Tennessee, were each charged with one count of conspiracy to defraud the United States and to pay and receive health care kickbacks, and seven counts of paying and receiving health care kickbacks. Davis is the former CEO of Comprehensive Pain Specialists (CPS), a large, multi-state pain management company. Montgomery is the owner, founder and CEO of CCC Medical Inc., a DME company with five locations in Tennessee and headquartered in Camden. Davis and Montgomery were arrested this morning and appeared this afternoon before U.S. Magistrate Judge Alistair E. Newbern of the Middle District of Tennessee.
“The charges against John Davis and Brenda Montgomery, alleging almost three quarters of a million dollars in illegal health care kickbacks and the submission of over $4.6 million in fraudulent claims to Medicare, demonstrate the Department of Justice’s commitment to protect taxpayer dollars and to hold corporate executives accountable for fraudulent and abusive conduct,” said Acting Assistant Attorney General Cronan. “Kickbacks such as those alleged in the indictment distort markets and undermine public trust. The Criminal Division and our law enforcement partners will continue to root out fraud, waste and abuse in our health care programs, no matter how complex the schemes.”
“Our Medicare program is designed to help those who are most vulnerable and in need of medical services and equipment,” said U.S. Attorney Cochran. “Stealing funds from our health care system places the vulnerable at greater risk and diverts public funds into the pockets of the greedy individuals who exploit those with the greatest need. We will be un-relenting in our efforts to bring to justice, those individuals and corporations who choose to profit at the expense of the health of those individuals with the greatest need.”
“Kickback schemes like this one do not benefit patients or the Medicare program,” said Special Agent in Charge Jackson. “These arrangements are simply designed to line the pockets of the defendants at the expense of the taxpayer.”
“In concert with our partner agencies, DCIS aggressively investigates fraud and corruption that undermines the integrity of Department of Defense programs,” said DCIS Special Agent in Charge Khin. “These defendants selfishly put greed and personal gain before the safety and well-being of our military members, their families, and retirees, who deserve the best medical care available.”
“Having the support and cooperation of our partner local, state and federal agencies is critical in our combined efforts to protect Tennesseans from individuals attempting to derive a personal benefit at the expense of patients and taxpayers,” said TBI Director Gwyn.
The indictment alleges that from at least June 2011 until at least June 2017, Montgomery agreed to pay Davis, the CEO of CPS, illegal kickbacks in exchange for Medicare referrals for DME ordered by CPS employees that Davis referred to CCC Medical. As alleged in the indictment, Montgomery agreed to pay Davis 60 percent of Medicare proceeds collected on claims billed for DME ordered by CPS providers and referred by Davis. In addition, the indictment alleges that Davis and Montgomery took a number of steps to conceal their illegal agreement, including making kickback payments through a nominee, creating and filing false tax documents, and, for Davis, intervening as CEO to prevent the owners of CPS from obtaining their own Medicare DME supplier numbers that would have allowed CPS to bill for its own Medicare DME orders.
Beginning in or around May 2015, according to the indictment, Davis and Montgomery renegotiated their illegal agreement to further obscure their personal contract from Medicare and from CPS owners and employees. The indictment alleges that from approximately May 2015 until approximately November 2015, Montgomery agreed to pay Davis $200,000 for the sham purchase of a shell entity known as ProMed Solutions LLC (ProMed). Davis and Montgomery renegotiated the sham transaction after Montgomery complained that her referrals from CPS had been lower than expected, and Montgomery ultimately paid $150,000 for the shell, ProMed, according to allegations in the indictment. The true purpose of this payment was to induce Davis to continue driving CPS referrals to CCC Medical, the indictment alleges.
The indictment alleges that Montgomery, through CCC Medical, submitted over $4.6 million in fraudulent claims to Medicare, and that Medicare paid a total of $2.6 million on those claims. Further, the indictment alleges that Montgomery paid more than $770,000 in illegal kickbacks to Davis.
An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
This case was investigated by HHS-OIG, DCIS and the Tennessee Bureau of Investigation Medicaid Fraud Control Unit. Trial Attorney Anthony Burba of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Ryan Raybould of the Middle District of Tennessee and are prosecuting 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 throughout 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 collectively billed the Medicare program for over $12.5 billion.
The headline sounds funny, but the story is no laughing matter. A plea agreement in the electrolytic capacitor investigation between the United States and Nippon Chemi-Con (“NCC”) is in jeopardy because of an unfortunate conflict of interest lapse by an attorney at the Department of Justice. There was a hearing before Judge Donato yesterday on NCC’s change of plea. Judge Donato, who has been critical of previous plea agreements in the electrolytic capacitor investigation, accepted the guilty plea but reserved judgment on the sentence to be imposed. The plea agreement calls for a fine of between $40 and $60 million. NCC may withdraw its plea if the Judge imposes a fine greater than that called for by the plea agreement. A sentencing hearing is scheduled for October 3, 2018.
