Category Archives: Antitrust Division

Former Rabobank Trader Pleads Guilty for Scheme to Manipulate Yen Libor

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A former Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) Japanese Yen derivatives trader pleaded guilty today for his role in a conspiracy to commit wire and bank fraud by manipulating Rabobank’s Yen London InterBank Offered Rate (LIBOR) submissions to benefit his trading positions.
Attorney General Eric H. Holder, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division and Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office made the announcement.
Today, a criminal information was filed in the Southern District of New York charging Takayuki Yagami, a Japanese national, with one count of conspiracy to commit wire fraud and bank fraud.   Yagami pleaded guilty to the information before United States District Judge Jed S. Rakoff in the Southern District of New York.
“With this guilty plea, we take another significant step to hold accountable those who fraudulently manipulated the world’s cornerstone benchmark interest rate for financial gain,” said Attorney General Eric Holder.  “This conduct distorted transactions and financial products around the world.  Manipulating LIBOR effectively rigs the global financial system, compromising the fairness of world markets.  This plea demonstrates that the Justice Department will never waver, and we will never rest, in our determination to ensure the integrity of the marketplace and protect it from fraud.
“Today, a former Rabobank trader has pleaded guilty to participating in a scheme to manipulate the global benchmark interest rate LIBOR to benefit Rabobank’s trading positions,” said Assistant Attorney General Caldwell.    “This was the ultimate inside job.    As alleged, traders illegally influenced the very interest rate on which their trades were based, using fraud to gain an unfair advantage.    Takayuki Yagami is the ninth person charged by the Justice Department in connection with the industry-wide LIBOR investigation, and we are determined to pursue other individuals and institutions who engaged in this crime.”
“Today’s guilty plea is a significant step forward in the LIBOR investigation and demonstrates the Department’s firm commitment to individual accountability,” said Deputy Assistant Attorney General Snyder.  “We will continue to pursue aggressively other individuals involved in this or other illegal schemes that undermine free and fair financial markets.”
“Manipulating financial trading markets to create an unfair advantage is against the law,” said Assistant Director in Charge Parlave.  “Today’s guilty plea further underscores the FBI’s ability to investigate complex international financial crimes and bring the perpetrators to justice.  The Washington Field Office has committed significant time and resources including the expertise of Special Agents, forensic accountants and analysts to investigate this case along with our Department of Justice colleagues.  Their efforts send a clear message to anyone contemplating financial crimes: think twice or you will face the consequences.”
According to court documents, LIBOR is an average interest rate, calculated based on submissions from leading banks around the world, reflecting the rates those banks believe they would be charged if borrowing from other banks.    LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans and other consumer lending products.    The Bank of International Settlements estimated that as of the second half of 2009, outstanding interest rate contracts were valued at approximately $450 trillion.
At the time relevant to the charges, LIBOR was published by the British Bankers’ Association (BBA), a trade association based in London.    LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year.    The published LIBOR “fix” for Yen LIBOR at a specific maturity is the result of a calculation based upon submissions from a panel of 16 banks, including Rabobank.
Yagami admitted to conspiring with Paul Robson, of the United Kingdom, Paul Thompson, of Australia, and Tetsuya Motomura, of Japan.  Robson, Thompson and Motomura were charged with conspiracy to commit wire fraud and bank fraud as well as substantive counts of wire fraud in a fifteen-count indictment returned by a federal grand jury in the Southern District of New York on April 28, 2014.    All four are former employees of Rabobank.
Rabobank entered into a deferred prosecution agreement with the Department of Justice on Oct. 29, 2013 and agreed to pay a $325 million penalty to resolve violations arising from Rabobank’s LIBOR submissions.
According to allegations in the information and indictment, the four defendants traded in derivative products that referenced Yen LIBOR.    Robson worked as a senior trader at Rabobank’s Money Markets and Short Term Forwards desk in London; Thompson was Rabobank’s head of Money Market and Derivatives Trading Northeast Asia and worked in Singapore; Motomura was a senior trader at Rabobank’s Tokyo desk who supervised money market and derivative traders; and Yagami worked as a senior trader at Rabobank’s Money Market/FX Forwards desks in Tokyo and elsewhere in Asia.    In addition to trading derivative products that referenced Yen LIBOR, Robson also served as Rabobank’s primary submitter of Yen LIBOR to the BBA.
