Hertz Fix in Dollar Thrifty Deal Fails as Insider Warned
Bloomberg News
“‘What a screw-up,’ said Allen Grunes, an antitrust lawyer at GeyerGorey LLP in Washington who wasn’t involved in the matter. “It’s a huge embarrassment that it happened this quickly.”
The bankruptcy of Advantage shows how hard it is to recreate competition after mergers in concentrated markets, said Grunes, a former attorney with the Justice Department’s antitrust division.”
GeyerGorey attorney Phillip Zane will reprise his class on antitrust and unfair competition which he has taught since 2009 as part of the U.S. Law Course (formerly the ECOA Law School) of the Ethics & Compliance Officer Association. The ECOA is an association of individuals who are responsible for the ethics and compliance programs of their organizations. It is the largest such organization in the world. The U.S. Law Course is a seven-week program covering a wide range of legal topics designed to teach legal concepts and methods of analysis to non-lawyers who serve as ethics and compliance officers and to lawyers as a refresher in areas likely to give rise to compliance issues. The course repeats several times each year. For more information on this course or to register for a future course, please visit the ECOA’s website www.theecoa.org or http://www.theecoa.org/imis15/
Mr. Zane brings to the course his experience in investigating alleged international cartels and defending companies and individuals accused of antitrust violations and other financial crimes. He mixes fundamental skills, tools for sophisticated analysis and problem solving, and the U.S.government’s own surveillance tapes of a price-fixing conspiracy into a unique presentation on antitrust and business torts.
Mr. Zane focuses his practice on government investigations, and criminal litigation and appeals, especially in matters relating to antitrust and trade regulation. He handles the full range of antitrust litigation and counseling.
“When business executives engage in bribery and pay-offs in order to obtain contracts, an uneven marketplace is created and honest competitor companies are put at a disadvantage,” said Assistant Director in Charge Parlave. “The FBI is committed to investigating corrupt backroom deals that influence contract procurement and threaten our global commerce.”
In a separate matter, Weatherford International and four of its subsidiaries today agreed to pay a combined $100 million to resolve a criminal and administrative export controls investigation conducted by the U.S. Attorney’s Office for the Southern District of Texas, the Department of Commerce’s Bureau of Industry and Security, and the Department of the Treasury’s Office of Foreign Assets Control. As part of the resolution of that investigation, Weatherford International has agreed to enter into a deferred prosecution agreement for a term of two years and two of its subsidiaries have agreed to plead guilty to export controls charges.
“The resolution today of these criminal charges represents the seriousness that our office and the Department of Justice puts on enforcing the export control and sanctions laws,” said U.S. Attorney Magidson.
In a related FCPA matter, the U.S. Securities and Exchange Commission ( SEC) filed a settlement today in which Weatherford International consented to the entry of a permanent injunction against FCPA violations and agreed to pay $65,612,360 in disgorgement, prejudgment interest, and civil penalties. Weatherford International also agreed with the SEC to comply with certain undertakings regarding its FCPA compliance program, including the retention of an independent corporate compliance monitor.
The combined investigations resulted in the conviction of three Weatherford subsidiaries, the entry by Weatherford International into two deferred prosecution agreements and a civil settlement, and the payment of a total of $252,690,606 in penalties and fines.
FCPA Violations According to court documents filed by the department, prior to 2008, Weatherford International knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations. The company failed to implement these internal controls despite operating in an industry with a substantial corruption risk profile and despite growing its global footprint in large part by purchasing existing companies, often themselves in countries with high corruption risks. As a result, a permissive and uncontrolled environment existed within which employees of certain of Weatherford International’s wholly owned subsidiaries in Africa and the Middle East were able to engage in corrupt conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations’ Oil for Food Program.
