Author Archives: Brad Geyer

CCC’s: Brent Snyder’s Remarks On Individual Accountability for Antitrust Crimes

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Brent Snyder, the Antitrust Division’s Deputy Assistant Attorney General for Criminal Enforcement, made extended remarks today at the Yale Global Antitrust Enforcement Conference (here). Mr. Snyder emphasized that the Division has long believed, and acted on this belief, that holding individuals accountable for antitrust crimes was both appropriate and the best means of deterrence:

This emphasis on individual accountability is fundamental to Antitrust Division prosecutors. The division has long touted prison time for individuals as the single most effective deterrent to the “temptation to cheat the system and profit from collusion.” My predecessors ensured that this message was often repeated. To quote just one of them, Scott Hammond said that “[i]t is indisputable that the most effective deterrent to cartel offenses is to impose jail sentences on the individuals who commit them.”

Mr. Snyder also made the first remarks (I believe) on how the September 9, 2015 Yatesmemorandum (here) has affected Antitrust Division practices:

Our record with respect to individual accountability speaks for itself. But we are embracing the Deputy Attorney General’s directive to do even better. We have adopted new internal procedures to ensure that each of our criminal offices systematically identifies all potentially culpable individuals as early in the investigative process as feasible and that we bring cases against individuals as quickly as evidentiary sufficiency permits to minimize the risk that cases will be time-barred or that evidence will become stale from the passage of time. We are also undertaking a more comprehensive review of the organizational structure of culpable companies to ensure that we are identifying and investigating all senior executives who potentially condoned, directed, or participated in the criminal conduct.

It will be interesting to see how/if the Yates memo affects Division prosecution decisions in regard to how far down the cartel bench in a given company the Division may go to hold individuals accountable. After all, many cartels, particularly international cartels, can involve many employees (and former employees) of a firm.

It will also be interesting to see if the new policy memo has any effect on the Division’s Corporate Leniency Program. It can be argued that granting leniency to all culpable current employees of the leniency applicant is inconsistent with the Yates memo if the necessary cooperation could be gained at a lower cost. That may be a  topic covered in an upcoming ABA program: The DOJ Amnesty Program After The Yates Memo (here).

Thanks for reading.

PTC Inc. Subsidiaries Agree to Pay More Than $14 Million to Resolve Foreign Bribery Charges

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Two subsidiaries of Massachusetts software company PTC Inc. entered into a non-prosecution agreement and agreed to pay a $14.54 million penalty today to resolve the government’s investigation into whether the companies improperly provided recreational travel to Chinese government officials in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division.

According to admissions made in the resolution documents, Parametric Technology (Shanghai) Software Company Ltd. and Parametric Technology (Hong Kong) Ltd. (collectively, PTC China), through local business partners, arranged and paid for employees of various Chinese state-owned enterprises to travel to the United States, ostensibly for training at PTC Inc.’s headquarters in Massachusetts, but primarily for recreational travel to other parts of the United States, including New York, Los Angeles, Las Vegas and Hawaii.  PTC China paid a total of more than $1 million through its business partners to fund these trips, while during the same time period, PTC China entered into more than $13 million in contracts with the Chinese state-owned entities.  Company employees typically accompanied the Chinese officials on these trips.  PTC China admitted that the cost of these recreational trips was routinely hidden within the price of PTC China’s software sales to the Chinese state-owned entities whose employees went on the trips.

As part of the non-prosecution agreement, PTC China agreed to pay the criminal penalty, to continue to cooperate with the department, to enhance its compliance program and to periodically report to the department on the implementation of its enhanced compliance program.  The department reached this resolution based on a number of factors.  Among other factors, PTC China did not receive voluntary disclosure credit or full cooperation credit because, at the time of its initial disclosure, it failed to disclose relevant facts that it had learned in connection with a prior internal investigation and did not disclose those facts until the department uncovered additional information independently and brought them to PTC China’s attention.  By the conclusion of the investigation, however, the companies had provided to the department all relevant facts known to them, including information about individuals involved in the FCPA misconduct.

In a related matter, PTC Inc. reached a settlement today with the U.S. Securities and Exchange Commission (SEC) under which it agreed to pay $11,858,000 in disgorgement plus $1.764 million in prejudgment interest.  Thus, the approximately $28 million in combined penalty and disgorgement far exceeds the $13 million in contracts associated with the improper payments.

The FBI’s Boston Field Office investigated the case.  Trial Attorney Aisling O’Shea of the Criminal Division’s Fraud Section prosecuted the case.  The U.S. Attorney’s Office of the District of Massachusetts and the SEC also provided assistance during the investigation.