On October 18, 2017 a federal grand jury returned an indictment against NCC for participating in a conspiracy to fix prices for electrolytic capacitors. The indictment, filed in the U.S. District Court for the Northern District of California, charges that NCC, based in Japan, conspired to fix prices for electrolytic capacitors from as early as September 1997 until January 2014. Three current NCC executives, and one former NCC executive, were previously indicted for their participation in the conspiracy: Takuro Isawa, Takeshi Matsuzaka, Yasutoshi Ohno, and Kaname Takahashi. The DOJ’s press release can be found here.
The indictment alleges NCC carried out the conspiracy by agreeing with co-conspirators to fix prices of electrolytic capacitors during meetings and other communications. According to the indictment, NCC and its co-conspirators took steps to conceal the conspiracy, including the use of code names and providing misleading justifications for prices and bids submitted to customers in order to cover up their collusive conduct. The indictment can be found here.
To date, eight companies and ten individuals have been charged with participating in the conspiracy to fix prices of electrolytic capacitors.
The Problem (if you’re the Government) or Opportunity (if you’re the defense)
The issue that was debated at the change of plea hearing before Judge Donato was first identified in a Joint Status Report filed on May 11, 2018. The parties reported that an attorney who formerly had represented NCC left his law firm, joined the Department of Justice and later did some work on an MLAT request the Department filed with the Japanese government that related to NCC. In the Status Report the Antitrust Division wrote:
“The attorney left Firm A and joined OIA in February 2015. Shortly thereafter, in March 2015, he performed several tasks to assist the Antitrust Division in executing and transmitting a Mutual Legal Assistance Treaty (“MLAT”) request to interview a witness in Japan, on topics including NCC’s conduct in the charged price-fixing conspiracy. The Antitrust Division remained unaware of his prior representation of NCC until February 15, 2018.”
The Antitrust Division conceded that the attorney should have recused himself but argued that there was no prejudice to NCC. NCC strongly disagreed about the impact of a defense attorney “switching sides.” The company unsuccessfully lobbied the DOJ to dismiss the indictment. That request was declined but a plea agreement was reached that clearly was more favorable to NCC than the Antitrust Division might have offered without the conflict issue. The complete Status Report on the matter can be found here: Case 4-17-cr-00540-JD Document 47 Filed 05:11:18
The Change of Plea Hearing
Judge Donato accepted the plea of NCC but reserved judgment on the sentence. Sentencing is scheduled for October 3, 2018. Judge Donato has required changes to negotiated plea agreements with other defendants in the capacitor investigation believing them to be too lenient. If Judge Donato does not agree to sentence NCC within the parameters of its plea agreement, NCC can withdraw its plea. The court spent approximately 30 minutes in closed session exploring the impact on the conflict lapse on the terms the Antitrust Division offered in the plea agreement.
Judge Donato was obviously upset at the lack of procedures at the DOJ to identify and prevent this conflict. The Antitrust Division tried to demonstrate that it took the matter seriously by sending Marvin Price, the Acting Deputy Assistant Attorney General for Criminal Enforcement out to San Francisco to represent the Government at the hearing.
The case is U.S. v. Nippon Chemi-Con Corp., case number 4:17-cr-00540-JD.
According to a Department of Justice press release, on May 16, 2018 a federal grand jury returned an indictment against Christopher Lischewski, the President and Chief Executive Officer of Bumble Bee Foods LLC, for participating in a conspiracy to fix prices for packaged seafood sold in the United States. The indictment was filed in the U.S. District Court for the Northern District of California in San Francisco, and charged Lischewski with participating in a conspiracy to fix prices of packaged seafood beginning in or about November 2010 until December 2013.
The one-count felony indictment charges that Lischewski carried out the conspiracy by agreeing to fix the prices of packaged seafood during meetings and other communications. The co-conspirators issued price announcements and pricing guidance in accordance with these agreements.
An indictment merely alleges that crimes have been committed. Mr. Lischewski is presumed innocent unless proven guilty beyond a reasonable doubt. The government’s full press release can be found here. Mr. Lischewski’s is represented by John Keker of Keker, Van Nest & Peters LLP, who said in a statement (as reported by Law 360 here) that his client will be found not guilty:
“Chris Lischewski is a decent and honorable man, who has lived a hardworking and ethical life. He has been a leader and beacon within the seafood industry for more than twenty-five years. And most significantly on this dark day, he is innocent of any wrongdoing.”
Bumble Bee has already pled guilty and agreed to pay a $25 million fine. The Lischewski indictment demonstrates that the Antitrust Division seeks to maximize deterrence by holding individuals accountable for criminal antitrust violations. The Division seeks to indict the highest level executive they believe is justified by the evidence.
