Author Archives: Brad Geyer

CCC’s: Ninth Circuit’s Oral Argument on FTAIA Related Appeal

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If an FTAIA related case is ever taken by the Supreme Court I believe it will be a private civil price fixing damage case like Best Buy Co., Inc. v. Hannstar Display Corporation. The Antitrust Division’s international cartel prosecutions have all involved import commerce; providing a jurisdictional basis without reaching possible FTAIA related commerce. [And if I could decide a case without reaching FTAIA issues, I sure would.]  The recent Antitrust Division case filing in capacitors follows this pattern. The Information alleged that both import commerce and FTAIA related commerce were subject to the agreement to fix prices.

There was a very interesting oral argument before the Ninth Circuit on December 11, 2015 dealing with a civil price fixing damage case related to the TFT-LCD price fixing cartel: Best Buy Co., Inc. v. Hannstar Display Corporation.  The case raises a number of interesting FTAIA related issues, some of which I’ll discuss below.   But if you are interested in viewing the oral argument, the Ninth Circuit makes video available and the Best Buy Co., Inc. v. Hannstar Display Corporation argument can be viewed here.

A couple of key factual notes about the case:

  • HannStar, which pled guilty in the criminal TFT-LCD, case only sold panels to foreign entities.  It shipped no price fixed panels into the US, nor finished goods because it did not make those.  But, some HannStar price fixed panels were assembled into finished products, including desktop and laptop computers and televisions, that were imported into the US.  Some of Hannstar’s co-conspirators did sell finished products in the US that contained price fixed screens that were purchased by Best Buy.
  • The panel noted that the lack of Hannstar import commerce distinguished this case from the case the United States brought against the cartel, some of whose members imported panels directly into the Unites States so jurisdiction was not based on the FTAIA. United States v. Hsiung,
    758 F.3d 1074 (9th Cir. 2014).
  • Also, Best Buy in the US purchased finished products with the price fixed screens, distinguishing the case from Motorola Mobility where Motorola’s foreign subsidiary purchased the panels. Motorola Mobility v. AU Optronics, 775 F.3d 816, 826-27 (7th Cir. 2015).
  • Best Buy was an opt out plaintiff.  As such, it had to prove that it suffered injury as the result of the defendants’ anticompetitive conduct.  It could not piggyback on the “class” it had opted out of.

The case involved a special jury verdict form that is at the heart of the appellate argument.  The jury found that Best Buy’s injury arose from a conspiracy involving import commerce despite the fact that it was undisputed that Best Buy purchased no LCD screens that were the subject of the cartel agreement.  Best But bought only the finished products (laptops, etc) that contained the price-fixed screens.   Import commerce comes within in the scope of the Sherman Act without application of the FTAIA. But at the same time, the jury found that the conspiracy did not have a “direct, substantial and reasonably foreseeable effect on trade or commerce.” In other words, jurisdiction could not be based on the FTAIA.

Here are the relevant questions in the Special Verdict form:

Question 1: Did Best Buy prove, by a preponderance of the evidence and in accordance with the instructions given to you, that Toshiba knowingly participated in a conspiracy to fix, raise, maintain or stabilize the prices of TFT-LCD panels?  No.

Question 2: Did Best Buy prove, by a preponderance of the evidence in accordance with the instructions given to you, that HannStar knowing participated in a conspiracy to fix, raise, maintain or stability the prices of TFT-LCD panels?   Yes.

Question 3: Did Best Buy prove, by preponderance of the evidence and in accordance with the instructions given to you, that the conspiracy involved TFT-LCD panels and/or finished products (e.g., notebook computers, computer monitors, televisions, camcorders, cell phones and digital cameras containing TFT-LCD panels) imported into the United States?  Yes.

Question 4: Did Best Buy prove, by preponderance of the evidence and in accordance with the instructions given to you, that the conspiracy involving these imported TFT-LCD panels and/or finished products produced substantial intended effects in the United States?  Yes.

Question 5: Did Best Buy prove, by preponderance of the evidence and in accordance with the instructions given to you, that the conspiracy involved conduct that had a direct, substantial and reasonably foreseeable effect on trade or commerce in the United States?  No. 