Robson, Thompson, Motomura and Yagami each entered into derivatives contracts containing Yen LIBOR as a price component .    The profit and loss that flowed from those contracts was directly affected by the relevant Yen LIBOR on certain dates.    If the relevant Yen LIBOR moved in the direction favorable to the defendants’ positions, Rabobank and the defendants benefitted at the expense of the counterparties.    When LIBOR moved in the opposite direction, the defendants and Rabobank stood to lose money to their counterparties.
As alleged in court filings, from about May 2006 to at least January 2011, the four defendants and others agreed to make false and fraudulent Yen LIBOR submissions for the benefit of their trading positions.    According to the allegations, sometimes Robson submitted rates at a specific level requested by a co-defendant, including Yagami, and consistent with the co-defendant’s trading positions.    Other times, Robson made a higher or lower Yen LIBOR submission consistent with the direction requested by a co-defendant and consistent with the co-defendant’s trading positions.    On those occasions, Robson’s manipulated Yen LIBOR submissions were to the detriment of, among others, Rabobank’s counterparties to derivative contracts.    Thompson, Motomura and Yagami (described in the indictment as Trader-R) made requests of Robson for Yen LIBOR submissions through electronic chats and email exchanges.
For example, according to court filings, on Sept. 21, 2007, Yagami asked Robson by email, “wehre do you think today’s libors are?    If you can I would like 1mth higher today.” Robson responded, “bookies reckon .85,” to which Yagami replied, “I have some fixings in 1mth so would appreciate if you can put it higher mate.” Robson answered, “no prob mate let me know your level.” After Yagami asked for “0.90% for 1mth,” Robson confirmed, “sure no prob[ ] I’ll probably get a few phone calls but no worries mate… there’s bigger crooks in the market than us guys!”
The indictment alleges that Robson accommodated the requests of his co-defendants.    For example, on Sept. 21, 2007, after Robson allegedly received a request from Yagami for a high 1-month Yen LIBOR, Rabobank submitted a 1-month Yen LIBOR rate of 0.90, which was 7 basis points higher than the previous day and 5 basis points above where Robson said that “bookies” predicted it, and which moved Rabobank’s submission from the middle to the highest of the panel.
According to court documents, the defendants were also aware that they were making false or fraudulent Yen LIBOR submissions.    For example, on May 10, 2006, Robson admitted in an email to Yagami that “it must be pretty embarrasing to set such a low libor.  I was very embarrased to set my 6 mth – but wanted to help thomo [Thompson].  Tomorrow it will be more like 33 from me.” At times, Robson referred to the submissions that he submitted on behalf of his co-defendants as “ridiculously high” and “obscenely high,” and acknowledged that his submissions would be so out of line with the other Yen LIBOR panel banks that he might receive a phone call about them from the BBA or Thomson Reuters.
The charges in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
The investigation is being conducted by special agents, forensic accountants, and intelligence analysts in the FBI’s Washington Field Office.    The prosecution is being handled by Senior Litigation Counsel Carol L. Sipperly and Trial Attorney Brian R. Young of the Criminal Division’s Fraud Section, and Trial Attorney Michael T. Koenig of the Antitrust Division.    The Criminal Division’s Office of International Affairs has provided assistance in this matter.
The Justice Department expresses its appreciation for the assistance provided by various enforcement agencies in the United States and abroad.    The Commodity Futures Trading Commission’s Division of Enforcement referred this matter to the department and, along with the U.K. Financial Conduct Authority, has played a major role in the LIBOR investigation.  The Securities and Exchange Commission also has played a significant role in the LIBOR series of investigations, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.     The department has worked closely with the Dutch Public Prosecution Service and the Dutch Central Bank in the investigation of Rabobank.    Various agencies and enforcement authorities from other nations are also participating in different aspects of the broader investigation relating to LIBOR and other benchmark rates, and the department is grateful for their cooperation and assistance.
This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes.  For more information about the task force visit: www.stopfraud.com.

