Category Archives: Antitrust Monitor by GeyerGorey LLP

Time to Reopen Some Antitrust Division Field Offices? (Part II)

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Time to Reopen Some Antitrust Division Field Offices? (Part II)

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honoreebadgeIn a recent post (here) I advocated for the Trump administration to reopen some of the shuttered Antitrust Division field offices to help focus on public procurement bid rigging at the local and regional level. As discussed in the earlier post, the field offices have always been major contributors to the international cartel program, so this suggestion is not meant to diminish the international effort. But, field offices are uniquely positioned to establish relationships with regional investigative agencies and public procurement bodies, which has led to mega bid rigging investigations and prosecutions such as school milk, road construction, electrical construction and collusion on DOD purchases handled by regional commands.  In this post, I want to focus on two points: 1) that public procurement bid rigging is worthy of the attention of antitrust enforcers; and 2) until the closing of four of the seven field offices, public procurement was a focus of the Antitrust Division resources.

The Impact of Public Procurement Collusion

Established competition regimes have emphasized to their less developed international enforcement agencies that there should be an emphasis on public procurement collusion.   The International Cartel Network (ICN) states:

When bid rigging impacts public procurement, it has the potential to cause great harm. One reason for this is that public procurement is often a large part of a nation’s economy. In many OECD countries, it amounts to 15 per cent of the gross domestic product and in most developing countries; it is substantially more than this. (here)

The Antitrust Division and the Federal Trade Commission expanded on this in a submission to the Organization for Economic Co-operation and Development (OECD. Below is a lengthy quote from the 2007 document, which makes the point I’d like to make better than I can:

PUBLIC PROCUREMENT ñ THE ROLE OF COMPETITION AUTHORITIES IN PROMOTING COMPETITION– United States –5 June 2007

In the United States, government attorneys at the Antitrust Division of the U.S. Department of Justice have for many years spent considerable time conducting outreach and training programs for public procurement officials and government investigators, including investigators who work for government agencies which solicit bids for various projects. These outreach programs help develop an effective working relationship between the government attorneys who have the expertise concerning investigating and prosecuting bid rigging, and public procurement officials and government investigators who are in the best position to detect and prevent bid rigging on public procurement contracts. Government attorneys advise procurement officials on how their procedures can be changed to decrease the likelihood that bid rigging will occur and what bidding patterns and types of behavior they and their investigators should look for to detect bid rigging. In turn, procurement officials and investigators often provide the key evidence that results in a successful bid-rigging prosecution. Our experience has been that this team effort among public procurement officials, government investigators, and government attorneys has contributed to a significant decrease in bid rigging on public procurement in the United States over the last twenty to thirty years.

In the 1970s and 1980s, a majority of overall criminal antitrust prosecutions in the U.S. were for bid rigging, primarily involving public procurement. Most notable in terms of the number of cases was bid rigging on the construction of roads and on the sale of milk to schools. During this time period, the Antitrust Division filed hundreds of cases involving bid rigging on road building and the sale of milk. More recently, the number of bid-rigging prosecutions has dropped dramatically. For example, during the past three years less than five percent of the criminal antitrust prosecutions in the United States were for bid rigging. (here)

The message has been delivered and received by newer competition agencies. The Competition Commission of India, as just one example, has made public procurement investigations and prosecutions a priority.  This chart is from a Commission publication, Public Procurement System: Competition Issues (here):

GAINS FROM COMPETITION: INTERNATIONAL EXPERIENCE

  • OECD survey -shows saving to public treasury of 17 to 43% in developing countries
  • European Commission – cost saving of Euro 5 billion to 25 billion between 1993 to 2003
  • In Russia: Saving of $7 billion to Govt. budget in 2008
  • Pakistan: Saving of Rs.187 million for Karachi water and sewerage board
  • Columbia: Saving of 47% in procurement of military goods
  • Guatemala: Saving of 43% in purchase of medicines

Previous Antitrust Division Efforts at Protecting Infrastructure Tax $$

If the Trump administration is able to launch a significant infrastructure development program, the emphasis on pubic procurement competition becomes even more important.   In fact, when the Obama administration launched its American Recovery Act, the Antitrust Division made public procurement a priority. An Antitrust Division press release (here) noted:

A working group, co-chaired by [John] Terzaken and trial attorney Kate Patchen from the Division’s San Francisco field office, conducted training for more than 25,000 individuals from 20 Federal agencies. Terzaken’s development and management of the Recovery Initiative was recognized by the Department with an Attorney General’s Award in 2010.