Fifty-One Hospitals Pay United States More Than $23 Million to Resolve False Claims Act Allegations Related to Implantation of Cardiac Devices

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The Department of Justice has reached settlements with 51 hospitals in 15 states for more than $23 million related to cardiac devices that were implanted in Medicare patients in violation of Medicare coverage requirements, the Department of Justice announced today.  These settlements represent the final stage of a nationwide investigation into the practices of hundreds of hospitals improperly billing Medicare for these devices.  With these additional agreements, the Justice Department’s investigation has now yielded settlements with more than 500 hospitals totaling more than $280 million.

“These settlements demonstrate the Department’s continued vigilance in pursuing hospitals and health systems that violate Medicare’s national coverage rules,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “We will hold accountable those who do not abide by the government’s rules in order to protect the federal fisc and, more importantly, patient health.”

An implantable cardioverter defibrillator, or ICD, is an electronic device that is implanted near and connected to the heart.  It detects and treats chaotic, extremely fast, life-threatening heart rhythms, called fibrillations, by delivering a shock to the heart, restoring the heart’s normal rhythm.  It is similar in function to an external defibrillator (often found in offices and other buildings) except that it is small enough to be implanted in a patient’s chest.  Only patients with certain clinical characteristics and risk factors qualify for an ICD covered by Medicare.

Medicare coverage for the device, which costs approximately $25,000, is governed by a National Coverage Determination (NCD).  The Centers for Medicare and Medicaid Services implemented the NCD based on clinical trials and the guidance and testimony of cardiologists and other health care providers, professional cardiology societies, cardiac device manufacturers and patient advocates.  The NCD provides that ICDs generally should not be implanted in patients who have recently suffered a heart attack or recently had heart bypass surgery or angioplasty.  The medical purpose of a waiting period – 40 days for a heart attack and 90 days for bypass/angioplasty – is to give the heart an opportunity to improve function on its own to the point that an ICD may not be necessary.  The NCD expressly prohibits implantation of ICDs during these waiting periods, with certain exceptions.  The Department of Justice alleged that from 2003 to 2010, each of the settling hospitals implanted ICDs during the periods prohibited by the NCD.

“The settlements announced last October and today demonstrate the Department of Justice’s commitment to protect Medicare dollars and federal health benefits,” said U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.  “Guided by a panel of leading cardiologists and the review of thousands of patients’ charts, the extensive investigation behind the settlements was heavily influenced by evidence-based medicine.  In terms of the number of defendants, this is one of the largest whistleblower lawsuits in the United States and represents one of this office’s most significant recoveries to date.   Our office will continue to vigilantly protect the Medicare program from potential false billing claims.”

“We will not stand idly by while Medicare coverage rules are ignored,” said Inspector General Daniel R. Levinson of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG).  “OIG worked closely with the Department of Justice to ensure such violators made substantial payments to settle these false billing claims.”

The department previously settled with 457 hospitals for more than $250 million.

The settlements announced today involve 51 hospitals, which are listed on the attached chart.  Most of the settling defendants were named in a qui tam, or whistleblower, lawsuit brought under the False Claims Act, which permits private citizens to bring lawsuits on behalf of the United States and receive a portion of the proceeds of any settlement or judgment awarded against a defendant.  The lawsuit was filed in federal district court in the Southern District of Florida by Leatrice Ford Richards, a cardiac nurse and Thomas Schuhmann, a health care reimbursement consultant.  The whistleblowers have received more than $3.5 million from the settlements announced today.

The settlements were the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office of the Southern District of Florida and HHS-OIG’s Office of Investigations and Office of Counsel to the Inspector General.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $27.4 billion through False Claims Act cases, with more than $17.4 billion of that amount recovered in cases involving fraud against federal health care programs.

The claims resolved by these settlements are allegations only and there has been no determination of liability.

Bi-Monthly Criminal Cartel Update–Thursday–Feb 18th

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I am pleased to announce that GeyerGorey LLP will be hosting the Bi-Monthly Criminal Cartel Update this Thursday, February 18th at 12:30 EST.  The program is a little different this month.  Usually the Update is hosted by one firm with international offices.  GeyerGorey does not have international offices–but we do have friends who do.

The program will be moderated by Hays Gorey, Jr. my partner at GeyerGorey.  I will be reporting on developments in the United States.  My bio is here. Dorothy Hansberry Bieguńska of Hansberry Tomkiel, Warsaw, Poland will be covering matters in Europe.  Hays and I both know Dorothy from the years she worked at the Antitrust Division of the DOJ.  Dorothy has gone on to have a very interesting international career and is a founder of Hansberry Tomkiel, a leading Polish competition law firm.  Masayuki Atsumi, a lawyer at Mori Hamada & Matsumoto, Tokyo, Japan will be covering developments in Asia.  I first got to know Masayuki when he contributed posts to Cartel Capers.  Masayuki is now seconded to Covington & Burling and is stationed in Covington’s DC office.