 

Connolly’s Cartel Capers “Auto Part Investigation Shifts Gears”

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Auto Part Investigation Shifts Gears

 by  CartelCapers

In the last several months, the Antitrust Division has obtained indictments of a number of Japanese executives in the auto parts investigation. This is the hallmark of an investigation that is shifting gears. For the most part, but not entirely, the Division has picked the low hanging fruit with amnesty and non-prosecution agreements. It has shaken a few trees and obtained plea agreements with individuals who received substantially reduced 5K sentences in return for the plea and cooperation. Now enters the phase where individuals are indicted, either because the Division believed they were too senior to offer 5K discounts, the Division no longer needed cooperation, or because the individual declined the invitation to come to the United States and submit to US jurisdiction. Now, the investigation enters what could be likened to the “100 Years War,” depending upon the longevity of the fugitive defendant. The hostile parties keep their respective difference, with an occasional battle fought if there is an extradition or voluntary surrender.  

Yesterday Gikou Nakajima, the highest-ranking global sales executive at Takata Corp. was indicted and charged with rigging bids for seat belts sold to various car companies.http://www.justice.gov/atr/public/press_releases/2014/306344.htm  Two weeks earlier, A Japanese executive was indicted on one count of bid rigging and also for obstruction of justice in a second count. http://www.justice.gov/atr/public/press_releases/2014/306153.htm. In April, an indictment was returned against one current executive and two former executives of Bridgestone Corp. for their roles in an international conspiracy to fix prices of automotive anti-vibration rubber parts sold in the United States and elsewhere.http://www.justice.gov/atr/public/press_releases/2014/305205.htm.  The return of indictments signals that the Division has secured sufficient cooperation from witnesses and reviewed enough documents to be confident enough in their facts to seek indictments.  The auto parts investigation has had many facets involving over many different parts. See USDOJ Chart, Auto Parts Targeted by Conspirators:http://www.justice.gov/atr/public/press_releases/2013/300969a.pdf.  As each phase of this investigation wraps up, additional indictments should be forthcoming.

What Happens Next?

Usually, nothing. The Division has foreign fugitives in most of its international cartel cases dating back to ADM. In most cases the indictments, and the defendants’ identity, are public. But, in some cases the indictment of a foreign national may be under seal. (In the 1980’s, the Philadelphia office indicted an Israeli citizen under seal and he was arrested entering the US. That saga of that case is another story.) But, typically, the Division will have a foreign fugitive placed on an Interpol “Red Notice” making travel precarious for that executive for the rest of his life. In most cases, the executives preserved by the Division for indictment are the most senior members of the company involved in the conspiracy. Foreign fugitive defendants will likely retire, fire their travel agent and stay in the home country. The Division will maintain the documents and other evidence needed to try the case should Interpol actually pick up the fugitive. (One Japanese executive was arrested in India and spent some time in an Indian prison before the India authorities decided they would not extradite him on “dual criminality” grounds.). From time to time, Division attorneys may even get false alarms—foreigners with the same or similar name as a fugitive being picked up and held for questioning. The Division will maintain the file on its foreign fugitives indefinitely because unless it is notified, it has no way of knowing if the fugitive is dead or alive.

Sentencing Guidelines Are A Huge Factor

The primary measure of culpability under the US Sentencing Guidelines is volume of commerce.  Not surprisingly, international cartels tend to press the outer boundaries of the maximum ten year prison sentence under the Sherman Act.  A look at the possible Sentencing Guidelines for a fugitive like Mr. Nakajima shows why there is strong incentive for him to say put in Japan. While these figures may be off slightly, if he were convicted of the charged indictment, he would be facing a possible prison sentence under the United States Sentencing Guidelines of 87- 108 months in jail:

 

Base Offense 2R1.1                           +12

Offense involves Bid Rigging           +1

Volume of Commerce                       +12 (based on likely commerce of more than $500,00   but less than 1 billion

Role in the Offense                           +4

Total Offense Level                           29

Guideline Range                                87 – 108 months

If a foreign fugitive voluntarily submitted to US jurisdiction and plead guilty, he would be eligible for a 3-point reduction for acceptance of responsibility with a resulting guideline range of 63-78 months. (The court would likely depart from the sentencing guidelines over the Division’s objections and impose a lesser sentence. There is, however, no guarantee that this would occur.) The longest sentence one of Mr. Nakajima’s subordinates received was 19 months. It is not likely Mr. Nakajima will ever voluntarily submit to US jurisdiction.

Extradition

 Yesterday, at an event in New York, Brent Snyder, Antitrust Division DAAG for Criminal Enforcement noted “More jurisdictions are adopting criminal antitrust statutes and what that will do is that it will make extradition easier to obtain. There are going to be fewer and fewer safe havens.” Also, the Division recently obtained what it called the “first of its kind” extradition on an antitrust charge against Romano Pisciotti, an Italian national who was involved in the marine hose global conspiracy. http://www.justice.gov/atr/public/press_releases/2014/304888.htm.  Once in the U.S., Pisciotti quickly agreed to plead guilty will serve a total of two years in prison with credit for the nine months and 16 days he was held in the custody of the German government pending his extradition.  The Pisciotti extradition has been widely covered.http://www.forbes.com/sites/mergermarket/2014/04/23/doj-flexing-muscle-on-price-fixers-worldwide/. It has been noted that Germany would not have extradited Pisciotti if he were a German citizen. But there are three main takeaways from his extraction journey that are worth repeating:

 

  • Pisciotti was indicted under seal. Foreign executives involved in a cartel who do not have some kind of agreement with the Antitrust Division may never know whether they are a fugitive
  • Pisciotti spent nine and half months in a German prison awaiting word of whether Germany would extradite him. If Interpol picks up a foreign fugitive, even if not ultimately extradited, the process can be a significant penalty in itself.
  • The Division has used the Pisciotti extradition as a platform to express its intention to work with competition agencies worldwide to shrink safe harbors for fugitives from cartel indictments.
  • To the extent that the Division is able to secure the extradition of more foreign executives to face cartel charges, the significant reductions in sentence that cooperating foreign executives receive in 5K downward departures will likely tick upward.