The bulk of these outreach efforts were conducted by the field offices. I don’t know the exact extent of the Division’s current outreach activity, but from anecdotal evidence it has largely disappeared.

From a practical (and slightly cynical) point of view, launching an effort to prevent and detect public procurement collusion is a win/win situation for any administration. If no collusion is detected, Bingo! The program worked and the taxpayers saved countless dollars. And, if bid rigging is detected and prosecuted, that also is a success, as the prosecution will serve as a strong deterrent that “bid rigging will not be tolerated.”

I think I will have one more post on this subject.

Thanks for reading.

Time to Reopen Some Antitrust Division Field Offices?

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Time to Reopen Some Antitrust Division Field Offices?

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honoreebadgeThere has been much speculation about what a Trump presidency will mean for antitrust enforcement at the Antitrust Division and Federal Trade Commission. Much of the wonder is about whether Trump will take an activist approach he suggested during the campaign, for example, when he said he thought Amazon had “a huge antitrust problem” and he voiced opposition to AT&T’s effort to acquire effort to acquire Time Warner.   Or does the placement of Joshua Wright on the transition team signal a return to a more traditional Republican “hands off” role where the pendulum swings back to a belief that the market will correct concentration issues and the concern is more to prevent wrong-headed government intervention.

I have been thinking about whether there should be any adjustment in criminal enforcement. Criminal enforcement has generally been pretty steady over various administrations. They all have shared the belief that cartels are the “supreme evil of antitrust” and that jail sentences for culpable executives is the best deterrent. Two noteworthy developments in criminal enforcement, however, come to mind. Shortly after World War II, the legendary Thurman Arnold, head of the Antitrust Division, opened field offices to combat bid rigging in the construction trades. And, in 2013, then Assistant Attorney General Christine Varney closed four of the Division’s seven regional offices. The closed offices were Atlanta, Cleveland, Dallas and Philadelphia. New York, Chicago and San Francisco remained open. I think President-elect Trump should reverse that contraction and reopen field offices.

President-elect Trump has promised a massive public procurement effort to help rebuild America’s infrastructure. Two recent international cartel enforcement items brought to mind the wisdom of ramping up regional and local enforcement efforts to deter, investigate and prosecute bid rigging on these public projects. A couple of items caught my attention as I have been thinking of this subject.

 From Canada

On December 5, 2016, the Canadian press reported that:

The Competition Bureau of Canada says its efforts to identify and prevent bid rigging in construction contracts this year has already turned up potential criminal activity — just as new federal infrastructure money begins to flow.

Pierre-Yves Guay, the bureau’s assistant deputy commissioner, said some of the educational outreach the bureau has delivered since April has resulted in illegal activities being uncovered and inquiries being launched. (here)

From Brazil

USA Today reports on December 6, 2016

So far, there are indications that at least five bids related to World Cup stadiums were the subject of the cartel,” the anti-trust body CADE said in a statement…. Reports have been widespread about corruption linked to World Cup stadiums. Investigations are also on-going involving construction projects tied to this year’s Olympics in Rio de Janeiro.  (here).

I am going to write more about why I think it would be a good investment to open additional field offices. But first, a disclaimer. I was the Chief of the dearly departed Philadelphia Field Office and went down with the ship when the office was closed in 2013. I am not lobbying for my old job back, and in fact if I were adding field offices I would not at this time put one in Philadelphia. The real value of the Philadelphia office was the talent and experience of the staff there—and that, like Humpty Dumpty, can’t be put back to together again.   I do, however, think that the regional offices in Atlanta and Dallas should be reopened.