I hope we can bring you an interesting program and match the usual high quality of these ongoing updates.  You can register here.  The official ABA announcement is below. 

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Dear Friends,

We hope you will join us on February 18th from 12:30 to 1:30 EDT for the Bi-Monthly Criminal Cartel Update. You can register for the Bi-Monthly Criminal Cartel Update here:

CRIMINAL ANTITRUST UPDATE

February 18th 2016

12:30 p.m. – 1:30 p.m. Eastern Time

This continuing program series offers an excellent opportunity to learn about recent developments in criminal antitrust law that may impact your clients, company or litigation strategy. Our presenters will report on recent Antitrust Division enforcement actions and related litigation, policy updates, international coordination, and other important developments in criminal antitrust law. The presentation will last about one hour, including an opportunity at the end for participants to ask questions.

This program will be moderated by Hays Gorey, Jr., at GeyerGorey LLP, and includes an excellent panel of speakers:

Robert E. Connolly – GeyerGorey LLP, Philadelphia, Pa.

Dorothy Hansberry Bieguńska – Hansberry Tomkiel, Warsaw, Poland

Masayuki Atsumi – Mori Hamada & Matsumoto, Tokyo, Japan

Program materials will be distributed to participants prior to the program.

A Carrot and Stick Approach to Leniency and Compliance Programs

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Since I attended the International Cartel Workshop program in Tokyo on February 3-5, I’ve been thinking a lot about the Antitrust Division’s policies on a) leniency and b) not awarding credit for preexisting compliance programs.  The two policies were demonstrated very clearly in a well constructed hypothetical dramatization at the Cartel Workshop, complete with mock negotiations between companies and the USDOJ. In the first instance, Company A, arguably the most culpable member of the hypothetical cartel, received leniency.  Meanwhile, the second-in company sought credit for its compliance program, but that plea fell on deaf ears.  A senior executive at the Vice-President level of the company (and a subordinate) were involved in the cartel and the Antitrust Division does not give credit for failed compliance programs.

I don’t think the Antitrust Divison’s policy on compliance programs is logical or good policy.  I wrote an article on this for Law 360: Compliance Thoughts From the International Cartel Workshop.  But, here are a few additional thoughts.

Leniency has been touted by the DOJ as the greatest cartel-busting tool in the enforcers’ arsenal. And leniency has become a bedrock of anti-cartel efforts of competition agencies around the world.  While there are some differences among leniency programs, leniency has been a great American export.  And it works.  Leniency undoubtedly prevents cartels from forming because the risk of detection is too high.  And, leniency destabilizes cartels that do form because of the likelihood that someone is going to break the ranks of secrecy and inform on the cartel.  But, leniency works in part because the incentives to grab the leniency are very high.  A company and its executives who were engaged in illegal activity get a complete pass from prosecution.  There is no requirement that the leniency company disgorge the illegal profits (though it is assumed that those profits will evaporate through private class action litigation).  The leniency company is not put on probation or subject to a compliance monitor.  There is no requirement that culpable executives be fired or at least removed from their current position.  There is not even a requirement that the leniency company engage in any remedial measures to enhance its compliance program.  Many of these ideas to impose some remedial measures on the leniency “winner” have been suggested to the Antitrust Division, but the Division is not in a mood to add any requirements that might give a leniency company even slightly less incentive to come forward.  Leniency works, and the government does not want to mess with success.

Fair enough, but now compare the treatment of the leniency winner with the second-in that seeks some credit for their compliance program, which admittedly has failed.  The second-in may be, and often is, less culpable than the leniency company.  And, as the Antitrust Division often notes, the second-in may have missed the leniency marker by minutes.  The Division’s response to a plea for credit for a compliance program is “The Sentencing Guidelines don’t give any credit for a failed compliance program [with the participation of high-level executives]. Why should we?”  I think there are two answers to the “Why should we give credit for a failed compliance program?”  The first answer is that like leniency, compliance programs help prevent cartels from forming and destabilizes existing cartels.  Bona fide compliance programs certainly reduce the formation of cartels. Just as you can’t quantify the number of cartels that do not form because of leniency, it would be impossible to quantify the number of cartels that would not form if senior executives had a glimpse of the parade of horribles that await them for involvement in a cartel.  But, no one disputes that a robust competition compliance program and training will result in fewer cartels.

Compliance programs that have mechanism for detection of and reporting of violations will also destabilize cartels that still might form. A cartel generally involves many individuals in a company at different levels of authority. A subordinate who has antitrust compliance training, a hotline and a grudge (for any reason), is a weak link in the cartel code of silence. Just as leniency breeds distrust among cartel members, a compliance hotline might give senior executives a second thought about delegating execution of the cartel to subordinates. The more concerned a senior executive is about lower-level employees “blowing the whistle,” the fewer whistles will be given out. The smaller the circle of people within a company who are available to help carry out a cartel, the less likely it will be effective or that someone will inform on the cartel.