The indictment can be found here. I have no personal knowledge of the facts of this case other than from reading the public documents. The indictment doesn’t specify whether the defendant personally attended meetings and reached agreements or whether Bumble Bee subordinates did so at his direction or with his knowledge/approval. Trials against CEO’s can be challenging because conviction often depends on the jury accepting the testimony of lower level officials at the company who may have gotten immunity or favorable plea agreements in return for their testimony. A plea agreement with the defendant is always possible, but a trial is far more likely given the probable high sentencing guidelines range the defendant would be facing and the unlikely possibility that he would be eligible for a downward departure for cooperation at this late stage of the investigation.
Over 8,800 Identities Stolen from the U.S. Army, Alabama State Agencies and Georgia Businesses
A Phenix City, Alabama, resident was sentenced today to 30 years in prison for his role in masterminding multiple stolen identity refund fraud (SIRF) schemes, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Louis V. Franklin, Sr. of the Middle District of Alabama.
William Anthony Gosha III, a/k/a Boo Boo, was convicted, following a jury trial in November 2017, of one count of conspiracy, 22 counts of mail fraud, three counts of wire fraud, and 25 counts of aggravated identity theft.
According to the evidence presented at trial and sentencing, between November 2010 and December 2013, Gosha ran a large-scale identity theft ring with his co-conspirators, Tracy Mitchell, Keshia Lanier, and Tamika Floyd, who were all previously convicted and sentenced to prison. Together they filed over 8,800 tax returns with the Internal Revenue Service (IRS) that sought more than $22 million in fraudulent refunds of which the IRS paid out approximately $9 million.
In November 2010, Gosha stole IDs of inmates from the Alabama Department of Corrections and provided the IDs to Lanier who used the information to seek fraudulent tax refunds. Gosha and Lanier agreed to split the proceeds. Gosha also stole employee records from a company previously located in Columbus, Georgia. In 2012, Lanier needed an additional source of stolen IDs and approached Floyd, who worked at two Alabama state agencies in Opelika, Alabama: the Department of Public Health and the Department of Human Resources. In both positions, Floyd had access to the personal identifying information of individuals, including teenagers. Lanier requested that Floyd primarily provide her with identities that belonged to sixteen and seventeen year-olds. Floyd agreed and provided thousands of names to Lanier and others at Lanier’s direction.
After receiving the additional stolen IDs, Gosha recruited Mitchell and her family to help file the fraudulent tax returns. Mitchell worked at a hospital located at Fort Benning, Georgia, where she had access to the personal identification information of military personnel, including soldiers who were deployed to Afghanistan. She stole soldiers’ IDs and used their information to file fraudulent returns.
In order to electronically file the fraudulent returns, Gosha, Lanier, and their co-conspirators applied for several Electronic Filing Identification Numbers (EFIN) with the IRS in the names of sham tax preparation businesses. Gosha, Lanier, and their co-conspirators then used these EFINs to file the returns and obtain tax refund related bank products from various financial institutions, which provided them with blank check stock. Gosha and his co-conspirators initially printed out the fraudulently obtained refund checks using the blank check stock.
However, the financial institutions halted Gosha’s and his co-conspirators’ ability to print checks. As a result, they recruited U.S. Postal employees who provided Gosha and others with addresses on their routes to which the fraudulent refund checks could be directly mailed. In exchange for cash, these postal employees intercepted the refund checks and provided them to Gosha, Lanier, Mitchell and others. Gosha also directed tax refunds to prepaid debit cards and had those cards sent to addresses he controlled.
In addition, between January 2010 and December 2013, Gosha participated in a separate SIRF scheme with Pamela Smith and others, in which Gosha sold the IDs that he had stolen from the Alabama Department of Corrections to Smith and others. Smith and others used the IDs to file returns that sought approximately $4.8 million in fraudulent refunds of which the IRS paid out approximately $1.85 million. Smith also has been convicted and sentenced to prison for this conduct.
At Gosha’s sentencing, the government offered victim impact statements from several individuals whose identities were stolen, and from companies and governmental agencies where the identity theft breaches occurred. An Alabama Department of Public Health representative noted, the identity theft was not only devastating financially, but it also had a chilling effect on the department’s ability to serve the residents of the State of Alabama. A mother of a young U.S. Army soldier who was an identity theft victim described the consequences of the fraud on her and her family, stating:
While [my son] was fighting for our country and all back home[,] I received a very disturbing phone call from [an] Agent  from the IRS that my son[,] while at Ft. Benning training to defend our country[,] the land of the free[,] had his identity stolen and fraudulent tax returns were filed with his social security number. This news was devastating to think that my  19-year-old son[,] who was defending the very freedom this country stands [for] [,] was wronged by one of those people [he] was willing to die for. My whole family could not believe what was happening. We now had to worry about this terrible act by one of our own. As I tried my best to keep composed and handle all of the gruesome mounds of paperwork to get this straightened out with the IRS, [my son] was then denied his tax refund [as result of this scheme]. This created a financial hardship on [him]. We were too afraid to tell [him] while he was deployed because we did not want to worry him and we wanted him to focus only on getting home alive and not have to worry about such an atrocious act by someone who did not even know [him].