International cartels are a worthy focus of Antitrust Division resources but it’s worth remembering that the field offices played a huge role in the development of the Division’s international cartel program. The modern era of international cartel enforcement was the Archer Daniels Midland case brought by the Chicago Field Office. The record $500 million fine and other convictions in the vitamins investigation led by the Dallas Field Office followed that.  The Philadelphia Field Office had some “firsts” with the graphite electrode investigation and the extradition, trial and conviction of British executive Ian Norris. San Francisco has had accomplishments too numerous to mention as do the criminal sections headquartered in DC with blockbusters like air cargo and auto parts. The point is that international cartels can be investigated and prosecuted wherever there are talented and dedicated antitrust enforcers. But as for regional conspiracies, I don’t believe the opposite is true. The strength of the field offices had always been their ability to network with investigative agencies from the FBI, the gamut of federal IG’s offices, state and local prosecutors and public procurement officials. These local contacts were crucial to educating agents and purchasers about antitrust violations, and giving them the information (and motivation) needed to spot and report possible collusion.

Regional conspiracies do not produce the extraordinary fines that international cartels can. But, there is merit to investigating and prosecuting regional cartels. First, the harm from bid rigging on public procurement is very focused. It isn’t a case of millions of consumers losing pennies on a purchase, but a federal, state or local entity losing a big chunk of its scarce tax dollars. Bid rigging schemes are often more effective at raising prices. They can also be very long-lasting as the structure of public procurement can make these awards both more susceptible to bid rigging and more difficult for market forces to disrupt in the short-term. For these reasons, the Sentencing Guidelines give a modest one-point bump for bid rigging, recognizing it generally has a more serious impact on the victim.

Finally, successful prosecution of a bid-rigging scheme can bring meaningful restitution to the public victim in the form of treble damages. It restores public confidence that tax dollars are being spent wisely. And the cost of publicly procured goods often sees a dramatic drop, sometimes even simply by the start of an investigation. I also think the prosecution and imprisonment of domestic price fixers and bid-riggers can generate publicity and pack more of a “deterrent punch” than prosecution of foreign executives, many whom remain fugitives.

These are just some quick thoughts on why I think a couple of field offices in strategically placed geographic areas would be a boon for antitrust enforcement. I’ll be thinking and writing more about this subject as I get some free time. But, what do you think? If you have any thoughts on the matter, I’d be happy to hear them.

Thanks for reading.  More to come.

The 3C’s: Will President Trump Revive Section 2 of the Sherman Act?

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Below is a post by Brad Geyer, my partner at GeyerGorey LLP.  As you can tell from the title of the post, it is not the typical Cartel Capers fare, but you might find it interesting.

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By Bradford L. Geyer [1]

When I concluded by summer of 2015 that our next President would be Donald Trump, my closest friends and associates were skeptical. Having grown up in the New York media market and reading the “Art of the Deal” after college, I studied Donald Trump because he was interesting. You are free to see it differently, but I see in President-Elect Trump as a strategic and tactical thinker who comes off as being spontaneous and off the cuff, but is actually in the third decade of his strategic plan. To read his books and to watch old videos shows a consistency in public policy views that is startling.

Few took President-Elect Trump seriously over the years in his statements about Antitrust, but like the protagonists in a movie, the best ones like to tell the antagonists that it’s coming.   Any mystery about President-Elect Trump’s Antitrust enforcement priorities should have been eliminated when in his “Gettysburg address” outlining his plans for his first 100 days, he blasted the media and turned his ire toward the Comcast / NBC Universal merger stating that the merged company is “trying to poison the mind of the American voter,” and said that the deal should never have been approved in the first place, and that it’s bad for democracy (here). He took his complaints further, promising action to prevent AT&T from buying Time Warner, the parent company of CNN, which he argued would concentrate too much power in one company (here). “We’ll look at breaking that deal up and other deals like it,” he vowed. “They’re trying to poison the mind of the American voter.”

President-Elect Trump has already been equally clear in expressing his thoughts about Amazon [2]:

Amazon has “a huge antitrust problem,” and (Jeff) Bezos (owner of the Washington Post and founder of Amazon.com) “thinks I would go after him for antitrust.”