Preventing the formation of cartels and destabilizing them are rational reasons for the Antitrust Division to give credit for existing compliance programs.  The Division has now given credit for a “forward looking” compliance program (i.e. a program instituted once the company is caught in a violation and begins to immediately cooperate.)  The Antitrust Division has explained the components of a reward-worthy program in the sentencing memorandum in United States v. Kayaba Corp., S.D. Ohio, No. 15-cr-00098, Dkt. 21, (Oct. 5, 2015).  It is not logical to give no credit for such a compliance program if it is in place before the violation occurred, but to allow a company with no compliance program to get credit if it takes these measures after getting caught.

The second reason the Antitrust Division should adopt a policy of giving credit for compliance programs that meet the Kayaba standard is because it is the right thing to do.  The Division has done a great job of increasing the deterrence side of cartel enforcement with ever-increasing penalties.  Jail sentences are measured in years, not months, the Division seeks extradition whenever it can; foreign executives (the vast majority of defendants in international cartel cases) have their lives seriously negatively impacted just by being indicted and put on Red Notices.  As the “stick” gets heavier, however, the fair thing to do is to dangle a carrot to encourage companies to educate their employees about competition law and the serious consequences that await executives caught in a price-fixing cartel.  This is an excerpt from my Law 360 article:

One of the parts of the job [when I was a prosecutor with the Antitrust Division] where my white hat seemed a little off-color was when prosecuting a lower-level employee who had had no competition law compliance training, and who was ordered by the boss to engage in the illegal activity. This was a particularly difficult situation with mid-to lower-level foreign executives — the vast majority of international cartel defendants. To be sure, the employee had an idea that what he was doing was not legal, but perhaps little appreciation of the consequences: up to 10 years in jail, red notices, extradition, etc. The subordinate also may have had no way to report the conduct anonymously, or otherwise.

In other words, as the Antitrust Division increases the pound of flesh it seeks for a cartel violation, it should do what it can to encourage compliance programs and training–complete with a way for subordinates to report illegal conduct anonymously.  Encouraging compliance programs and training is not going to have the effect on destabilizing cartels that leniency has.  But, encouraging compliance programs can come at relatively little cost.  The Antitrust Division can still require a guilty plea from the company–and an executive who has had compliance training and crossed the line anyway, might merit even more serious jail time.  The cost of rewarding bona fide compliance programs would be modest and worth the price of encouraging compliance with the law–before a violation occurs.

In the interest of full disclosure, I should note that I was not always a fan of “credit for compliance programs.”  My view was that compliance programs should be incentivized by adding an upward adjustment for a company that did not have a rigorous antitrust compliance program and training.  I also thought an executive who directed subordinates to engage in cartel activity, who was high up enough in the company to institute compliance training and chose not to, should get an upward adjustment.  It is especially foul play to order a subordinate to break the law in an organization that has no compliance program or training.  I submitted comments to the Sentencing Commission along these lines (here).  But, I have come around to the idea that the Antitrust Division should also offer the incentive of a reward for a robust compliance program, even if some knucklehead(s) violate the program.  One thing I did not fully appreciate when I was with the Antitrust Division is that companies have limited compliance budgets and it is difficult to get resources allocated to competition compliance programs when the Antitrust Division does not give credit for compliance programs and the Criminal Division does.

This is a subject that deserves more attention than a blog  post, and I hope to continue to learn and write in this area.  If you have any thoughts, or real life experiences from the trenches that are relevant, I’d love to hear from you.

Thanks for reading.

Private Contractor Pleads Guilty to Bribing Former U.S. Postal Service Contracting Official

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A private contractor pleaded guilty today to paying bribes to a U.S. Postal Service (USPS) contracting official in order to receive contracts to deliver the mail.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Rod J. Rosenstein of the District of Maryland and USPS Inspector General David C. Williams made the announcement.

Barbara Murphy, 52, of Rocky Mount, North Carolina, pleaded guilty before U.S. District Judge George Jarrod Hazel of the District of Maryland, who set sentencing for June 13, 2016.

According to a factual stipulation filed with the court, Murphy was the sole owner of ER&R Transportation and MC&G Trucking LLC, which she used to bid for and perform on transportation contracts with USPS.  Murphy admitted that from January 2011 to July 2012, she bribed Gregory Cooper, a former USPS contracting officer representative.  These bribes included cash paid directly into Cooper’s bank accounts, automobile loan payments, college tuition for Cooper’s daughter, five cell phone bill payments, an airline ticket and fitness equipment, Murphy admitted.