A Look Ahead
The country that leads the league in most executives as fugitives from US antitrust indictments is Japan. This is true overall and in the auto parts investigation. The US has not extradited any Japanese citizens for an antitrust violation. Because Japan also makes price fixing and bid rigging a criminal offense, the issue of dual criminality may not be an obstacle (though there are certain differences in the statutes of the two countries). An extradition of an executive from Japan would be an enormous development. As noted above, a Japanese auto parts executive was recently indicted on both price-fixing and obstruction. Coincidently, the first successful extradition by the Antitrust Division involved an executive indicted on both Sherman Act and obstruction charges. When I was Chief of the Philadelphia office, we indicted a British executive, Ian Norris, on both a price fixing count and three counts of obstruction. Eventually, he was extradited only on the obstruction counts. Norris was convicted on one count and sentenced to 18 months in prison. Will the Division take a page out of the same playbook here? More developments await.

FORMER TOP EXECUTIVE OF JAPANESE AUTOMOTIVE PARTS

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WASHINGTON — A Detroit federal grand jury returned a one-count indictment against a former top executive of a Japanese manufacturer of automotive parts for his participation in a conspiracy to fix prices of seatbelts, the Department of Justice announced today.

The indictment, filed today in the U.S. District Court for the Eastern District of Michigan, charges Gikou Nakajima, a former executive at Takata Corp., with participating in a conspiracy to suppress and eliminate competition in the automotive parts industry by agreeing to rig bids for, and to fix, stabilize and maintain the prices of, seatbelts sold to Toyota Motor Corp., Honda Motor Company Ltd., Nissan Motor Co. Ltd., Mazda Motor Corp., Fuji Heavy Industries Ltd. – more commonly known by its brand name, Subaru – and/or certain of their subsidiaries, for installation in vehicles sold in the United States and elsewhere.  Nakajima served as director of customer relations division at Takata, the highest-level global sales executive at the company, from June 2005 until at least June 2009.

“Today’s indictment demonstrates that the Antitrust Division continues to hold accountable executives who collude with their competitors,” said Brent Snyder, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program.  “The division will not tolerate executives participating in – and directing their subordinates to participate in – conspiracies to raise the prices on automotive parts that are essential to the safety of U.S. consumers.”

The indictment alleges, among other things, that from at least as early as September 2005 and continuing until June 2009, Nakajima and others attended meetings with co-conspirators and reached collusive agreements to rig bids, allocate the supply and fix the prices of seatbelts sold to the automobile manufacturers. It alleges that Nakajima participated directly in the conspiratorial conduct, and that he directed, authorized and consented to his subordinates’ participation.

Takata is a Tokyo-based manufacturer of automotive parts, including seatbelts.  Takata supplies automotive parts to automobile manufacturers in the United States, in part, through its U.S. subsidiary, TK Holdings Inc., located in Auburn Hills, Michigan.  Takata pleaded guilty on Dec. 5, 2013, for its involvement in the conspiracy, and was sentenced to pay criminal fine of $71.3 million.  Four other executives from Takata have pleaded guilty and have been sentenced to serve time in a U.S. prison and to pay criminal fines for their roles in the conspiracy.

Including Nakajima, 35 individuals have been charged in the government’s ongoing investigation into price fixing and bid rigging in the auto parts industry, 24 of whom have pleaded guilty or agreed to plead guilty.  Of those, 22 have been sentenced to serve prison terms ranging from a year and one day to two years.  Additionally, 27 companies have pleaded guilty or agreed to plead guilty and have agreed to pay a total of more than $2.3 billion in fines.

Nakajima is charged with price fixing in violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.  The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today’s indictment is the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by four of the Antitrust Division’s criminal enforcement sections and the FBI.  Today’s charge was brought by the Antitrust Division’s Washington Criminal I Section and the FBI’s Detroit Field Office, with the assistance of the FBI headquarters’ International Corruption Unit.  Anyone with information on price fixing, bid rigging and other anticompetitive conduct related to other products in the automotive parts industry should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258, visit www.justice.gov/atr/contact/newcase.html or call the FBI’s Detroit Field Office at 313-965-2323.

Robert E. Connolly Launches New Blog: “Cartel Capers:” http://cartelcapers.com.

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Robert E. ConnollyGeyer Gorey Partner Robert E. Connolly Announces the Debut of A New Blog: “Cartel Capers:” http://cartelcapers.com.

Robert Connolly recently joined GeyerGorey LLP as a partner in its Washington DC office. As with other GeyerGorey “former feds,” Mr. Connolly was a career federal prosecutor in the Antitrust Division. He was Chief of the Middle Atlantic Office of the Antitrust Division from 1994 until early 2013. Mr. Connolly has just launched his blog, Cartel Capers.