– from the Twitter account of @realDonaldTrump (May 14, 2016)(here)

President-Elect Trump may have the most sophisticated view of Antitrust Law of any U.S. President in history. That experience was recently referenced by Emre N. Ilter in the National Law Review:

Mr. Trump was involved in three significant antitrust proceedings in the late 1980s and early 1990s. First, in 1988, Mr. Trump paid a $750,000 civil penalty to settle charges brought by the US Department of Justice (DOJ) and Federal Trade Commission (FTC) that he had violated the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) by acquiring stock in two companies without making timely HSR filings. Around the same time, Mr. Trump, as one of the owners of the New Jersey Generals US Football League team, was involved in a private antitrust suit against the National Football League (NFL)—a case that resulted in a jury verdict that the NFL had willfully acquired or maintained monopoly power in a market consisting of major league professional football in the United States, in violation of Section 2 of the Sherman Act. Damages of $1, trebled to $3, were awarded. US Football League v. Nat’l Football League, 842 F.2d 1335 (2d Cir. 1988). Finally, Mr. Trump, in connection with his Atlantic City casinos, was sued by Boardwalk Properties, Inc. on numerous grounds including allegations that he had attempted to monopolize casino gambling and had conspired to suppress competition. After a lengthy legal battle, Mr. Trump prevailed. (here).

Combine experience, competition sophistication and seething intensity [3] and recognize that in the early 1980’s there were 50 media companies in the United States. Now that number is 6[4]. I suspect he believes there is a significant conscious parallelism among these six companies and there seems to be tight coordination and collaboration –a common gestalt — among these organizations on a host of issues. Call it a “thought cartel”. I would suggest that recent Wikileaks disclosures are likely to have reinforced this view among him and his team of advisors who may suspect that media companies are inducing lax regulation through maximizing the benefits of close relationships of its media figures with the political apparatus.[5]  Further, is President-Elect Trump viewing AT&T, Time Warner, Amazon, Comcast and even Google [6] individually as “media and information trusts”, as he finalizes his enforcement initiatives? My hunch is that he is and that each of these companies is at risk of enhanced enforcement attention.

It is clear that President Elect-Trump understands the power of the bully pulpit and he knows that if he can get AT&T and Time Warner to abort merger discussions before “the sheriff even rides into town” that means: 1) less work for him; 2) emboldened career civil service enforcers who were gearing up to make the case for blocking it; and 3) an enhanced perception of the Antitrust Division’s power. This, before he takes the oath of office in January, means enhanced leverage on day one.

I believe that it is possible he will pick a high visibility company, possibly on the crest of the wave of an aborted AT&T deal, to break up. So what potential “trust” will it be? Amazon has attracted criticism and controversy for years. Many of the criticisms are tied to allegations of anti-competitive or monopolistic behavior.  Does President-Elect Trump agree with Paul Krugman who recently penned, “Amazon.com, the giant online retailer, has too much power, and it uses that power in ways that hurt America.”[7]  Could the Department of Justice under the leadership of an Attorney General appointed by President-Elect Trump quite credibly take the view that Amazon is the Standard Oil Company or the AT&T or the Microsoft of its day [8] and bring an action to break it up?

I am certain that President-Elect Trump will announce that enforcement of the nation’s Antitrust Laws needs to be reinvigorated and that allegations of predatory pricing and attempts to monopolize certain sectors of the economy will not be tolerated. Some might expect that a Republican administration would line up alongside lax Section 2 enforcement. It is clear, however, that whatever else might be expected in a Trump administration, based on his statements throughout the campaign, consistency with Republican orthodoxy is not that thing and affected companies would be well served to increase their outside counsel budget.

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1. Mr. Geyer is a partner in the Washington and Philadelphia-based law firm of GeyerGorey LLP. Prior to entering private practice he was a prosecutor in the Antitrust Division of the Department of Justice for 21 years. From 2007 through 2012 he served as the Antitrust Division’s Special Counsel to the Criminal Division involving “war zone” cases and investigations involving procurement fraud and grand fraud.