According to the plea agreement, Murphy gave all of these benefits in exchange for Cooper’s favorable treatment of her companies when contracting opportunities with the USPS arose, in violation of Cooper’s lawful duty to the USPS.  Specifically, Cooper recommended to his superiors that 10 USPS contracts on which Murphy bid during the relevant time period be awarded to Murphy’s companies, she admitted.  Additionally, Murphy admitted that Cooper provided her with advice on how to address specific issues that arose from her contract performance and drafted documents that Murphy provided to the USPS.

On Nov. 15, 2015, Judge Hazel sentenced Cooper to 15 months in prison for bribery.

The USPS Office of the Inspector General investigated the case.  Trial Attorneys Mark Cipolletti and Monique Abrishami of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney David Salem of the District of Maryland are prosecuting the case.

Wealthy Max Arranges Events in Hong Kong to Fight Civil Forfeiture Case Challenges Members of Congress and Other Government Officials to See for Themselves if the Company is Guilty

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Feb. 9, 2016 – PRLog — Washington, DC – Wealthy Max Limited (Wealthy Max), a claimant in a federal civil forfeiture case involving supposedly counterfeit coins, today announced that it had invited the members of the House Financial Services Subcommittee on Domestic Monetary Policy and Technology as well as senior officials from the Departments of Treasury, Justice and Homeland Security, to attend a briefing and product audit in Hong Kong.  The event is being held as part of the Company’s fight against the civil forfeiture of $2.388 million owed to it by the U.S. Mint.  It will also demonstrate once and for all that Wealthy Max does not traffic in counterfeit U.S. coins.

On February 23rd there will be a briefing by Wealthy Max executives and a public unsealing of 13 metric tons of damaged U.S. coins that were destined to be shipped to the U.S. Mint until the civil fortitude caused a halt to operations.  The unsealing will be overseen by former U.S. FBI agents who are members of the FormerFedsGroup.com.

On February 24th Wealthy Max will organize a trip to Foshan, China, to visit metal recycling companies where the Company sources its coins.  Participants will see the hand-sorting process that yields damaged U.S. coins, as well as the growing stockpiles of coins that would have been returned to the U.S. Mint, but for this unjust civil forfeiture action.

“The members of the House Financial Services Subcommittee on Domestic Monetary Policy and Technology have oversight responsibility for the U.S. Mint, and should have a keen interest in this case, as it reflects unprecedented executive branch over reach, which could impact perceptions of the government’s commitment to full faith and credit in our currency,” said Bradford L. Geyer, counsel for Wealthy Max.  “Going back to the founding documents of our country, the Secretary of the Mint, with Congressional oversight, has the sole responsibility for the minting of coins and sourcing materials to be used in those coins.  The actions of the U.S. Attorney’s Office and the Department of Homeland Security have effectively usurped this responsibility.”

“Wealthy Max has been a reliable supplier to the U.S. Mint for over a decade and we have successfully redeemed more than 160 shipments of coins in that time,” said Matthew Wong, director, Wealthy Max Limited. “We were shocked by the accusations against us, and the unjust seizure of our property by the U.S. government.  We have been treated like criminals who have no rights.  This is why we are demanding our property back, and more, we are demanding justice for ourselves and others who have been wronged by the U.S. authorities.  Before these officials accuse us of being criminals, they should come to Hong Kong to see for themselves our product and our supply chain.”

In addition to the members of congress and their staffs, and the other U.S. government officials who have been invited to this event, Wealthy Max has extended invitations to local and international media, and members of the American Chamber of Commerce in Hong Kong.

MCC Construction Company Agrees to Pay Nearly $1.8 Million for Conspiring to Illegally Obtain Federal Contracts Meant for Small, Disadvantaged Businesses

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The Justice Department announced today that MCC Construction Company (MCC) has agreed to pay $1,769,294 in criminal penalties and forfeiture for conspiring to commit fraud on the United States by illegally obtaining government contracts that were intended for small, disadvantaged businesses.

The court agreement was announced today by Assistant Attorney General William J. Baer of the Justice Department’s Antitrust Division, U.S. Attorney Channing D. Phillips of the District of Columbia, Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office, Inspector General Peggy E. Gustafson of the Small Business Administration (SBA), Inspector General Carol Fortine Ochoa of the U.S. General Services Administration (GSA), Special Agent in Charge Brian J. Reihms of the Defense Criminal Investigative Service’s (DCIS) Central Field Office and Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).

“This conspiracy defrauded the government and denied small, disadvantaged businesses the opportunity to compete to do business with the United States,” said Assistant Attorney General Baer.  “We will continue to work with U.S. Attorney Phillips and his talented colleagues to protect the integrity of the government contracting process.”

