On July 8, 2014 Rengan Rajaratnam was acquitted by a federal jury of participation in an insider trading conspiracy. The verdict was the government’s first trial loss in a wide-ranging probe that has led to 85 convictions of traders, analysts, lawyers and executives, with most sentenced to prison. Raj Rajaratnam, the defendant’s older brother, is currently serving an 11 year jail term. In an earlier post http://cartelcapers.com/blog/fugitves-return-us-upon-indictment-admissible-show-consciousness-innocence/ I reported that in a pretrial motion, Rajaratnam’s counsel persuaded the court that he should be able to introduce evidence that he was in Brazil at the time he learned of his indictment and he immediately returned to the United States to face the charges. This evidence, Rajaratnam argued, and the court agreed, could be considered by the jury as “consciousness of innocence.” The jury acquitted Rajaratnam, and no doubt many factors were at play, but in fact, Rajaratnam did introduce such evidence at trial. [Read more…]
The Seventh Circuit has decided to rehear the appeal from a judgment dismissing nearly Motorola’s entire $3.5 billion antitrust claim against foreign manufacturers of LCD panels. The Court has not yet set a schedule for the filing of supplemental briefs.
In Motorola Mobility v. AU Optronics Corp, No. 14-8003, 2014 WL 1243797 (7th Cir. Mar. 27, 2014)(vacated), the Seventh Circuit (J. Posner) upheld a lower court ruling dismissing most of Motorola’s damage claims from price fixing of LCD panels. The commerce at issue was LCD panels sold by defendants to Motorola’s foreign subsidiaries and incorporated into products such as cell phones. The finished product was imported into the U.S. The Court found that a damage claim based on the purchases by Motorola’s foreign subsidiaries was barred by the FTAIA. The Court held that because the price-fixed panels were sold to customers overseas, the effect on U.S. commerce was indirect, even though the price of the finished product later imported into the U.S. may have been inflated by the component price fixing.
The Motorola Mobility Court rejected the view that the component price fixing had a “direct, substantial and reasonably foreseeable effect” on U.S. commerce. The Court noted “nothing is more common nowadays than for products imported into the United States to include components that the producers had bought from foreign manufacturers.” From this the Court concluded: “The position for which Motorola [and the U.S.] contends would if adopted enormously increase the global reach of the Sherman Act, creating friction with many foreign countries and ‘resent[ment at] the apparent effort of the United States to act as the world’s competition police officer,’ a primary concern motivating the foreign trade act.” The DOJ joined in the request for en banc review. Motorola Mobility involves the same LCD panel cartel that the Antitrust Division successfully prosecuted, sending many foreign defendants to prison.
When I was the Chief of the Philadelphia Field Office, we had the first successful extradition by the Antitrust Division of a fugitive defendant. In 2010 a British executive, Ian Norris, was extradited to the U.S. The UK authorities declined to extradite Norris to face the antitrust violation he was charged with, but he was extradited to face charges of obstruction of justice in connection with an international cartel grand jury investigation. He was ultimately convicted at trial of one count of obstruction and sentenced to 18 months in prison.
The Proper Use of Plea Agreements in a Criminal Antitrust Trial
Criminal antitrust trials occur relatively infrequently these days, so an occasional review of some of the issues that arise at trial can be useful as a refresher. Many government witnesses at a criminal antitrust trial are testifying pursuant to some type of agreement with the government. Such agreements include amnesty, immunity, non-prosecution/cooperation agreements and plea agreements. The essence of the agreement is that the witness will receive some type of benefit in the form of a reduced punishment (or immunity). In return, the witness agrees to cooperate with the government and testify at trial. If the witness does not give truthful testimony, he/she is theoretically subject to prosecution for perjury, and may also lose the benefits conferred by the agreement
A recent Second Circuit decision, U.S. v. Certified Environmental Services, Inc., No. 11-4872 (2d Cir. May 28, 2014), provides a chance to review the proper use of plea agreements at trial. The court reversed convictions on several counts related to a scheme by defendants to violate various state and federal environmental regulations. The convictions were reversed based, in part, on the government having improperly bolstered the witness’s credibility by referring to the cooperation agreement requirement that the witness tell the truth.
The Washington Post
Revisiting the NBC Universal merger: Allen Grunes, a former Justice Department antitrust lawyer, is expected to say that the conditions that applied to Comcast’s acquisition of NBC Universal — such as a commitment to respect net neutrality and to help promote media diversity — won’t be enough to ensure adequate competition in a Comcast deal. “The most comprehensive study to date has shown that merger-specific regulation, like regulation as a whole, often does not work,” Grunes says in his prepared testimony.
How the FTC’s Hertz Antitrust Fix Went Flat
Wall Street Journal
December 8, 2013
Maurice Stucke, a University of Tennessee professor and lawyer with GeyerGorey LLP, said the latest Advantage bankruptcy ought to prompt some soul-searching by the FTC and the Justice Department.
If merger settlements “are going to be business as usual, the agencies need to spend more time examining how their remedies work out over the long haul,” he said. “You would think there could be more safeguards to prevent this from happening.”
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.
Changes to the False Claims Act Under the Patient Protection and Affordable Care Act
The 2010 Patient Protection and Affordable Care Act (PPACA) made a number of significant changes to the False Claims Act, including the following:
Original Source Requirement. A plaintiff may now overcome the public disclosure if he or she qualifies as an “original source.” The PPACA revised the definition of this term. Previously, an original source had to have “direct and independent knowledge of the information on which the allegations [were] based.” Now, an original source may be a person who merely has “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.” See 31 U.S.C. 3730(e)(4)(B).
Changes to the Public Disclosure Bar. Previously, relators were precluded from proceeding if there had been a public disclosure of information. This disclosure could have occurred in news reports, a Freedom of Information Act response, court proceedings or in any number of ways. Thus, the public disclosure bar often served as a basis for dismissal. The PPACA amended the False Claims Act to allow the government to have the final say on whether a court could properly dismiss a case based on a public disclosure. The statute now provides that “the court shall dismiss an action unless opposed by the Government, if substantially the same allegations or transaction alleged in the action or claim were publicly disclosed.” See 31 U.S.C. 3730(e)(4)(A).
Overpayments. In the prior law, there was confusion as to the “obligation” under the False Claims Act not to retain overpayments and when such overpayments had to be returned after their discovery. Now, under the PPACA, overpayments under Medicare and Medicaid must be reported and returned within 60 days of discovery, or the date a corresponding hospital report is due. The failure timely to report and return an overpayment exposes a provider to False Claims Act liability.
Statutory Anti-Kickback Liability. The federal Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b) (AKS), makes it a crime for any person to solicit, receive, offer or pay remuneration (monetary or otherwise) in exchange for referring patients to receive certain services that are paid for by the government. Previously, many courts had interpreted the False Claims Act to mean that claims submitted as a result of AKS violations were false claims and therefore gave rise to liability under the False Claims Act (in addition to AKS penalties). Even though this was the majority rule, some courts held otherwise and the issue was always present in every case. The PPACA changed the language of the AKS to provide that claims submitted in violation of the AKS automatically constitute false claims for purposes of the False Claims Act. Further, the new language provides that “a person need not have actual knowledge … or specific intent to commit a violation” of the AKS.