2.  President-Elect Trump on Hannity May 12, 2016 at 15:59 through 17:20. “[Jeff Bezos is] using the Washington Post . . . he’s using that for political purposes to save Amazon in terms of taxes and in terms of antitrust.

3.  Any member of the Antitrust defense bar who would like to get a flavor of what I suspect will be reinvigorated Antitrust Enforcement under a Trump administration would be well served to watch this video which shows Seth Rogan and President Obama roasting President Elect Trump in 2011. If you are like me, when you watch this video you see a ferocious Kodiak bear in a cage that is being poked with sticks. The Bear is not reacting, but you can tell he is going to bust out of the cage and tear the pokers to shreds … after he constructs an ingenious plan. There is something about his reaction that makes you feel uncomfortable from the first Rogan joke. You want to plead with the men with the sticks to “please just stop.”   You actually look in your hand to make sure you aren’t holding a stick and try to drop it anyway. That is called power and intensity and control. He has it and he knows how to use it.

4.  See, The Media Monopoly, 6th Edition, March 24, 2000, by Ben H. Bagdikian.

5.  For example, in an April 15, 2014 email released by WikiLeaks, Eric Schmidt, CEO of Google, proposed that a $1.5 billion Clinton Campaign vehicle be formed that, among other things, to convert each voter to a single record that aggregates all that is known about them. Are enforcers entitled to wonder if voters across the country want to be converted into a record and whether this market share in this endeavor is aided by power in Google’s core businesses? Would Google’s relationship with the Clinton campaign team regenerate an interest in their potential antitrust issues as Europe has? (When enforcers read this email does it bring the movie, “the Clockwork Orange” to mind like it did for me?).

6.  See, http://www.nytimes.com/2016/10/31/technology/google-europe-antitrust.html

7.   See, http://www.nytimes.com/2014/10/20/opinion/paul-krugman-amazons-monopsony-is-not-ok.html?_r=0

8.   Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911); United States v. American Tel. and Tel. Co. , 552 F.Supp. 131 (D.D.C. 1982); United States v. Microsoft Corp. , 56 F.3d 1448 (D.C.Cir . 1995).

Antitrust in Asia: HONG KONG: June 2-3, 2016

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I wanted to pass on some information about another great ABA Antitrust Section program“Antitrust In Asia.”  The program is in Hong Kong, China on June 2-3, 2016, but early registration savings end on May 12.  The faculty includes enforcers from China, Competition Commission of Hong Kong, Competition Commission of India, Japan Fair Trade Commission, Korea Fair Trade Commission, Competition Commission of Singapore, and the U.S. DOJ & FTC.

Antitrust enforcement in Asia has taken a prominent and increasingly important place in the global competition ecosystem. This conference features leading enforcers, academics, and practitioners who will address key developments across the Asia-Pacific region, as well as provide conference attendees unique opportunities to interact with top policy-makers.  Here is a link to the full agenda, which includes: Merger Review, Enforcement Directions in Asia, Abuse of Dominance, and Private Actions.  The conference also features a “Roundtable with Enforcers From China’s AML Agencies” (Ministry of Commerce (MOFCOM), National Development and Reform Commission (NDRC) and State Administration for Industry and Commerce (SAIC)).  While the panels are always great, even better are the informal encounters with the enforcers, corporate counsel and other colleagues who attend the event.

Unfortunately, I won’t be attending.  I blew my modest international travel budget on the ABA Cartel Workshop in Tokyo, Japan in February.  Here is a short Cartel Caper blog post from that conference and a link to a conference follow-up article I wrote for Law 360 (here).  If you do attend the Antitrust in Asia conference and would like to post a blog entry about it, I’d be happy to publish it.  I am always looking to expand the international content of the blog.

Thanks for reading.

Two Executives Charged for Conspiring to Eliminate Competition to Supply Water Treatment Chemicals

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Two water treatment chemicals executives were indicted in Newark, New Jersey, for their roles in a conspiracy to eliminate competition among suppliers of liquid aluminum sulfate to municipalities and pulp and paper companies in the United States, the Department of Justice announced today.

