I’ve posted recently on my concerns with the Antitrust Sentencing Guidelines (2R1.1) as they relate to individual defendants (here). Other submissions have been made to the Commission by people/institutions with great insight and influence in the cartel arena. I’ve summarized a few of these below.
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.
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.
“This program will significantly enhance the Justice Department’s ongoing efforts to aggressively pursue those who attempt to evade the law by hiding their assets outside of the United States,” said Attorney General Eric Holder. “In addition to strengthening our partnership with the Swiss government, the program’s requirement that Swiss banks provide detailed account information will improve our ability to bring tax dollars back to the U.S. treasury from across the globe.”
“This program will provide us with additional information to prosecute those who used secret offshore bank accounts and those here and abroad who established and facilitated the use of such accounts,” said Deputy Attorney General James M. Cole. “Now is the time for all U.S. taxpayers who hid behind Swiss bank secrecy laws or have undeclared offshore accounts in other foreign countries to come forward and resolve their outstanding tax issues with the United States.”
Under the program, which is available only to banks that are not currently under criminal investigation by the department for their offshore activities, participating Swiss banks will be required to:
- Agree to pay substantial penalties
- Make a complete disclosure of their cross-border activities
- Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest
- Cooperate in treaty requests for account information
- Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed
- Agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations
Banks meeting all of the above requirements will be eligible for non-prosecution agreements. Banks currently under criminal investigation related to their Swiss banking activities, and all individuals, are expressly excluded from the program.
The program holds banks to a higher degree of responsibility for opening secret accounts after it became publicly known that the department was actively investigating offshore tax evasion in Switzerland. Under the penalty provisions of the program, banks seeking a non-prosecution agreement must agree to a penalty in an amount equal to 20 percent of the maximum aggregate dollar value of all non-disclosed U.S. accounts that were held by the bank on Aug.1, 2008. The penalty amount will increase to 30 percent for secret accounts that were opened after that date but before the end of February 2009 and to 50 percent for secret accounts opened later than that.
The program will significantly assist the department’s efforts to investigate and prosecute U.S. taxpayers who, when faced with the risk of detection, chose to move funds away from banks under investigation to banks that they believed might be better havens for tax secrecy. A key component of the program requires cooperating banks to provide information that will enable the United States to follow the money to other Swiss banks and to banks located in other countries.
The program also provides a path to resolution for Swiss banks that were not engaged in wrongful acts with U.S. taxpayers but nonetheless want a resolution of their status. Most banks in this category will be asked to provide an internal investigation report prepared by an independent examiner, as well as any additional information requested by the department. A smaller group of banks will be allowed to show that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act (FATCA). Banks in these two groups will be eligible to receive non-target letters.
The program is intended to enable every Swiss bank that is not already under criminal investigation to find a path to resolution. It also creates significant risks for individuals and banks that continue to fail to cooperate, including for those Swiss banks that facilitated U.S. tax evasion but fail to cooperate now, for all U.S. taxpayers who think that they can continue to hide income and assets in offshore banks, and for those advisors and others who facilitated these crimes.
Since 2009, the department has charged more than 30 banking professionals and 68 U.S. accountholders with violations arising from their offshore banking activities. Fifty-four U.S. taxpayers and four bankers and financial advisors have pled guilty, and five taxpayers have been convicted at trial. One Swiss bank entered into a deferred prosecution agreement, and a second Swiss bank was indicted and pleaded guilty. Currently, the department is actively investigating the Swiss-based activities of 14 financial institutions. The department’s enforcement activities are global and have also included public actions concerning activities in India, Luxembourg, Israel and the Caribbean.
The program does not address current or future investigations and pending cases concerning bank employees, financial advisors and other individuals. The department will address each of these cases only with the individual’s counsel, in a manner that gives consideration to the particular facts and circumstances of each case. In those cases in which indictments are pending, any resolution will also require addressing outstanding issues with the court. Counsel for banks currently under investigation, individuals who have been indicted, or bank employees who are concerned about whether they have potential criminal liability should contact the department’s Tax Division or the prosecutors handling their case if they wish to seek resolution.