Court documents state that Weatherford Services employees established and operated a joint venture in Africa with two local entities controlled by foreign officials and their relatives from 2004 through at least 2008. The foreign officials selected the entities with which Weatherford Services would partner, and Weatherford Services and Weatherford International employees knew that the members of the local entities included foreign officials’ relatives and associates. Notwithstanding the fact that the local entities did not contribute capital, expertise or labor to the joint venture, neither Weatherford Services nor Weatherford International investigated why the local entities were involved in the joint venture. The sole purpose of those local entities, in fact, was to serve as conduits through which Weatherford Services funneled hundreds of thousands of dollars in payments to the foreign officials controlling them. In exchange for the payments they received from Weatherford Services through the joint venture, the foreign officials awarded the joint venture lucrative contracts, gave Weatherford Services inside information about competitors’ pricing, and took contracts away from Weatherford Services’ competitors and awarded them to the joint venture.
Additionally, Weatherford Services employees in Africa bribed a foreign official so that he would approve the renewal of an oil services contract, according to court documents. Weatherford Services funneled bribery payments to the foreign official through a freight forwarding agent it retained via a consultancy agreement in July 2006. Weatherford Services generated sham purchase orders for consulting services the freight forwarding agent never performed, and the freight forwarding agent, in turn, generated sham invoices for those same nonexistent services. When paid for those invoices, the freight forwarding agent passed at least some of those monies on to the foreign official with the authority to approve Weatherford Services’ contract renewal. In exchange for these payments, the foreign official awarded the renewal contract to Weatherford Services in 2006.
Further, according to court documents, in a third scheme in the Middle East, from 2005 through 2011, employees of Weatherford Oil Tools Middle East Limited (WOTME), another Weatherford International subsidiary, awarded improper “volume discounts” to a distributor who supplied Weatherford International products to a government-owned national oil company, believing that those discounts were being used to create a slush fund with which to make bribe payments to decision-makers at the national oil company. Between 2005 and 2011, WOTME paid approximately $15 million in volume discounts to the distributor.
Weatherford International’s failure to implement effective internal accounting controls also permitted corrupt conduct relating to the United Nations’ Oil for Food Program to occur, according to court documents. Between in or about February 2002 and in or about July 2002, WOTME paid approximately $1,470,128 in kickbacks to the government of Iraq on nine contracts with Iraq’s Ministry of Oil, as well as other ministries, to provide oil drilling and refining equipment. WOTME falsely recorded these kickbacks as other, seemingly legitimate, types of costs and fees. Further, WOTME concealed the kickbacks from the U.N. by inflating contract prices by 10 percent.
According to court documents, these corrupt transactions in Africa and the Middle East earned Weatherford International profits of $54,486,410, which were included in the consolidated financial statements that Weatherford International filed with the SEC .
In addition to the guilty plea by Weatherford Services, the deferred prosecution agreement entered into by Weatherford International and the Department requires the company to cooperate with law enforcement, retain an independent corporate compliance monitor for at least 18 months, and continue to implement an enhanced compliance program and internal controls designed to prevent and detect future FCPA violations. The agreement acknowledges Weatherford International’s cooperation in this matter, including conducting a thorough internal investigation into bribery and related misconduct, and its extensive remediation and compliance improvement efforts.
Export Control Violations
According to court documents filed today in a separate matter, between 1998 and 2007, Weatherford International and some its subsidiaries engaged in conduct that violated various U.S. export control and sanctions laws by exporting or re-exporting oil and gas drilling equipment to, and conducting Weatherford business operations in, sanctioned countries without the required U.S. Government authorization. In addition to the involvement of employees of several Weatherford International subsidiaries, some Weatherford International executives, managers, or employees on multiple occasions participated in, directed, approved, and facilitated the transactions and the conduct of its various subsidiaries.