“This prosecution shows that there will be consequences for companies that violate federal contracting rules meant to assist small, disadvantaged businesses,” said U.S. Attorney Phillips.  “MCC Construction Company secured millions of dollars in contracts by hiding behind two small businesses that did not perform labor on the projects.  Its conduct took away opportunities that could have gone to companies that truly are socially and economically disadvantaged and deserving of the work.”

“An uneven marketplace is created when businesses engage in illegal backroom deals to fraudulently obtain government contracts, placing competitors at an unfair disadvantage,” said Assistant Director in Charge Abbate.  “In this case, the FBI and our partners moved to protect the American taxpayer and ensure the integrity of the process.  Together, we will continue to work to protect federal contract opportunities for socially and economically disadvantaged businesses within our communities from unlawful conduct.”

“Fraudulently passing work through eligible small businesses to a large business does not provide taxpayers the best value and certainly does not support the role of small businesses as engines of economic development and job creation,” said Inspector General Gustafson.  “In fact, it subverts the purpose of SBA’s preferential contracting programs and harms the small businesses the programs are designed to assist.  I want to thank the U.S. Attorney’s Office and our law enforcement partners for their leadership and dedication to serving justice.”

“We will continue our work on behalf of taxpayers and legitimate small business owners to expose and punish nationwide small business fraud schemes such as this,” said Inspector General Ochoa.

“The Defense Criminal Investigative Service is committed to working with our partner agencies to combat fraud impacting the Department of Defense’s vital programs and operations and maintain the integrity of the procurement system,” said Special Agent in Charge Reihms.

“This settlement is a testament to our steadfast and continued commitment to working closely with our law enforcement partners in rooting out this type of activity,” said Director Robey.

MCC was a construction management company and general contractor headquartered in Colorado.

A criminal information was filed last month in the U.S. District Court for the District of Columbia charging MCC with one count of knowingly and willfully conspiring to commit major fraud on the United States.  MCC waived the requirement of being charged by way of federal indictment, agreed to the filing of the information and accepted responsibility for its criminal conduct and that of its employees.  U.S. District Judge Ketanji B. Jackson accepted the company’s guilty plea today.  The plea agreement is subject to the court’s approval at a sentencing hearing scheduled for March 15, 2016.

According to court documents, MCC conspired with two companies that were eligible to receive federal government contracts set aside for small, disadvantaged businesses with the understanding that MCC would, illegally, perform all of the work.  In so doing, MCC was able to win 27 government contracts worth over $70 million from 2008 to 2011.  The scope and duration of the scheme resulted in a significant number of opportunities lost to legitimate small and disadvantaged businesses.

Under the illegal agreement, the companies awarded these government contracts were allowed to keep 3 percent of the value of the contracts for allowing MCC to use the companies small business status to win the contracts.

Court documents state that MCC violated the provisions of the SBA 8(a) program.  The SBA 8(a) development program is designed to award contracts to businesses that are owned by “one or more socially and economically disadvantaged individuals.”  To qualify for the 8(a) program, a business must be at least 51 percent owned and controlled by a U.S. citizen (or citizens) of good character who meet the SBA’s definition of socially and economically disadvantaged.  The firm must also be a small business (as defined by the SBA) and show a reasonable potential for success.  Participants in the 8(a) program are subject to regulatory and contractual limits.  Also, under the program, the disadvantaged business is required to perform a certain percentage of the work.  For the types of contracts under investigation here, the SBA 8(a)-certified companies were required to perform 15 percent or more of the work with its own employees.

MCC, along with the two 8(a) companies used to illegally obtain the contracts, engaged in and executed a scheme to defraud the SBA by, among other things:

  • Allowing the two 8(a) companies to retain a guaranteed percentage of each contract for simply obtaining the contracts for MCC;
  • Allowing the two 8(a) companies to perform no labor on these projects;
  • Performing the accounting and government reporting for the two 8(a) companies on certain projects;
  • Falsely representing to the government that MCC employees were in fact employees of the 8(a) companies;
  • Obtaining certain contracts on behalf of the 8(a) companies without first informing those 8(a) companies prior to bidding; and
  • Conspiring with the 8(a) companies to hire straw employees for the 8(a) companies whose labor and salaries were paid for by MCC.

For the contracts obtained through this scheme on which MCC made a profit, MCC’s profit was at least $1,269,294.  The criminal penalty in this case includes a $500,000 fine and a forfeiture money judgment of $1,269,294.

The investigation is being conducted by the FBI’s Washington Field Office, the Inspector General for the SBA, the Inspector General of the U.S. GSA, the DCIS’ Central Field Office, and the MPFU.

New Jersey Pipe Supply Company Owner Sentenced to 32 Months in Prison for Role in Fraud and Bribery Conspiracy in Power Generation Industry

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Company Sentenced to Pay a Total of Over $1.7 Million in Fines and Restitution

A New Jersey industrial pipe supply company and its owner were sentenced today for conspiring to commit fraud and pay bribes to a purchasing manager at Consolidated Edison of New York in return for the manager’s efforts to steer contracts to the company, the Department of Justice announced.