While at the Division, and particularly as a senior manager as Chief, Mr. Connolly had a seat at the table as the Division developed and implemented its successful leniency program.   He also had input on all major aspects of policy and procedure in the criminal program such as investigative strategies, charging decisions, trial game plans, sentencing policy issues, and extradition.   Since leaving the Division, Mr. Connolly has been a prolific author writing a number of articles for the ABA Criminal Cartel and Procedure committee, Mlex and Law 360. He has been quoted on cartel issues in Forbes, BusinessWeek, and various trade publications that focus on antitrust. He has decided to try his hand at blogging to provide more real time news, insight and analysis.

The blog, Cartel Capers, will provide current news in the cartel world. The focus will be on matters concerning the Antitrust Division, US Department of Justice, but will also cover major cartel related developments in the civil arena as well as worldwide. Besides reporting current developments, the aim of the blog is to provide insight and perspective from someone who worked at a high level in the Division for most of his career. The blog will analyze what the Division said, and what it did not say; what the Division did, and what it did not do—and what the Division is likely to do in the future. In short, the blog is intended to provide a behind the scenes look at the cartel world based on both personal experience and current contacts in the enforcement and broader antitrust community.

The blog will be enriched by contributions from other career DOJ prosecutors now at GeyerGorey. Hays Gorey, Joan Marshall and Brad Geyer will contribute both as editors and guest bloggers. Each has prosecuted a variety of high profile cartel cases and related violations in their long careers with the Division.

Please give Cartel Capers a try. Hopefully you will benefit form reading the blog and look forward to new entries. Also, any feedback or suggestions to make the blog more useful are most welcome. Cartel Capers: http://cartelcapers.com.

Japanese Automotive Parts Manufacturer Executive Indicted for Role in Conspiracy to Fix Prices and for Obstruction of Justice

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A Detroit federal grand jury returned a two-count indictment against an executive of a Japanese manufacturer of automotive parts for his participation in a conspiracy to fix prices of heater control panels and for obstruction of justice for ordering the destruction of evidence related to the conspiracy, the Department of Justice announced today.

The indictment, filed today in the U.S. District Court for the Eastern District of Michigan, charges Hitoshi Hirano with participating in a conspiracy to suppress and eliminate competition in the automotive parts industry by agreeing to rig bids for, and to fix, stabilize and maintain the prices of heater control panels sold to Toyota Motor Corp. and Toyota Motor Engineering & Manufacturing North America Inc. (collectively, Toyota) for installation in vehicles manufactured and sold in the United States and elsewhere.    Hirano, who served as an executive managing director at Tokai Rika Co. Ltd., was also charged with knowingly and corruptly persuading, and attempting to persuade, executives of Tokai Rika to destroy documents and delete electronic data that may contain evidence of antitrust crimes in the United States and elsewhere.

“The Antitrust Division will not tolerate executives directing their subordinates to engage in illegal cartels and conspiracies,” said Brent Snyder, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program.    “Attempts to then obstruct justice and destroy evidence will give rise to additional charges.”

The indictment alleges, among other things, that from at least as early as October 2003 and continuing until at least February 2010, Hirano and others attended conspiratorial meetings with co-conspirators and reached collusive agreements to rig bids, allocate the supply and fix the prices for heater control panels sold to Toyota.    According to the indictment, Hirano participated directly in the conspiratorial conduct, and directed, authorized and consented to his subordinates’ participation.    In addition, the indictment charges that in February 2010, after Hirano learned that the FBI had searched Tokai Rika’s U.S. subsidiary, he knowingly and corruptly persuaded employees at Tokai Rika to destroy paper documents and delete electronic data intending to prevent the grand jury from obtaining evidence of antitrust crimes.

Tokai Rika is a manufacturer of automotive parts, including heater control panels, based in Nagoya, Japan.    Tokai Rika pleaded guilty on Dec. 12, 2012, for its role in the conspiracy and to obstruction of justice, and was sentenced to pay a $17.7 million criminal fine.

Heater control panels are located in the center console of an automobile and control the temperature of the passenger compartment of a vehicle.    Heater control panels differ by function and design for a particular vehicle model.    Examples include automatic heater control panels, which maintain the temperature within the vehicle to a designated temperature point, and manual heater control panels, which regulate the temperature through manual controls operated by vehicle occupants.

Including Hirano, 34 individuals have been charged in the government’s ongoing investigation into price fixing and bid rigging in the auto parts industry, 24 of whom have pleaded guilty or agreed to plead guilty.    Of those, 22 have been sentenced to serve prison terms ranging from a year and one day to two years. Additionally, 27 companies have pleaded guilty or agreed to plead guilty and have agreed to pay a total of more than $2.3 billion in fines.

Hirano is charged with price fixing in violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.    The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.    The maximum penalty for obstruction of justice is 20 years in prison and a $250,000 criminal fine for individuals.