Question 8: Did Best Buy prove, by preponderance of the evidence and in accordance with the instructions given to you, that it was injured as a result of the conspiracy in which one or both of the defendants knowingly participated?  Yes.

Question 9: For Best Buy’s direct purchases only, what is the amount of damages Best Buy proved, by preponderance of the evidence and in accordance with the Court’s instructions, that it suffered as a result of the conspiracy?  $ 7,471,943

The FTAIA issues in the case are particularly confusing because Question 3 in the Special Verdict form was in the alternative “did the conspiracy involve panels and/or finished productsimported into the United States?” HannStar argued that the jury was wrong in finding that the conspiracy involved import commerce because HannStar never sold panels in the US and Best Buy bought only finished products. “The conduct at issue was the agreement to fix the price of panels—wholly foreign conduct. [The conspiracy was] not to import finished products containing those panels to the US” HannStar attorney Belinda Lee, Latham & Watkins, argued.  Lee noted that HannStar engaged in price-fixing on liquid crystal display panels, not finished goods. HannStar then argued that since the jury did not find an FTAIA basis for jurisdiction [that the conspiracy produced a direct substantial and reasonably foreseeable effect in the United States], there is no jurisdiction. “The jury was asked and they said no; they found no domestic effect,” Lee told the panel. Best Buy, therefore failed to prove that its claims arose from conduct covered by FTAIA.

Because the jury found import commerce, an issue in the case became whether the sale of the finished product (i.e. a laptop with affixed price LCD screen) could as a matter of law constitute import commerce. This invoked the “targeting” theory, i.e. that a cartel could be found to be covered by the Sherman Act even if there was no imports into the US if the cartel “targeted” the US.  Judge Kim Wardlaw said that the jury had found there was substantial intent on the part of the defendants to create price effects in the US market. Was this enough to make the good import commerce (which jury found) or as a matter of law does this evidence only go to the domestic effects test? (and, confusingly, the jury found no domestic effects).

Judge Susan Graber expressed concern that finding import commerce jurisdiction based on a component part price fix could expand Sherman Act jurisdiction over foreign commerce beyond what Congress intended. She gave an example of a $10 foreign-based price fixed gas cap on a $50,000 car that is then imported into the United States. Is that import commerce? What about where the part is little in a big product?  And the harm is quite small? The Court clearly was concerned with drawing the line [but in the instant case, the TFT-LCD screens were a fairly large cost import of the finished product.]

Hannstar attorney Lee argued (correctly I believe) that the issue of whether a component part price fix can provide Sherman Act jurisdiction relates only to whether the FTAIA’s “direct, substantial, and reasonably foreseeable” effect on commerce test is met. And on that question the jury answered “No.” Import commerce is defined as a purchase by a US consumer of the price fixed product.  There is, however, some support for the proposition that in certain circumstances the import commerce exception requires only that the defendants’ anticompetitive conduct “target import goods or services,”  Animal Sci. Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 470 (3d Cir. 2011); Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845, 855 (7th Cir. 2012) (en band).  I don’t think, however, the targeting analysis applies to whether components priced fixed in foreign commerce but imported into the US in a finished product constitutes import commerce.  Such a reading would essentially render moot the FTAIA jurisdictional basis of “direct, substantial and reasonably foreseeable effect” on US commerce.

There were a couple of other interesting features of the case:

  • Opt Out: There can be advantages to being an opt out plaintiff, but there may also be some downsides. Plaintiffs in class action just have to prove some import commerce, but since Best Buy was an opt out, it had to demonstrate their own purchases trace back to import commerce or the FTAIA domestic effect.
  • Which Best Buy?  Again as an opt out Best Buy had to trace its purchases to one of the conspirator companies and because Best Buy also has foreign subsidiaries it had to establish that the US company made the purchases (To avoid a Motorola Mobility situation). It seemed Best Buy overcame this hurdle, but it is something plaintiffs need to watch out for. B failed to trace the purchases from BB entities in US to HannStar. If foreign entities you have Motorola.

A final note: The jury in Best Buy’s trial ordered HannStar to pay almost $7.5 million in damages. The Court then trebled the award to more than $22 million. But because Best Buy had settled with so many of HannStar’s co-conspirators, the court reduced the award to zero. Ouch!