Andrew Martingano, of Staten Island, New York, was sentenced by U.S. District Judge Deborah A. Batts of the Southern District of New York to 32 months and a day in prison.  American Pipe Bending and Fabrication Co. Inc. of Edison, New Jersey, was sentenced to pay a $150,000 criminal fine.  Martingano and American Pipe were also sentenced to pay over $1.6 million in restitution, jointly and severally with their co-conspirators, to the victim, Con Ed.  The company and its owner pleaded guilty to committing wire fraud and conspiring to defraud Con Ed on Aug. 15, 2012.

According to court documents, Martingano and others agreed to pay approximately $510,000 in cash bribes to James M. Woodason, a department manager of the purchasing department at Con Ed.  In exchange for the bribes, Woodason steered Con Ed industrial pipe supply contracts to American Pipe by secretly providing Martingano with confidential competitor bid information, thereby causing Con Ed to pay higher, non-competitive prices for materials.  At the time of Woodason’s arrest in August 2010, Woodason had already received approximately $45,000 in cash bribes from Martingano and American Pipe.

The department said the conspiracy took place from approximately January 2009 to August 2010.  In addition, Martingano and American Pipe defrauded Con Ed by requesting a 14 percent price increase and basing that request on a fake email purporting to document a “Steel Mill” price increase that American Pipe was passing on to Con Ed.  These false and fraudulent price increase requests caused actual losses to Con Ed in the amount of approximately $1.4 million and intended losses of approximately $9.4 million.

Con Ed is a regulated utility headquartered in Manhattan.  It provides electric service to approximately 3.2 million customers, and gas service to approximately 1.1 million customers in New York City and Westchester County, New York.  Con Ed received more than $10,000 in federal funding each year between 2003 through 2010, and cooperated with the department’s investigation.

Including Martingano and American Pipe, a total of five individuals and two companies have been charged as part of this investigation and have been ordered to serve a total of more than 16 years in prison and to pay criminal fines and restitution of more than $3 million.

The charges arose from an ongoing federal antitrust investigation of bid rigging, bribery, fraud and tax-related offenses in the power generation industry.  The investigation is being conducted by the Antitrust Division’s New York Office, with assistance from the FBI and the Internal Revenue Service-Criminal Investigation.  Anyone with information concerning bid rigging, bribery, tax offenses or fraud in the power generation industry should contact the FBI’s New York Division at 212-384-3720 or the Antitrust Division’s New York Office at 212-335-8000, or visit www.justice.gov/atr/contact/newcase.htm.

CCC’s: Live From Tokyo: The 11th International Cartel Workshop

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I am at the ABA/IBA International Cartel Worksop in Tokyo.  It is the 11th biennial international cartel workshop–and each workshop is becoming more international.  There are attorneys from 26 countries and enforcers from 12 different countries at this event.   Donald Klawiter and D. Jarrett Arp are the conference co-chairs.  The conference is unique (in my experience) in that most of the panels are interactive demonstrations modeling realistic discussions.  The demonstrations cover a wide range of scenes from: a) a company board of directors being advised of possible options including leniency when cartel conduct is discovered; b) [actual] regulators from seven jurisdictions coordinating their dawn raids/search warrants; c) subsequent discussions among defense counsel about various strategies in seven jurisdictions; and many more.

The glue of the program is a hypothetical cartel that is discovered during a compliance training session and the action, starting with the rush for leniency/amnesty, flows from there.  The hypothetical is very realistic, rich in complexity and factual detail.  There was an actual dramatization video of the February 2013 meeting among competitors where the alleged agreement for the hypothetical was reached.

The realistic hypothetical brought to life the pluses and minuses of the leniency program, which, with minor modifications, has been adopted around the world.  In the hypothetical, when a company (Acme) conducted competition compliance training at a very recently acquired company, (B-Wheels), counsel learned that B-Wheels was involved in a world-wide bicycle wheel price-fixing/market allocation cartel.  The cartel agreement was reached at a private dinner at a trade association event in February 2013. [the key meeting the program created a video tape for].  The President of B-Wheels was the main speaker and strong advocate for the agreement.  One competitor, Chelun Ltd, clearly accepted B-Wheels offer to collude.  A third competitor, Jit-Ho, a recent disruptive entrant into the market, was noncommittal.  Post-meeting prices increased in the market and market shares seemingly aligned with the price/market allocation discussion.  There was other evidence of competitor contact after the initial cartel meeting, but it related to B-Wheel and Chelun.

