Phillip Zane’s Game Theory: Ten Years On

Ten years ago this spring, Zane published his definitive work on game theory which changed the way law-and-economics scholars and sophisticated prosecutors and defense counsel analyze whether, when, and how corporations and executive management teams should disclose white collar criminal conduct.

Phillip Zane be the only attorney whose colleagues and clients might expect to see an open book on games and strategy on his desk.

Ten years ago this spring, Zane published The Price Fixer’s Dilemma:  Applying Game Theory to the Decision of Whether to Plead Guilty to Antitrust Crimes, 48 Antitrust Bull. 1 (2003), which changed the way law-and-economics scholars and sophisticated prosecutors and defense counsel analyze whether, and when, to settle high-stakes antitrust cases.

Zane’s article strongly suggested that in a number of common situations, pleading guilty (or even seeking the protections of the corporate leniency program) is not always justified.  Zane’s article used a repeated, or iterative, version of the prisoner’s dilemma to demonstrate that pleading guilty was not always the best strategy for antitrust defendants facing criminal prosecution and civil liability in multiple proceedings or jurisdictions.

At the time, a few of the brainier Antitrust Division prosecutors breathed a sigh of relief when the defense bar did not seem to notice and they failed to incorporate Zane’s research into their negotiating strategies.

In 2007, Zane published “An Introduction to Game Theory for Antitrust Lawyers,” which he used in a unit of an antitrust class he taught at George Mason University School of Law. That paper was another milestone on the way to making game theory concepts accessible and useful to the antitrust defense bar.

Zane’s work, which now used game theory to criticize the settlement of the second Microsoft case and the Government’s approach to conscious parallelism, as well as the leniency program, was met with official grumblings within the Antitrust Division.

GeyerGorey LLP was founded on the principle that the chances for achieving the best possible outcome are maximized by having access to multiple, top-notch, cross-disciplinary legal minds that are synced together by an organizational and compensation structure that encourages sharing of ideas and information in client relationships.

As international enforcement agencies sprouted and developed criminal capabilities and as more hybrid matters included prosecutors from US enforcement agency components with sometimes overlapping jurisdictions, such as the Antitrust, Criminal, Civil and Tax Divisions of the Department of Justice, and the alphabet soup of regulatory agencies, particularly the Securities and Exchange Commission, it became apparent that Zane’s game-theoretic approach has application in almost every significant decision we could be called upon to make.  Since Zane has joined us we have been working to factor in the increased risks associated with what we call hybrid conduct (conduct that violates more than a single statute).  Our tools of analysis for identifying risks for violations of competition laws, anti-corruption laws, anti-money-laundering laws, and other prohibitions, include sophisticated game-theoretic techniques, as well as, of course, the noses of former seasoned prosecutors, taking into account, each particular client’s tolerance for risk.

To take one example, an internal investigation might show both possible price fixing and bribery of foreign government officials.  How, given the potential for multiple prosecutions, should decisions to defend or cooperate be assessed?  And how might such decisions trigger interest by the Tax Division, the SEC, the Commodities Futures Trading Commission, the Federal Energy Regulatory Commission or other regulators.  When should a corporation launch an internal investigation?  When should it make a mandatory disclosure?  What should it disclose and to which agency, in what order?  When should it seek leniency and when should it instead stand silent?  These tools are valuable in the civil context as well:  When should it abandon a proposed merger or instead oppose an enforcement agency’s challenge to a proposed deal?

These are truly the most difficult questions a lawyer advising large corporations is required to address.  We are well positioned to help answer these questions.

DLA Piper’s Robert Connolly pens MLEX article regarding “The DOJ Antitrust Division’s policy on independent compliance monitors: is it misguided?”

Friend of the Firm, Robert Connolly, former Chief of the Philadelphia Field Office of the Antitrust Division of the US Department of Justice, now resident in DLA Piper’s Philadelphia Office last week penned an important contribution for MLEX regarding DOJ’s evolving policy regarding compliance monitors:  “The DOJ Antitrust Divsion’s policy on independent compliance monitors: is it misguided?”