Vincent J. Opalewski, former president, vice president and general manager of a water treatment chemicals manufacturer headquartered in Parsippany, New Jersey, and Brian C. Steppig, director of sales and marketing of a water treatment chemicals manufacturer headquartered in Lafayette, Indiana, are the second and third executives charged in connection with the conspiracy, which sought to eliminate competition for contracts to supply liquid aluminum sulfate.  Liquid aluminum sulfate is a coagulant used by municipalities to treat drinking and waste water and by pulp and paper companies in their manufacturing processes.

“Municipalities and pulp and paper companies deserve competitive prices for water treatment chemicals,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “These charges reflect our ongoing efforts to hold accountable those who conspire to cheat their customers responsible for their crimes.”

“These charges send a message that anyone intent on corrupting the free market will be identified and brought to justice,” said Acting Special Agent in Charge Andrew Campi of the FBI’s Newark Division.  “Our mission is to protect victims who don’t see these crimes occurring, but who always end up paying the price.”

The indictment, returned by a grand jury in the U.S. District Court for the District of New Jersey, alleges that Opalewski, from 2005 to 2011, and Steppig, from 1998 until 2011, and their co-conspirators participated in the conspiracy by meeting to discuss each other’s liquid aluminum sulfate business, agreeing to stay away from each other’s historical customers, submitting intentionally losing bids to favor the intended winner of the business, withdrawing inadvertently winning bids and discussing with each other prices to be quoted to municipalities and pulp and paper companies.

The charges contained in the indictment are allegations and not evidence of guilt.  The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The investigation into collusion in the liquid aluminum sulfate industry is being conducted by the New York Office of the Antitrust Division and the FBI’s Newark Division.  Anyone with information regarding price fixing, bid rigging or customer allocation in the sale and marketing of liquid aluminum sulfate should contact the Antitrust Division’s New York Office at 212-335-8000, call the Antitrust Division’s Citizen Complaint Center at 1-888-647-3258, or visit www.justice.gov/atr/contact/newcase.htm.

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.

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.

First Charges Brought in Investigation of Collusion Among Heir Location Services Firms

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President and Company to Plead Guilty for Agreeing Not to Compete

The president and CEO of a California-based heir location services provider and his firm have agreed to plead guilty to allocating customers with another heir location firm, announced Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.

Bradley N. Davis, president of Brandenburger & Davis, and his firm will plead guilty to conspiring between 2003 and 2012 to eliminate competition in the heir location services industry.  Heir location services firms identify people who may be entitled to an inheritance from the estate of a relative who died without a will.  The heir location services firms then help heirs secure their inheritances in exchange for a contingency fee paid out of the inheritances they are due to receive.

“The defendants conspired for nearly a decade to enrich themselves at the expense of beneficiaries,” said Assistant Attorney General Baer.  “Heirs of relatives who died without a will deserve better.  Working with the FBI and our other law enforcement partners, the Antitrust Division will continue to hold the leaders of companies that corrupt the competitive process accountable for their crimes.”

Brandenburger & Davis has agreed to pay an $890,000 criminal fine for its role in the conspiracy.  In a separate plea agreement, Davis and the Antitrust Division have jointly agreed to allow the court to determine an appropriate criminal sentence.  In addition, both the company and Davis have agreed to assist the government in its investigation.  The charge was filed today in the U.S. District Court of the Northern District of Illinois.  The terms of the plea agreements are subject to approval of the court.

Today’s charge is the first to result from an ongoing federal antitrust investigation into customer allocation, price fixing, bid rigging and other anticompetitive conduct in the heir location services industry, being conducted by the Antitrust Division’s Chicago Office and the FBI’s Salt Lake City Division, with assistance from the U.S. Attorney’s Office of the Northern District of Illinois.

Anyone with information concerning the focus of this investigation should contact the Antitrust Division’s Chicago Office at 312-984-7200, visit www.justice.gov/atr/contact/newcase.html or call the FBI’s Salt Lake City office at 801-579-1400.

“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.”