The department notes that the joint statement with the Swiss Federal Department of Finance provides that if personal data are provided, they should only be used for purposes of law enforcement, which may include regulatory action, in the United States or as otherwise permitted by U.S. law. Additionally, the department has assured its Swiss counterparts that it understands that simply because the names of individuals are included in the information that it receives from a bank does not necessarily mean that any particular individual is or is not culpable of wrongdoing. The support that Switzerland has shown for this program may also help those banks already under investigation take some of the steps necessary to reach a resolution.
“Banks that come forward under the program that we have announced today have the opportunity to reach a resolution with the United States,” said Assistant Attorney General for the Tax Division Kathryn Keneally. “The program will give us yet more information to pursue U.S. taxpayers who are continuing to hide their assets in offshore accounts, and creates significant risks for those Swiss banks that fail to come forward. We recognize and express our appreciation for Switzerland’s support of the program.”
“The program the Department of Justice announced today is another positive step forward in the U.S. government’s continuing efforts to combat offshore tax evasion,” said Danny Werfel, Acting Commissioner of the Internal Revenue Service. “On behalf of the IRS, I extend my appreciation to both the Justice Department and the Swiss government for developing a way forward that provides the United States with information that will be critical to the enforcement of our tax laws and will bring closure for Swiss banks that meet the requirements of the program.”
ATI Enterprises Inc. will pay the government $3.7 million to resolve False Claims Act allegations that it falsely certified compliance with federal student aid programs’ eligibility requirements and submitted claims for ineligible students, the Justice Department announced today.
“Federal financial aid is meant to help students obtain a quality education from an eligible institution, and the Department of Justice is committed to ensuring colleges comply with the rules to make certain that happens,” said Stuart F. Delery, Assistant Attorney General for the Civil Division.
Allegedly, ATI Enterprises knowingly misrepresented to the Texas Workforce Commission and to the Accrediting Commission of Career Schools and Colleges its job placement statistics to maintain its state licensure and accreditation. To participate in federal student aid programs, as authorized by Title IV of the Higher Education Act of 1965, as amended (Title IV), schools must enter into a contract with the Secretary of Education called a Program Participation Agreement, in which they agree to a number of terms. For example, if an institution advertises its job placement rates as a means of attracting students to enroll, it must make available to prospective students its most recent and accurate employment statistics to substantiate the truthfulness of its advertisements. The government alleged that, by misrepresenting its job placement statistics, ATI Enterprises fraudulently maintained its eligibility for federal financial aid under Title IV.
The government further alleged that ATI employees engaged in fraudulent practices to induce students to enroll and maintain their enrollment in the schools. This falsely increased the schools’ enrollment numbers, and consequently, the amount of federal dollars they received at the expense of taxpayers and students, who incurred long-term debt.
“Misuses of the federal student aid system must not be tolerated, for the sake of the taxpayers and of the innocent individuals who are seeking a quality education,” said Sarah R. Saldaña, U.S. Attorney for the Northern District of Texas, where some of the ATI campuses involved in the lawsuit are located.
Wifredo A. Ferrer, U.S. Attorney for the Southern District of Florida said: “Federal financial aid is there to help students attain their dreams and goals, and misuse of these funds to increase corporate profits is unacceptable. We are committed to ensuring that federal student aid is used for the benefit of students.”
The settlement amount will be paid from funds supporting three letters of credit that ATI provided to the Department of Education. In addition to the False Claims Act settlement, the Department of Education will disburse from the letter of credit funds $2 million for student loan refunds in relation to cases students filed against ATI in Texas state courts and other related arbitrations.
“Federal student aid exists so that students can make the dream of a higher education a reality. That’s why misuse in any way of these vital funds cannot be tolerated,” said Kathleen Tighe, Inspector General of the U.S. Department of Education. “I’m proud of the work of OIG special agents for holding ATI Enterprises accountable and for protecting the integrity of federal education dollars.”