Best Buy was represented by Katherine Wiik of Robins Kaplan LLP.

Thanks for reading.

Executives of Swiss and Las Vegas Companies Convicted in International Investment Fraud Scheme

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A federal jury in Las Vegas convicted two men of conspiracy, wire fraud and securities fraud yesterday for their roles in an approximately $10 million international investment fraud scheme involving numerous victims.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Daniel G. Bogden of the District of Nevada and Special Agent in Charge Laura A. Bucheit of the FBI’s Las Vegas Field Office made the announcement.

Anthony Brandel, 48, of Las Vegas, and James Warras, 69, of Waterford, Wisconsin, were each convicted of one count of conspiracy, nine counts of wire fraud and eight counts of securities fraud following a five-day trial before Senior U.S. District Judge Kent J. Dawson of the District of Nevada.  The defendants are scheduled to be sentenced on March 2, 2016, by Judge Dawson.

According to evidence presented at trial, Brandel and Warras conspired with others in the United States and Switzerland to promote investments and loan instruments that they knew to be fraudulent.  The conspirators told victims that, for an up-front payment, a Swiss company known as the Malom (Make A Lot of Money) Group AG would provide access to lucrative investment opportunities and substantial cash loans.  To effectuate this scheme, the defendants fabricated bank documents purporting to show that the Malom Group had large amounts of money in several European financial institutions.  And as part of an effort to defraud an investor who held an equity stake in a corporation that had filed for bankruptcy, Warras submitted a sworn affidavit to the U.S. Bankruptcy Court in the District of New Hampshire in which he made false statements about the value of certain bonds that the defendants promoted to the investor.

Brandel and Warras were charged together with four other defendants, including Joseph Micelli, 62, a former California attorney who pleaded guilty to conspiracy to commit wire fraud and securities fraud and is set to be sentenced on Feb. 23, 2016.  The remaining defendants are either at large or awaiting extradition from other countries.

The FBI’s Las Vegas Field Office investigated the case.  Assistant Chief Brian R. Young and Trial Attorneys Melissa Aoyagi and Anna G. Kaminska of the Criminal Division’s Fraud Section are prosecuting the case with assistance from the Criminal Division’s Office of International Affairs and the U.S. Attorney’s Office for the District of Nevada.  The Securities and Exchange Commission’s Enforcement Division, which referred the matter to the department and is conducting a parallel civil enforcement investigation, also provided valuable assistance.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, visit www.stopfraud.gov.

CCC’s: New Zealand Decides Against Criminal Sanctions for Price Fixing

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A news article from the Manawatu Standard in New Zealand reports that “Price-fixing executives will not be subject to jail terms after Government u-turn.”  Paul Goldsmith, the Minister of Commerce and Consumer Affairs said he was stripping criminal sanctions for cartel behavior currently contained in the Commerce (Cartels and Other Matters) Amendment Bill.  He said that after a year of consideration he had made an “on balance decision” that the costs of introducing criminal penalties outweighed the benefits.

The Minister said “If we keep providing new ways for directors to go to prison if the judgements are wrong then overall there’s a potential chilling effect on innovation.”  New Zealand’s decision is counter to the trend toward criminalization of cartel behavior, although in many countries criminal penalties, while available, are rarely imposed.  Countries that do impose criminal penalties, such as the United States, reserve criminal prosecution for “hard-core” cartel conduct (price-fixing; bidding rigging) where there is an element of fraud: i.e. buyers (or sellers) believe there is competition when in fact competition has been reduced or eliminated by a secret agreement among the bidders/vendors.  These types of secret cartel arrangements are deemed to have no pro-competitive benefit as opposed to joint ventures where entities share risk, resources and the buyer can independently weigh the merits of contracting with the joint entity.

The full Manawatu Standard article can be found here.