From the demonstrations, you could see why the leniency program is so effective.  After the discovery of the B-Wheels cartel at a compliance training session, there really was no  other choice for Acme but to seek immunity.  Trying to end the cartel and keep quiet was not an option because one of the other companies, or an individual, would likely approach the government when the cartel ended.   Waiting was too great a risk to take.  The benefits of seeking amnesty/leniency were overwhelming.

Acme/B-wheels considered which major jurisdictions to approach for a leniency marker.  Each jurisdiction in the hypo (US, Canada, Mexico, Brazil, EU, Japan, Korea, and South Africa) had a similar leniency/amnesty program: no fine for the illegal activity; not even restitution for the illegal profits made.  More, or equally important, the culpable executives would face certain jail time in the United States unless they obtained amnesty.  And, while the United States is certain to seek jail for culpable executives, jail is at least a possibility in many other jurisdictions.

Leniency only covers the governmental action and the Acme discussed the private redress/class action cases that would follow around the world.  But, even here, there were benefits to getting leniency such as single damages in the United States if the amnesty applicant cooperated with the plaintiffs.  I’m not an economist, but it is conceivable that with sufficiently broad leniency coverage, the cartel may turn out to have been profitable for B-Wheels, even with civil damages.  Moreover, in the United States, the Antitrust Division will not require any compliance program or other remedial monitoring action be taken  by the leniency company.  Nonetheless, in my experience, anyone or any company that goes through the leniency process would never consider it to be a “bargain.” Still, leniency does allow a conspirator, even the most culpable (but not the “ringleader”), to escape the brunt of the possible negatives consequences, while “unleashing hell” on its competitors.  All in all, the interactive panel demonstrations showed how the incentives for creating a “Race to the Courthouse” is very effective around the world.

All the “carrots” of leniency do not come without a cost, however.  As the hypothetical was structured, the leniency company, B-Wheels, clearly seems to be the most culpable actor.  But, its role in organizing the cartel would not be enough to be disqualified for leniency.  The Antitrust Division’s leniency disqualification standard is: “The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity.”  B-Wheels did not coerce any participation in the cartel and since the others, or at least Chelun, voluntarily agreed, B-Wheel was not considered the leader.  (Besides, who goes in for leniency and describes themselves as having coerced others to go along?).  But, having played at least a/the driving role in forming the cartel, B-Wheel will not pay a fine in any jurisdiction in which it obtains leniency while its competitors will.  B-Wheel will likely do better in civil damage cases because it does not have guilty plea.  And, while the most senior executive in B-Wheels will get personal immunity under the leniency agreement, the government(s) will focus on seeking jail time against its competitors.  And, under the Yates memo, the Antitrust Division may seek to indict even more individuals than they had been doing previously.

The way the hypothetical was set up, the ambiguous role of Jit-Ho highlights another potential danger–but one that is common to all prosecutions.  In negotiating “full cooperation” in return for leniency, government’s will press hard to get evidence against all culpable actors.  There will be some skepticism if B-Wheels story is that Jit-Ho executives were non-committal at the dinner, particularly in light of subsequent market activities where prices have increased and market shares appear to be in  line with the agreement B-Wheels proposed.

In the hypothetical, Chelun will also likely “race to the courthouse” to get the substantial reward of being second-in (greatly reduced fines and more favorable plea deals for fewer executives).  In order to have substantial cooperation to offer in return for this favorable treatment (a departure from the guidelines range), the pressure will be enormous to say that the Jit-Ho executives at the seminal meeting agreed to go along.  In real life there will be no tape of the event, and recollections can be influenced by the need to offer someone to the prosecution in order to “cooperate.”  The program illustrated what an incredibly powerful weapon leniency/amnesty is [as are other very favorable deals].  “With great power, comes great responsibility” and while there are certainly differences of opinion in particular cases, on the whole, there is a great deal of respect for the way in which the agencies exercise their power.

The program is just mid-way.  As the program continues, it will be interesting to learn the fate of Jit-Ho, both in how the prosecutors view the company/individuals, and what strategy defense lawyers use to defend.

There are many “teachable moments” that have been demonstrated in the hypothetical.  Two came to mind right away.  The cartel was discovered during competition compliance training after Acme bought B-Wheel.  Compliance programs give companies a head’s up even when there is a violation because executives are more likely to know about the leniency program and take action when it seems the cartel may collapse.  Also, if Jit-Ho had had some antitrust training the executives would have known how dangerous it is to attend a private dinner with competitors–even if they did not agree.  Regardless of what the Jit-Ho executives said, or didn’t say at that dinner meeting, just being there looks bad and is powerful circumstantial evidence that they agreed to collude.

There much more going on at the program, but this is what struck me at the first about the first day.

And, please forgive if there are more typos/run on sentences than normal.  The jet lag is still with me.

Thanks for reading.