The settlement resolves allegations made in two separate complaints against ATI Enterprises Inc., and related entities filed under the False Claims Act’s qui tam, or whistleblower, provisions, which permit a private individual to file suit for false claims to the government and to share in any recovery. The first complaint, U.S. ex rel. Aldridge, et al. v. ATI Enterprises Inc., et al., was filed in July 2009 in the U.S. District Court for the Northern District of Texas. The second complaint, U.S. ex rel. Ramirez-Damon v. ATI Enterprises Inc., was filed in July 2011 in the U.S. District Court for the Southern District of Florida.
This matter was investigated by the Commercial Litigation Branch of the Justice Department’s Civil Division, the U.S. Attorney’s Office for the Northern District of Texas, the U.S. Attorney’s Office for the Southern District of Florida, and the Department of Education’s Office of Inspector General and Office of General Counsel. The claims settled by this agreement are allegations only, and there has been no determination of liability.
U.S. Attorney General Eric Holder, U.S. Attorney for the Southern District of New York Preet Bharara and Assistant Director-in-Charge of the FBI’s New York Field Office George Venizelos announced the unsealing of criminal complaints against Javier Martin-Artajo and Julien Grout for their alleged participation in a conspiracy to hide the true extent of losses in a credit derivatives trading portfolio maintained by the Chief Investment Office (CIO) of JPMorgan Chase & Company (JPMorgan). Martin-Artajo served as a Managing Director and Head of Credit and Equity Trading for the CIO, and Grout was a Vice President and derivatives trader in the CIO.
“Our financial system has been hurt in recent years not just by risky bets gone bad, but also, in some cases, by criminal wrongdoing,” said Attorney General Holder. “We will not stop pursuing those who violate the public trust and compromise the integrity of our markets. I applaud U.S. Attorney Bharara, his colleagues in the Southern District of New York, and all of our partners on the President’s Financial Fraud Enforcement Task Force for their longstanding commitment to combating all forms of financial fraud. And I pledge that we will continue to move both fairly and aggressively to bring the perpetrators of financial crimes to justice.”
“As alleged, the defendants, Javier Martin-Artajo and Julien Grout, deliberately and repeatedly lied about the fair value of billions of dollars in assets on JPMorgan’s books in order to cover up massive losses that mounted month after month at the beginning of 2012, which ultimately led JPMorgan to restate its losses by $660 million,” said U.S. Attorney Bharara. “The defendants’ alleged lies misled investors, regulators, and the public, and they constituted federal crimes. As has already been conceded, this was not a tempest in a teapot, but rather a perfect storm of individual misconduct and inadequate internal controls. The difficulty inherent in precisely valuing certain kinds of financial positions does not give people a license to lie or mislead to cover up losses; it does not confer a license to create false books and records or to make false public filings. And that goes double for handsomely-paid executives at a public company whose actions can roil markets and upend the economy.”
“The complaints tell a story of a group of traders who got in over their heads, and to get out, doubled down on a series of risky positions,” said FBI Assistant Director-in-Charge Venizelos. “In the first quarter of 2012, boom turned to bust, as the defendants, concerned about losing control to other traders at the bank, fudged the numbers on their daily book, and in some cases completely made them up. It brought a whole new meaning to cooking the books.”
In a separate action, the U.S. Securities and Exchange Commission (SEC) announced civil charges against Martin-Artajo and Grout.
According to the allegations in the criminal complaints unsealed today in Manhattan federal court:
JPMorgan’s CIO, is a component of the bank’s Corporate/Private Equity line of business, which, according to the bank, exists to manage the bank’s excess deposits – approximately $350 billion in 2012. Since approximately 2007, the CIO’s investments have included a so-called Synthetic Credit Portfolio (SCP), which consists of indices and tranches of indices of credit default swaps (CDS). A credit default swap is essentially an insurance contract on an underlying credit risk, such as corporate bonds. CDS indices are collections of CDSs that are traded as one unit, while CDS tranches are portions of those indices, usually sliced up by riskiness.