CCC’s: Guest Post by Avinash Amarnath On CCI (India) Price-Fixing Decision

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The Competition Commission of India is struggling to find consistency around whether parallel conduct can form the basis for finding an agreement.  This helpful post by attorney Avinash Amarnath of Vinod Dhall and TT&A explains the latest CCI decision.  I imagine the Competition Appellate Tribunal and Supreme Court of India will eventually weigh in and Mr. Amarnath will keep us posted when they do.  Here is Mr. Amarnath’s latest post:

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CCI imposes penalty of USD 38.6 million on airlines for fixing fuel surcharge

Just when one almost thought that the year 2015 would go by without a major cartel fine, the Competition Commission of India (CCI) published a decision on 17 November 2015 imposing penalties of USD 38.6 million (approx.) in total on three airlines, Jet Airways, InterGlobe Aviation (which operates under the brand ‘Indigo’) and Spice Jet. The CCI found the three airlines guilty of fixing the rates of fuel surcharge (FSC) charged on the carriage of cargo. The FSC is a component of the cargo freight charge whose primary purpose is to cover fluctuations in global crude oil prices.

The complaint was filed by the Express Industry Council of India, an industry body representing cargo companies such as DHL and FedEx. The CCI had found prima facie merit in the complaint and directed the Director General (the DG, the investigative arm of the CCI) to conduct a detailed investigation into the matter. On investigation, the DG found that although the behaviour of the airlines was not in accordance with market conditions, no evidence was found of collusion between the airlines. However, the CCI disagreed with the DG’s conclusions and found that a pattern of parallelism existed in the FSC increases by the three airlines. In particular, the CCI found that during certain periods, the three airlines had increased the FSC even when global crude oil prices had been falling. The CCI observed that no rational explanation had been offered by the parties for this parallel behaviour. Further, the CCI found that data about intended price increases may have been exchanged among airlines through common agents and other sources which reduced uncertainty about their commercial conduct. The CCI also found that although the airlines claimed that internal meetings had taken place to discuss and decide on FSC increases, no data on costs or any documentary proof was placed on record by any of the airlines to prove that such meetings had taken place. Based on the above factors, the CCI concluded that the only possible explanation for such parallel movement was that a cartel existed between the three airlines.

The most significant takeaway from the CCI’s decision seems to be a change in the evidentiary standard in cartel cases involving price parallelism and circumstantial evidence. In previous cases, the CCI has observed that mere price parallelism would constitute insufficient evidence to establish a cartel and that certain ‘plus factors’ would be needed to corroborate the price parallelism. However, in this case, the CCI seems to suggest that price parallelism alone can constitute sufficient evidence of a cartel if there is no other possible explanation for such parallelism other than a cartel This seems to be in line with the evidentiary standard established by the European Court of Justice for a ‘concerted practice’ in Woodpulp II. Although the Indian legislation does not contain a separate concept of a ‘concerted practice’ as applied in the European Union, the definition of agreement under the legislation covers any ‘arrangement or understanding or action in concert’ and it appears that the CCI’s intention is to interpret the term ‘agreement’ broadly enough to include ‘concerted practices’. It is difficult to comment on whether the test was correctly applied in this case, i.e. whether there was in fact a pattern of parallelism and no other possible explanation for such parallelism without knowledge of the complete facts of the case. The parties did argue that the parallelism was a result of oligopolistic market conditions. While the CCI notes that parallel behaviour of competitors can be a result of intelligent market adaptation in an oligopolistic market, the CCI rejected this argument in the present case by simply making a general conclusion that the only possible explanation for parallel conduct in this case was collusion without assigning any specific reasons as to why this parallelism was not the result of oligopolistic market conditions.

Whilst the principles enunciated by the CCI in this case seem to be sound, the CCI must be cautious in evaluating parallel conduct and possible explanations for the same in future cases to avoid the risk of false positives.

The full decision of the CCI is available here.

Mr. Amarnath can be reached [email protected].

Former Military Contractor Sentenced to 12 Months in Prison for Paying Bribes to Army Officers during Iraq War

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The former president of a defense contractor providing services to the U.S. military in Iraq was sentenced today to 12 months and one day in prison for his role in a scheme to pay more than $1.2 million in bribes to U.S. Army contracting personnel in exchange for being awarded lucrative defense contracts, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Zane David Memeger for the Eastern District of Pennsylvania.

U.S. District Judge Joel H. Slomsky in the Eastern District of Pennsylvania sentenced Justin W. Lee, 37, of Philadelphia, the former president of Lee Dynamics International (LDI), who pleaded guilty in July 2011 to one count of conspiracy to commit bribery and four substantive counts of bribery.