In addition to the term of imprisonment, U.S. Chief District Court Judge Keith Watkins ordered Gosha to serve three years of supervised release and to pay restitution in the amount of $9,052,049.
Prior to Gosha’s sentencing, thirty of his co-conspirators have been sentenced, including Keisha Lanier who received 15 years and Tracy Mitchell who received over 13 years.
Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Franklin commended special agents of Internal Revenue Service-Criminal Investigation and U.S. Postal Service Office of Inspector General who investigated this case and Trial Attorneys Michael C. Boteler and Gregory P. Bailey of the Tax Division and Assistant U.S. Attorney Jonathan Ross of the Middle District of Alabama, who prosecuted the case.
Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.
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).
Settlement Prohibits Allegiance from Agreeing to Limit Marketing and Improperly Communicating with Competing Providers
The Department of Justice announced today that it has reached a settlement with Henry Ford Allegiance Health (“Allegiance”) for conspiring with a rival hospital in a neighboring county to restrict marketing in that rival’s county. The settlement ends almost three years of litigation and a scheduled March 6 trial relating to agreements to restrict marketing among hospitals in South Central Michigan.
“As a result of Allegiance’s per se illegal agreement to restrict marketing of competing services in Hillsdale County, Michigan consumers were deprived of valuable services and healthcare information,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division. “By prohibiting further anticompetitive conduct and educating Allegiance executives on antitrust law, this settlement will ensure that consumers receive the fruits of robust competition.”
The proposed settlement, joined by the Michigan Attorney General’s Office, was filed today in the U.S. District Court for the Eastern District of Michigan. If approved by the court, the settlement will end Allegiance’s unlawful conduct and provide residents of South Central Michigan the full benefits of competition. The Department’s Antitrust Division previously settled claims against three other South Central Michigan hospitals. The Department charged Allegiance and these other hospitals with insulating themselves from competition by agreeing to withhold outreach and marketing in each other’s respective counties, so as not to solicit certain customers. As a result, consumers were denied the benefits of competition, including free screenings and other services, as well as valuable information that informs healthcare choices and opportunities for higher quality care.
The Department’s proposed settlement with Allegiance expands on the terms of the Department’s previous settlements in this action, which the court entered more than two years ago. Specifically, the proposed settlement prevents Allegiance from engaging in improper communications with competing providers regarding their respective marketing activities and entering into any improper agreement to allocate customers or to limit marketing. It explicitly prevents Allegiance from continuing to carve out Hillsdale County from its marketing and business development activities. The proposed settlement further requires Allegiance to report any violations to the Department, and imposes an annual obligation to certify compliance with the terms of the final judgment. Allegiance must also submit to compliance inspections at the Department’s request. The proposed settlement requires Allegiance to reimburse the Department and the state of Michigan for certain costs incurred in litigating this case.
Pursuant to Department policy, the settlement includes several new provisions included in all consent decrees designed to improve the effectiveness of the decree and the Division’s future ability to enforce it. “The proposed settlement will make it easier and more efficient for the Department to enforce the decree by allowing the Department to prove alleged violations by a preponderance of the evidence,” said Assistant Attorney General Delrahim. “These provisions will encourage a stronger commitment to compliance and will ease the strain on the Department in investigating and enforcing possible violations.” Similar provisions have been included in a number of recent consent decrees where the Department’s new leadership has sought divestitures as a condition of clearing transactions under Section 7 of the Clayton Act.
Henry Ford Allegiance Health is a 475-bed health system that operates the sole general acute care hospital in Jackson County, Michigan, along with primary care physician offices, physical rehabilitation facilities, and diagnostic centers across several counties in South Central Michigan. In March 2016, Allegiance became part of the Henry Ford Health System. Henry Ford Health System is headquartered in Detroit, Michigan, and is the second largest health system in Michigan, operating Allegiance, five other hospitals, several medical centers, and one of the nation’s largest medical group practices. Its 2016 revenues were over $5 billion.
The proposed settlement, along with the Department’s competitive impact statement, will be published in the Federal Register, consistent with the requirements of the Antitrust Procedures and Penalties Act. Any person may submit written comments concerning the proposed settlement within 60 days of its publication to Peter Mucchetti, Chief, Healthcare & Consumer Products Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, NW, 4th Floor, Washington, DC 20530. At the conclusion of the 60-day comment period, the court may enter the final judgment upon a finding that it serves the public interest.