Under U.S. Generally Accepted Accounting Principles (GAAP) and according to JPMorgan policy, CDS traders were required to value the securities in their portfolios on a daily basis. Those values, or “marks,” became part of the bank’s daily books and records. Because CDS indices and tranches are not traded over an exchange, traders are required to look to various data points in order to value their securities, such as actual transaction prices, price quotations from market makers, and values provided by independent services (such as Totem and MarkIT). JPMorgan’s accounting policy, which used the same methodology employed by the independent services, provided that the “starting point for the valuation of a derivatives portfolio is mid-market,” meaning the mid-point between the price at which market-makers were willing to buy or sell a security. Through about January 2012, CIO traders generally marked the securities in the SCP approximately to this mid-point, which they sometimes referred to as the “crude mid.”
The SCP was extremely profitable for JPMorgan – it produced approximately $2 billion in gross revenues since its inception – but in the first quarter of 2012, the SCP began to sustain consistent and considerable losses. From at least March 2012, Martin-Artajo and Grout conspired to artificially manipulate the SCP marks to disguise those losses. They did so, among other reasons, to avoid losing control of the SCP to other traders at JPMorgan.
Although Martin-Artajo pressured his traders, including Grout, to “defend the positions” in early 2012 by executing trades at favorable prices, the SCP lost approximately $130 million in January 2012 and approximately $88 million in February 2012. In March 2012, when the market moved even more aggressively against the CIO’s positions, Martin-Artajo specifically instructed Grout and the head SCP trader, Bruno Iksil (who has entered a non-prosecution agreement), not to report losses in the SCP unless they were tied to some identifiable market event, such as a bankruptcy filing by a company whose bonds were in the CDS index. Martin-Artajo explained that “New York” – meaning, among others, JPMorgan’s Chief Investment Officer – did not want to see losses attributable to market volatility.
By mid-March 2012, Grout was explicitly and admittedly “not marking at mids.” He maintained a spreadsheet that kept track of the difference between the price that Grout recorded in JPMorgan’s books and records, on the one hand, and the “crude mids,” on the other. By March 15, 2012, according to Grout’s spreadsheet, the difference had grown to approximately $292 million. In a recorded on-line chat the same day, Grout explained that he was trying to keep the marks for most of the SCP’s positions “relatively realistic,” with the marks for one particular security “put aside.” That is, Grout mispriced that one particular security, of which the SCP held billions of dollars’ worth, by the full $292 million. The following day, Iksil told Martin-Artajo that the difference had grown to $300 million, and “I reckon we get to 400 [million] difference very soon.” In a separate conversation, Iksil remarked to Grout that “I don’t know where he [Martin-Artajo] wants to stop, but it’s getting idiotic.”
In the days that followed, Grout at times ignored Iksil’s instructions on how to mark the positions, and instead, followed Martin-Artajo’s mandate to continue to hide the losses. By March 20, 2012, Iksil insisted that Grout show a significant loss: $40 million for the day. In a recorded call, Martin-Aartajo excoriated Iksil, finally emphasizing, “I didn’t want to show the P&L [the profit and loss].” Throughout the remainder of March 2012, while Iksil continued to try to insist that Martin-Artajo acknowledge the reality of the losses, Grout, at Martin-Artajo’s instructions, continued to hide them. As of March 30, 2012 – the last day of the first quarter of 2012 – Grout continued to fraudulently understate the SCP’s losses. These incorrect figures in the SCP were not only integrated into JPMorgan’s books and records, but also – as Martin-Artajo and Grout were well aware – into the bank’s quarterly financial filing for the first quarter of 2012 with the SEC.
During the course of the mis-marking scheme carried out by Martin-Artajo and Grout, the CIO’s Valuation Control Group (VCG) was supposed to serve as an independent check on the valuations assigned by traders to the securities that the traders were marking at month-end. The VCG, however, was effectively only staffed by one person and did not perform any independent review of the valuations. Instead, the VCG tolerated valuations outside of the bid-offer spread as presented by Martin-Artajo and other CIO traders.