In connection with his guilty plea, Lee admitted that as the president of LDI and previously as an officer of American Logistics Services (ALS), a Kuwaiti company providing supplies to the U.S. military in Iraq, he paid multiple bribes in the form of cash, airline tickets, trips and hotel stays, among other things, to military contracting personnel in exchange for their agreement to take official action to award lucrative contracts to both LDI and ALS.

Lee’s father and co-defendant, George Lee, who was the CEO of both companies, was sentenced to 54 months in prison in July 2015 for one count of bribery.  This marks the end of a long-running investigation, which began in 2006, that led to the conviction of seven other defendants, including several high-ranking contracting officers.

The U.S. Army Criminal Investigation Command, the Defense Criminal Investigative Service and the U.S. Department of Homeland Security – Immigration and Customs Enforcement investigated the case, and the Office of the Special Inspector General for Iraq Reconstruction, the FBI and the Internal Revenue Service previously contributed to the investigation.  Trial Attorneys Richard B. Evans and John Keller of the Criminal Division’s Public Integrity Section and the U.S. Attorney’s Office of the Eastern District of Pennsylvania prosecuted the case.  Mark W. Pletcher and Emily W. Allen of the U.S. Attorney’s Office of the Southern District of California previously provided substantial assistance.

Guest Post from Ai Deng, Bates White

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Below is a guest post from economist Ai Deng, Phd. of Bates White Economic Consulting:

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Hope everyone had a wonderful Thanksgiving holiday.

I thought the readers may be interested in knowing about the recent Global Forum on Competition hosted by OECD.

The event, taking place just a month ago, had a session on cartels titled “Serial offenders: Why do some industries seem prone to endemic collusion?” The panelists included Professor Joseph Harrington (The Wharton School, University of Pennsylvania), Professor Robert Marshall (Department of Economics, Penn State University and Bates White), Professor Valerie Suslow (Carey Business School, Johns Hopkins University), and Mr. Robert Wilson (Webber Wentzel). I did not attend the program in person, but the program materials including the panelists’ presentations are available for download here.

The panelists Professors Harrington, Marshall, and Suslow have all done influential academic research on cartel-related topics. Their work was cited in my own recent research on cartel detection and monitoring. Mr. Wilson, a partner in the Competition Practice at Webber Wentzel, specializes in competition law and international trade.

To give the readers a quick, high level overview,

Professor Harrington’s presentation provides his thoughts on when firms collude. He then describes a 3-step inductive approach to cartel screening and uses the cement market as an example to demonstrate how to apply such an approach in practice.
Using a dataset of cartel participants based on the European Commission (EC) decisions in cartel cases, Professor Marshall specifically notes the role of association management companies (AMC) in cartels. He argues that “it would be valuable to understand the role of AMCs…” and if AMCs compete “with one another to provide this [cartel] services to firms in a product/industry/market, then antitrust policy should be directed toward deterring the role of AMCs with regard to such anticompetitive activities.”
Mr. Wilson’s presentation overviews South Africa’s Competition Act and then specifically focuses on South African construction industry. He identifies possible reasons for the extensive collusion in that industry and makes policy recommendations.
Professor Suslow’s presentation is titled “Serial Collusion in Context: Repeated offenses by firm or by industry?” In addition to address the question raised in the title, she also discusses seven policy tools and emphasized the importance of understanding what leads to collusion in the first place to select appropriate policy tool.

There is a wealth of information in their presentations and supplemental materials. In addition to the panelists’ presentations, also available for download are a “background note by secretariat” and contributions from a number of jurisdictions.

Ai Deng, PhD

Principal

direct: 2022161802 | fax: 2024087838

1300 Eye Street NW, Suite 600, Washington, DC 20005

[email protected]

BATESWHITE.COM

“Bring Back Antitrust ” by David Dayen

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I thought readers might be interested in this article “Bring Back Antitrust” by David Dayen in the Fall issue of The American Prospect. The headline paragraph of the article is:

“Despite low inflation and some bargain prices, economic concentration and novel abuses of market power are pervasive in today’s economy—harming consumers, workers, and innovators. We need a new antitrust for a new predatory era.”