Today’s indictment is the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by four of the Antitrust Division’s criminal enforcement sections and the FBI.    Today’s charges were brought by the Antitrust Division’s Washington Criminal I Section and the FBI’s Detroit Field Office, with the assistance of the FBI headquarters’ International Corruption Unit.    Anyone with information on price fixing, bid rigging and other anticompetitive conduct related to other products in the automotive parts industry should contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258, visit www.justice.gov/atr/contact/newcase.html or call the FBI’s Detroit Field Office at 313-965-2323.

Trustbusters Targeting Cartels Abroad Reined in by U.S. Judges

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Trustbusters Targeting Cartels Abroad Reined in by U.S. Judges
* * *

“The ruling opens the doors to foreign cartels to shield themselves from U.S. law by selling to a third party instead of directly into the U.S., said Robert Connolly, a lawyer at GeyerGorey LLP and a former prosecutor with the Justice Department’s antitrust division.

‘No Difference’

‘People can fix prices and then use a middleman,’ he said. ‘From an American consumer point of view, there’s really no difference.'”

* * *

Antitrust Division Increasing Procurement Fraud Footprint Once Again

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The Antitrust Division announced that a former owner and operator of a Florida-based airline fuel supply service company was sentenced today to serve 50 months in prison for participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.

This is a legacy case reassigned from the shuttered Atlanta Field Office suggesting a successful and a smooth transition of its assignment to the Washington 1 Criminal Office (formerly the National Criminal Enforcement Section).    For any tea leaf readers, AAG Bill Baer’s comments in this press release (reprinted below) suggest renewed focus by the Antitrust Division into procurement fraud and an increasing willingness to open, investigate and charge matters that involve non Title 15 U.S.C Section 1 offenses in all types of procurements.  The “tell” here is subtle, but it is very significant.

 Baer’s quote today:

 “Awarding government contracts in exchange for payoffs is a crime the Antitrust Division takes seriously,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “Today’s sentence reaffirms the division’s commitment to vigorously prosecute individuals who engage in this behavior.”

If you know the history of Title 18 procurement prosecutions, Baer’s commitment to bringing future procurement fraud cases is significant.  The Antitrust Division was a significant player during the Bush years’ National Procurement Fraud Task Force.  Besides domestic kickback and other Title 18 cases, the Division brought many overseas contingency operations (then “WarZone”) prosecutions for bidding corruption and grant fraud.  In fact, the Division had wide berth to investigate and prosecute cases that involved “corruption of the bidding or award process.”  This was a wider mandate than simply bringing cases of horizontal collusion among competitors.  The National Procurement Fraud Task Force was incorporated into the Financial Fraud Enforcement Task Force early in the Obama administration and resources were reallocated to new enforcement priorities in the wake of the financial crisis in 2008.  As everyone viewed their new enforcement mission through a financial crimes prism, the focus of the Antitrust Division returned to a more restrictive view of its mission, i.e., bringing Sherman Act cases under 15 U.S.C. Section 1.  At the height of this limitation, for an investigation to receive authority to be opened, it had to include evidence that on its face could be construed classic horizontal bid rigging conduct. 

It is beyond the scope of this blog entry, but there is much that goes into the press release process that provides insights into enforcement agency gestalt, resource allocation, drive to open cases, and willingness to keep cases open and to charge cases, particularly marginal ones.  A press release also can provide insight into the AAG’s mindset and, sometimes, even more importantly from an agency effectiveness perspective, what people reporting to the AAG think his mindset is.

Today’s quote from AAG Baer is instructive.  It is in an active, broad and forceful voice. In a sweeping statement it links “kickbacks” and “the Antitrust Division” in the same sentence and suggests direct Antitrust Division intervention.  Most importantly, it suggests an interest in crimes involving the payment of kickbacks to award contracts (a Title 18 offense where a Section 1 agreement between competitors is usually not present).  It then states that when offenses like these are committed they will be “tak[en] seriously…[and will be vigorously prosecut[ed]” by the Antitrust Division.

Contrast this with Baer’s statement in September 2013 regarding another case on the same investigation:

“Today’s sentence should serve as a stiff deterrent to executives who might be tempted to solicit a kickback from their supplies in exchange for their honest services,” said Bill Baer, Assistant Attorney General in charge of the Antitrust Division. “The Antitrust Division is committed to ensuring that contracts are won based on competition and not collusion.”

The 2013 AAG quote literally suggests that deterrence is provided by the length of this sentence rather than by any threat of immediate action by the Antitrust Division.  It then links to a general principle that references the blanket requirement imposed earlier in the Administration that a horizontal agreement between competitors had to be present to justify resources.  It also should be recognized that “collusion” is a primarily a term of art within the Antitrust Division directed at collusion among competitors rather than collusion with a contract officer. 