Halliburton Pleads Guilty: New York Times (Interesting Tea Leaves)

Important details about Halliburton Plea (raises very interesting questions for anyone who reads tea leaves).  Could this be sideways referral to Antitrust Division?:

Halliburton Pleads Guilty to Destroying Evidence After Gulf Spill

Halliburton Agrees to Plead Guilty to Destruction of Evidence in Connection with Deepwater Horizon Tragedy Third Corporate Guilty Plea Obtained by the Deepwater Horizon Task Force

Halliburton Energy Services Inc. has agreed to plead guilty to destroying evidence in connection with the Deepwater Horizon disaster, the Department of Justice announced today.  A criminal information charging Halliburton with one count of destruction of evidence was filed today in U.S. District Court in the Eastern District of Louisiana.

Halliburton has signed a cooperation and guilty plea agreement with the government in which Halliburton has agreed to plead guilty and admit its criminal conduct.  As part of the plea agreement, Halliburton has further agreed, subject to the court’s approval, to pay the maximum-available statutory fine, to be subject to three years of probation and to continue its cooperation in the government’s ongoing criminal investigation.  Separately, Halliburton made a voluntary contribution of $55 million to the National Fish and Wildlife Foundation that was not conditioned on the court’s acceptance of its plea agreement.

According to court documents, on April 20, 2010, while stationed at the Macondo well site in the Gulf of Mexico, the Deepwater Horizon rig experienced an uncontrolled blowout and related explosions and fire, which resulted in the deaths of 11 rig workers and the largest oil spill in U.S. history.  Following the blowout, Halliburton conducted its own review of various technical aspects of the well’s design and construction.  On or about May 3, 2010, Halliburton established an internal working group to examine the Macondo well blowout, including whether the number of centralizers used on the final production casing could have contributed to the blowout.  A production casing is a long, heavy metal pipe set across the area of the oil and natural gas reservoir.  Centralizers are protruding metal collars affixed at various intervals on the outside of the casing.  Use of centralizers can help keep the casing centered in the wellbore away from the surrounding walls as it is lowered and placed in the well.  Centralization can be significant to the quality of subsequent cementing around the bottom of the casing.  Prior to the blowout, Halliburton had recommended to BP the use of 21 centralizers in the Macondo well.  BP opted to use six centralizers instead.

As detailed in the information, in connection with its own internal post-incident examination of the well, in or about May 2010, Halliburton, through its Cementing Technology Director, directed a Senior Program Manager for the Cement Product Line (Program Manager) to run two computer simulations of the Macondo well final cementing job using Halliburton’s Displace 3D simulation program to compare the impact of using six versus 21 centralizers.  Displace 3D was a next-generation simulation program that was being developed to model fluid interfaces and their movement through the wellbore and annulus of a well.  These simulations indicated that there was little difference between using six and 21 centralizers.  Program Manager was directed to, and did, destroy these results.

In or about June 2010, similar evidence was also destroyed in a later incident.  Halliburton’s Cementing Technology Director asked another, more experienced, employee (“Employee 1”) to run simulations again comparing six versus 21 centralizers.  Employee 1 reached the same conclusion and, like Program Manager before him, was then directed to “get rid of” the simulations.

Efforts to forensically recover the original destroyed Displace 3D computer simulations during ensuing civil litigation and federal criminal investigation by the Deepwater Horizon Task Force were unsuccessful.

In agreeing to plead guilty, Halliburton has accepted criminal responsibility for destroying the aforementioned evidence.

The guilty plea agreement and criminal charge announced today are part of the ongoing criminal investigation by the Deepwater Horizon Task Force into matters related to the April 2010 Gulf oil spill.  The Deepwater Horizon Task Force, based in New Orleans, is supervised by Acting Assistant Attorney General Mythili Raman and led by John D. Buretta, who serves as the director of the task force.  The task force includes prosecutors from the Criminal Division and the Environment and Natural Resources Division of the Department of Justice; the U.S. Attorney’s Office for the Eastern District of Louisiana and other U.S. Attorney’s Offices; and investigating agents from:  the FBI; Department of the Interior, Office of Inspector General; Environmental Protection Agency, Criminal Investigation Division; Environmental Protection Agency, Office of Inspector General; National Oceanic and Atmospheric Administration, Office of Law Enforcement; U.S. Coast Guard; U.S. Fish and Wildlife Service; and the Louisiana Department of Environmental Quality.

The case is being prosecuted by Deepwater Horizon Task Force Director John D. Buretta, Deputy Directors Derek A. Cohen and Avi Gesser, and task force prosecutors Richard R. Pickens II, Scott M. Cullen, Colin Black and Rohan Virginkar.

An information is merely a charge and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.