The article’s focus is market concentration resulting from mergers and alleged anticompetitive practices.  The article has a decidedly progressive tilt, arguing that the current state of concentration in most industries is harmful for consumers. For example, some may cringe at this statement: “Since the Reagan Justice Department neutered antitrust enforcement, a posture substantially ratified by increasingly conservative courts….”   But the article also cites scholarly studies:

            John Kwoka, an economics professor at Northeastern University, collected retrospective data on 46 closely studied mergers, and found that 38 of them resulted in higher prices, with an overall average increase of 7.29 percent. In cases where the Justice Department imposed some sort of condition for accepting a merger, like divestiture of some product lines or bans on retaliation against rivals, the price increases were even higher, ranging from 7.68 percent to 16.01 percent. By this analysis, consumers don’t benefit at all from merger activity, as market power overwhelms whatever efficiency gains.

Two former colleagues of mine, Allen Grunes and Maurice Stucke were quoted in the article. Despite the merger/concentration focus of the article, I was interviewed by Mr. Dayen about cartel enforcement. I was quoted in the article relating to the Antitrust Division’s closing of four field offices in January 2013, including the Philadelphia Field Office where I was Chief. (They could have just asked me to leave—they didn’t have to close the whole office :-).  “The shuttering of over half of the field offices damaged agency morale. The remaining offices can’t cover the territory,” says Robert Connolly, chief of the field office in Philadelphia when it was closed. “I think there’s a sense that the Antitrust Division is not that interested in local and regional cases.” To me, the bigger picture was also that the regional offices were also incredibly successful in fighting international cartels. For example, the prosecution of international cartels was jumped started with the successful prosecution of the ADM lysine cartel by the [still open] Chicago field office.  The now closed Dallas office prosecuted the vitamins cartel and my office prosecuted the graphite electrodes and related cartels. All of the Division’s criminal enforcement sections, whether in DC or in the field, have had great success prosecuting international cartels. What mattered was not the address of the staff handling the case, but their talent/experience, interest in antitrust enforcement and pride in being a public servant. The Division lost a lot of that “stuff.” But while the field office closings was a setback, obviously the Division marches on with great success.

“Bring Back Antitrust” is full of the history of antitrust enforcement, discussion of important cases, both famous and not so much, and offers a point of view that may get some attention in the upcoming presidential election.

Thanks for reading.

PS.  There is also an opinion piece in the Washington Post (here) that discusses “Bring Back Antitrust.”

Owner of Los Angeles Medical Supply Company Convicted in $4 Million Medicare Fraud Scheme

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A federal jury in Los Angeles convicted a Los Angeles man and owner of a medical supply company today for his role in a $4 million Medicare fraud scheme.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Eileen M. Decker of the Central District of California, Special Agent in Charge Christian J. Schrank of the U.S. Department of Health and Human Services-Office of Inspector General’s (HHS-OIG) Los Angeles Region and Assistant Director in Charge David L. Bowdich of the FBI’s Los Angeles Field Office made the announcement.

According to evidence presented at trial, Valery Bogomolny, 43, used his company, Royal Medical Supply, to bill Medicare $4 million between January 2006 and October 2009 for power wheelchairs (PWCs), back braces and knee braces that were medically unnecessary, not provided to beneficiaries or both.  The evidence further showed that Bogomolny created false documentation to support his false billing claims, including creating fake reports of home assessments that never occurred.  Bogomolny personally delivered PWCs to beneficiaries who were able to walk without assistance and signed documents stating that he had delivered equipment when the equipment was not actually delivered.  Bogomolny ultimately received $2.7 million from Medicare on these false claims.

A sentencing hearing is scheduled for Feb. 29, 2016, before U.S. District Judge S. James Otero of the Central District of California, who presided over the trial.

The case was investigated by the FBI and HHS-OIG and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section.  Trial Attorneys Fred Medick and Ritesh Srivastava of the Criminal Division’s Fraud Section are prosecuting this case.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged nearly 2,300 defendants who have collectively billed the Medicare program for more than $7 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

Six Convicted on Business Opportunity Fraud Charges

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Verdict Brings Total of 22 Individuals Convicted in Scheme 

A jury in Central Islip, New York, convicted six men yesterday on felony charges of conspiracy and fraud in the sale of candy vending machine business opportunities, the Department of Justice announced.