Baer’s current statement is forward-looking and reaffirms that procurement fraud as a Division priority.   For all intents and purposes, AAG Baer has indicated to line attorneys and the outside world (most importantly, investigative agencies) that the Antitrust Division is again open for cases of “corruption of the bidding or award process.”   This strongly suggests a move away from an exclusive focus on Invitation for Bids (IFB) contracting to the massively larger pie of “everything else” including cost plus contracts, prime vendor contracts, sole source contracts and even the issuance of grants.

To advise clients regarding risk analysis, GeyerGorey LLP has been tracking this progression because in many hidden, but key areas, the Antitrust Division provides disproportionate value to the government’s procurement fraud mission by supporting the agency mission, helping resource investigations and by providing continuity to long investigations and program management.  This message has been received loud and clear by Antitrust Division rank and file and it is in the process of being received by the FBI, IRS-CID and 38 Inspectors General who immediately recognize that they can bring cases to Antitrust that require extensive resourcing or which have been declined.   With history as a guide, we expect procurement fraud investigation openings to increase substantially and we expect current investigations to be prolonged or rekindled as resources are reallocated with Antitrust Division resources.  


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Former airline fuel owner sentenced in fraud scheme

Executive Sentenced to Serve 50 Months in Prison

A former owner and operator of a Florida-based airline fuel supply service company was sentenced today to serve 50 months in prison for participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.

Sean E. Wagner, the former owner and operator of Aviation Fuel International Inc. (AFI), was sentenced in the U.S. District Court for the Southern District of Florida in West Palm Beach to serve 50 months in prison and to pay $202,856 in restitution.  On Aug. 13, 2013, a grand jury returned an indictment against Wagner and AFI, charging them for their roles in a conspiracy to defraud Ryan. On March 6, 2014, Wagner pleaded guilty to one count of conspiracy to commit honest services wire fraud.   According to court documents, from at least as early as December 2005 through at least August 2009, Wagner and others at AFI made kickback payments to Wayne Kepple, a former vice president of ground operations for Ryan, totaling more than $200,000 in the form of checks, wire transfers, cash and gift cards in exchange for awarding business to AFI.  The charges against AFI were dismissed on Feb. 21, 2014.

Ryan provided air passenger and cargo services for corporations, private individuals and the U.S. government – including the U.S. Department of Defense and the U.S. Department of Homeland Security.

“Awarding government contracts in exchange for payoffs is a crime the Antitrust Division takes seriously,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “Today’s sentence reaffirms the division’s commitment to vigorously prosecute individuals who engage in this behavior.”

“This sentencing highlights the continuing commitment of the DCIS to thoroughly investigate and bring to justice any companies or individuals who engage in fraudulent and corrupt practices that undermine the integrity of Department of Defense procurement programs,” said John F. Khin, Special Agent in Charge of the Defense Criminal Investigative Service Southeast Field Office.

As a result of the ongoing investigation, five individuals, including Wagner, have pleaded guilty and have been ordered to serve sentences ranging from 16 to 87 months in prison and to pay more than $780,000 in restitution.  An additional individual has pleaded guilty to obstructing the investigation and is currently awaiting sentencing.

The investigation is being conducted by the Antitrust Division’s Washington Criminal I office and the U.S. Department of Defense’s Office of Inspector General’s Defense Criminal Investigative Service, with assistance from the U.S. Attorney’s Office for the Southern District of Florida.

FORMER OWNER OF AIRLINE FUEL SUPPLY COMPANY SENTENCED TO

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WASHINGTON — A former owner and operator of a Florida-based airline fuel supply service company was sentenced today to serve 50 months in prison for participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.

Sean E. Wagner, the former owner and operator of Aviation Fuel International Inc. (AFI), was sentenced in the U.S. District Court for the Southern District of Florida in West Palm Beach to serve 50 months in prison and to pay $202, 856 in restitution.  On Aug. 13, 2013, a grand jury returned an indictment against Wagner and AFI, charging them for their roles in a conspiracy to defraud Ryan. On March 6, 2014, Wagner pleaded guilty to one count of conspiracy to commit honest services wire fraud.  According to court documents, from at least as early as December 2005 through at least August 2009, Wagner and others at AFI made kickback payments to Wayne Kepple, a former vice president of ground operations for Ryan, totaling more than $200,000 in the form of checks, wire transfers, cash and gift cards in exchange for awarding business to AFI.  The charges against AFI were dismissed on Feb. 21, 2014.

Ryan provided air passenger and cargo services for corporations, private individuals and the U.S. government – including the U.S. Department of Defense and the U.S. Department of Homeland Security.

“Awarding government contracts in exchange for payoffs is a crime the Antitrust Division takes seriously,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “Today’s sentence reaffirms the division’s commitment to vigorously prosecute individuals who engage in this behavior.”