In Aug. 2012, after Martin-Artajo and Grout were stripped of their responsibilities over the SCP and their scheme was discovered, JPMorgan restated its first quarter 2012 earnings, and recognized an additional loss of $660 million in net revenue attributable to the mis-marking of the SCP. JPMorgan announced that it was restating its earnings because it had lost confidence in the “integrity” of the marks submitted by Grout, at Martin-Artajo’s direction.
Martin-Artajo, 49, a Spanish citizen, and Grout, 35, a French citizen, are charged in one count of conspiracy; one count of falsifying the books and records of JPMorgan; one count of wire fraud; and one count of causing false statements to be made in JPMorgan’s filings with the SEC. They each face a maximum sentence of five years in prison on the conspiracy count, and 20 years in prison on each of the three remaining counts in the complaints, and a fine of the greater of $5,000,000 or twice the gross gain or gross loss as to certain of the offenses.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.
The case was investigated by the FBI. The SEC and the Justice Department’s Office of International Affairs were also involved.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Eugene Ingoglia and Matthew L. Schwartz are in charge of the prosecutions.
The charges contained in the complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
“Rocketing from two to eleven attorneys in eight months, GeyerGorey LLP sports over 200 years of cross-disciplinary prosecutorial experience involving a host of domestic and international industries where each of its attorneys has worked on internal investigations and high stakes cases for an average of more than 20 years.”
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According to the indictment, Olazabal owned Tupac Construction Corp., a construction company in Fresh Meadows. As alleged in the indictment, Olazabal used check cashing services to cash a substantial number of checks paid to his construction company for services between 2007 and 2008. He concealed his check cashing activities from his tax return preparers. Accordingly, the gross receipts represented by the checks negotiated at the check cashers were not included as gross receipts on the company’s tax returns.
The indictment alleges that Olazabal filed false 2007 and 2008 corporate income tax returns for Tupac. Olazabal faces a potential maximum sentence of six years in prison and a potential fine of up to $500,000.
A trial date has not been scheduled. An indictment merely alleges that a crime has been committed, and a defendant is presumed innocent until proven guilty beyond a reasonable doubt.
The case was investigated by IRS – Criminal Investigation and is being prosecuted by Trial Attorneys Mark Kotila and Steve Descano of the Justice Department’s Tax Division.
By Alex Lawson
Law360, New York (August 07, 2013, 3:34 PM ET) — GeyerGorey LLP established its presence in Texas with a splash this week, securing the services of a former U.S. Department of Justice antitrust prosecutor to open its Dallas office, the firm announced Tuesday.
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Marshall added that the firm has a strong Foreign Corrupt Practices Act compliance program that she hopes to be heavily involved in.
While Marshall carries experience across a wide variety of industry sectors, senior partner Hays Gorey Jr. said her work in the energy sector will be of critical importance to the firm’s Texas operations.
“We are thrilled that Joan has decided to join us,” Gorey said. “She adds deep experience with numerous enforcement agencies and complements our experience in key industries like oil and gas exploration, not to mention the fraud piece.”
At DOJ, Marshall gained notoriety for her work in the wake of Hurricane Katrina, when she led the Antitrust Division’s bribery prosecutions centering on the construction of the levees surrounding New Orleans. She also served on the agency’s Hurricane Katrina Fraud Task Force, which was eventually rolled into the broader-reaching Disaster Fraud Task Force.
Firm co-founder Brad Geyer said Marshall’s work in the disaster fraud arena would dovetail nicely with the firm’s existing portfolio.
“We are very involved in servicing the government contractor and the nonprofit and nongovernmental organization community and we are excited to roll in Joan’s disaster fraud experience into our overall product offerings,” Geyer said. “It is also unusual to have career prosecutors in one firm that worked on the highest profile matters on both the criminal and civil worlds.”
Marshall received her law degree from Southern Methodist University and a Bachelor of Business Administration from the University of North Texas.
–Editing by Katherine Rautenberg.