Edward Morris “Ned” Weaver, 42, of Perrysburg, Ohio, and Lawrence A. Kaplan, 57, of Brooklyn, New York, were convicted of conspiracy, six counts of fraud and one count each of making false statements to federal agents during a related criminal investigation.  Scott M. Doumas, 43, of East Setauket, New York, was convicted of one count of conspiracy and one count of mail fraud.  Richard R. Goldberg, 43, of Bay Shore, New York, and Richard Linick, 73, of Coram, New York, were each convicted of conspiracy and one count of wire fraud.  Paul E. Raia, 64, of Brookhaven, New York, was convicted of conspiracy and two counts of wire fraud.

The convictions followed a six-week trial before U.S. District Court Judge Joan M. Azrack in federal court in the Eastern District of New York.  Each of the defendants faces a statutory maximum sentence of 10 years in prison on the conspiracy count and 25 years in prison on the fraud counts.  Weaver and Kaplan face a statutory maximum sentence of five years in prison on the false statements charges.

“These defendants promised their victims the American dream, but knew that what they in fact were offering was a worthless business opportunity,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “The Department of Justice will continue to prosecute those who seek to scam out of everyday Americans the hard-earned money in their retirement accounts and life savings.”

According to evidence presented at trial, managers, sales representatives and operators of “locating companies” associated with Multivend LLC, d/b/a Vendstar, made material misrepresentations about the profits customers would make from bulk candy vending machines. During the telemarketing calls, Vendstar’s sales representatives falsely claimed to operate their own profitable vending machine businesses.

Additional evidence at trial described how Vendstar advertised nationwide in newspapers and on the Internet.  Vendstar sales representatives promised to provide consumers with everything they needed to operate a successful business, including vending machines, an initial supply of candy, assistance in finding locations for the vending machines, training and ongoing customer assistance.  The locating companies who worked with Vendstar to close deals had no special skills, tools or expertise in finding locations and generally placed consumers’ machines wherever they could as quickly as they could, often in businesses that had not consented to housing the machines and that soon demanded that the machines be removed.  The vending machines generated little business and Vendstar’s customers lost all or nearly all of their investments.  The typical customer paid about $10,000 for the business opportunity.

Prior to this trial, 16 other Vendstar managers, Vendstar sales representatives and locating company operators pleaded guilty to federal felony charges for related conduct at Vendstar.  Evidence presented at trial established that from 2005 to 2010, the Vendstar scheme cost consumers $60 million.

Principal Deputy Assistant Attorney General Mizer commended the U.S. Postal Inspection Service for their investigative efforts.  The case was prosecuted by Trial Attorneys Patrick Jasperse and Alan Phelps of the Civil Division’s Consumer Protection Branch.

Army Captain Pleads Guilty to Gratuities Charge

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A Colorado Springs, Colorado, man pleaded guilty today in federal court before U.S. District Judge Terrence W. Boyle of the Eastern District of North Carolina to solicitation and receipt of a gratuity, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Thomas G. Walker of the Eastern District of North Carolina.

In connection with his plea, Captain David Anthony Kline, 32, admitted that while serving as a first lieutenant in the U.S. Army stationed at Kandahar Air Field (KAF) in Afghanistan, he sought and accepted $50,000 in gratuities from a contractor who was doing business with the U.S. military.  Specifically, from January 2008 to April 2009, then-1st Lt. Kline was deployed to KAF where he oversaw the handling of transportation movement requests (TMRs) directing the transport of supplies from one location to another across Afghanistan.  Although contracting procedures technically did not permit the authorizing officer to specify the particular Afghan trucking company that would perform the transportation, in practice, Kline and others were able to designate the Afghan company of their choice.  Kline admitted that he sought and accepted $50,000 in U.S. currency from an Afghan national who owned a trucking company doing business on government contracts at KAF, in return for Kline’s facilitation of the award and payment of numerous transportation contracts.

The case was investigated by the Defense Criminal Investigation Service, Army Criminal Investigation Command, the Special Inspector General for Afghanistan Reconstruction and FBI.  The case was prosecuted by Trial Attorney Wade Weems of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Banumathi Rangarajan of the Eastern District of North Carolina.