“This sentencing highlights the continuing commitment of the DCIS to thoroughly investigate and bring to justice any companies or individuals who engage in fraudulent and corrupt practices that undermine the integrity of Department of Defense procurement programs,” said John F. Khin, Special Agent in Charge of the Defense Criminal Investigative Service Southeast Field Office.

As a result of the ongoing investigation, five individuals, including Wagner, have pleaded guilty and have been ordered to serve sentences ranging from 16 to 87 months in prison and to pay more than $780,000 in restitution.  An additional individual has pleaded guilty to obstructing the investigation and is currently awaiting sentencing.

The investigation is being conducted by the Antitrust Division’s Washington Criminal I office and the U.S. Department of Defense’s Office of Inspector General’s Defense Criminal Investigative Service, with assistance from the U.S. Attorney’s Office for the Southern District of Florida.  Anyone with information concerning anticompetitive conduct in the airline charter services industry is urged to call the Antitrust Division’s Washington Criminal I office at 202-307-6694 or visit www.justice.gov/atr/contact/newcase.htm

Executive Pleads Guilty for Role in Bid Rigging Scheme at Municipal Tax Lien Auctions

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Investigation Has Yielded 15 Guilty Pleas to Date
A former New York-based tax liens company executive pleaded guilty today for his role in a conspiracy to rig bids at auctions conducted by New Jersey municipalities for the sale of tax liens, the Department of Justice announced.

Vinaya K. Jessani, of New York City, entered a guilty plea in the U.S. District Court for the District of New Jersey in Newark to felony charges filed today.   Under the plea agreement, Jessani has agreed to cooperate with the department’s ongoing investigation.

According to the charge, from at least as early as 1994 until as late as February 2009, Jessani, a former senior vice president who supervised the purchasing of municipal tax liens at auctions in New Jersey for the company he worked for, participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey by agreeing to, and instructing others to, allocate among certain bidders which liens each would bid on.  The department said that Jessani and those under his supervision submitted bids in accordance with the agreements and purchased tax liens at collusive and non-competitive interest rates.

“Today’s guilty plea demonstrates the Antitrust Division’s continuing effort to prosecute those who manipulate the competitive process in order to harm home and property owners,” said Brent Snyder, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program.  “The division will continue to be vigilant in rooting out conspiracies that harm already distressed property owners.”

The department said that the primary purpose of the conspiracy was to suppress and restrain competition in order to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates.  When the owner of real property fails to pay taxes on that property, the municipality in which the property is located may attach a lien for the amount of the unpaid taxes.  If the taxes remain unpaid after a waiting period, the lien may be sold at auction.  New Jersey state law requires that investors bid on the interest rate delinquent property owners will pay upon redemption.  By law, the bid opens at 18 percent interest and, through a competitive bidding process, can be driven down to zero percent.  If a lien remains unpaid after a certain period of time, the investor who purchased the lien may begin foreclosure proceedings against the property to which the lien is attached.

According to court documents, the conspiracy permitted the conspirators to purchase tax liens with limited competition and each conspirator was able to obtain liens which earned a higher interest rate.  Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition, the department said.

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  The maximum fine for a Sherman Act violation may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than the $1 million statutory maximum.

Today’s plea is the 15th guilty plea resulting from an ongoing investigation into bid rigging or fraud related to municipal tax lien auctions.  Including Jessani, 12 individuals and three companies have pleaded guilty.  Additionally, four individuals and two entities have been indicted for their roles in the conspiracy to rig bids at tax lien auctions.

 

Today’s case was done in connection with the President’s Financial Fraud Enforcement Task Force.  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.  Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants.

Philly.Com: Comcast-TWC Back on Capitol Hill for Deal Scrutiny Read

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“Comcast executive vice president David Cohen testified for the company, and his voice grew hoarse over time.

The strongest comments against the deal came from Allen P. Grunes, a former federal antitrust investigator and now a Washington, D.C., attorney. He said the Clayton Antitrust Act of 1914 says a deal would be anti-competitive if it “may substantially lessen competition or tend to create a monopoly.”

A merged Comcast and Time Warner Cable could thwart online video competition because of its large share of the residential broadband market, Grunes said. He also was concerned about Comcast/Time Warner Cable’s economic power in local cable-TV advertising markets and regional sports networks that could be used as leverage against pay-TV competitors.”


Read more at http://www.philly.com/philly/business/20140509_Before_a_House_committee__Comcast_exec_fields_more_questions_on_Time_Warner_merger.html#8mSQgBfTjUyS2Hj3.99

Comcast-TWC Back on Capitol Hill for Deal Scrutiny Read more at http://www.philly.com/philly/business/20140509_Before_a_House_committee__Comcast_exec_fields_more_questions_on_Time_Warner_merger.html#8mSQgBfTjUyS2Hj3.99