This conduct involved persons within the U.S.-based management structure of Weatherford International participating in conduct by Weatherford International foreign subsidiaries, and the unlicensed export or re-export of U.S.-origin goods to Cuba, Iran, Sudan, and Syria. Weatherford subsidiaries Precision Energy Services Colombia Ltd. (PESC) and Precision Energy Services Ltd. (PESL), both headquartered in Canada, conducted business in the country of Cuba. Weatherford’s subsidiary Weatherford Oil Tools Middle East (WOTME), headquartered in the United Arab Emirates (UAE), conducted business in the countries of Iran, Sudan, and Syria. Weatherford’s subsidiary Weatherford Production Optimisation f/k/a eProduction Solutions U.K. Ltd. (eProd-U.K.), headquartered in the United Kingdom, conducted business in the country of Iran. Weatherford generated approximately $110 million in revenue from its illegal transactions in Cuba, Iran, Syria and Sudan. To resolve these charges, Weatherford and its subsidiaries will pay a total penalty of $100 million, with a $48 million monetary penalty paid pursuant to a deferred prosecution agreement, $2 million paid in criminal fines pursuant to the two guilty pleas, and a $50 million civil penalty paid pursuant to a Department of Commerce settlement agreement to resolve 174 violations charged by Commerce’s Bureau of Industry and Security. Weatherford International and certain of its affiliates are also signing a $91 million settlement agreement with the Department of the Treasury to resolve their civil liability arising out of the same underlying course of conduct, which will be deemed satisfied by the payments above.
The FCPA case was investigated by the FBI’s Washington Field Office and its team of special agents dedicated to the investigation of foreign bribery cases. The case is being prosecuted by Trial Attorney Jason Linder of the Criminal Division’s Fraud Section, with the assistance of Assistant U.S. Attorney Mark McIntyre of the Southern District of Texas. The case was previously investigated by Fraud Section Trial Attorneys Kathleen Hamann and Allan Medina, with assistance from the Criminal Division’s Asset Forfeiture and Money Laundering Section. The Justice Department also acknowledges and expresses its appreciation for the significant assistance provided by the SEC’s FCPA Unit.
The export case was investigated by the Department of Commerce’s Bureau of Industry and Security, Office of Export Enforcement, and the Department of the Treasury’s Office of Foreign Assets Control. The case is being prosecuted by Assistant U.S. Attorney S. Mark McIntyre and was previously investigated by Assistant U.S. Attorney Jeff Vaden.
According to a two-count felony charge filed today in U.S. District Court for the Northern District of Ohio in Toledo, Toyo engaged in a conspiracy to allocate sales of, to rig bids for, and to fix the prices of automotive anti-vibration rubber parts it sold to Toyota Motor Corp., Nissan Motor Corp., Fuji Heavy Industries Ltd. – more commonly known by its brand name, Subaru – and certain of their subsidiaries, affiliates and suppliers, in the United States and elsewhere. According to the charge, Toyo and its co-conspirators carried out the anti-vibration rubber parts conspiracy from as early as March 1996 until at least May 2012.
In addition, according to the charge, Toyo engaged in a separate conspiracy to allocate sales of, and to fix, raise and maintain the prices of automotive constant-velocity-joint boots it sold to U.S. subsidiaries of GKN plc, a British automotive parts supplier . According to the charge, Toyo and its co-conspirators carried out the constant-velocity-joint boots conspiracy from as early as January 2006 until as late as September 2010.
Toyo, which has subsidiaries based in Franklin, Ky., and White, Ga., has agreed to cooperate with the department’s ongoing investigation. The plea agreement is subject to court approval.
“Today’s charge is the latest step in the Antitrust Division’s effort to hold automobile part suppliers accountable for their illegal and collusive conduct,” said Renata B. Hesse, Deputy Assistant Attorney General for the Department of Justice’s Antitrust Division. “The division continues to vigorously prosecute companies and individuals that seek to maximize their profits through illegal and anticompetitive means.”
Automotive anti-vibration rubber parts are comprised primarily of rubber and metal, and include engine mounts and suspension bushings. They are installed in automobiles for the purpose of reducing road and engine vibration. Automotive constant-velocity-joint boots are composed of rubber or plastic, and are used to cover the constant-velocity-joints of an automobile to protect the joints from contaminants.
The department said the company and its co-conspirators carried out the conspiracies through meetings and conversations, discussed and agreed upon bids, price quotations and price adjustments, and agreed to allocate among the companies certain sales of the anti-vibration rubber and constant-velocity-joint boots parts sold to automobile and component manufacturers.
Including Toyo, 22 companies and 26 executives have been charged in the Justice Department’s ongoing investigation into the automotive parts industry. All 22 companies have either pleaded guilty or have agreed to plead guilty and have agreed to pay more than $1.8 billion in criminal fines. Of the 26 executives, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements calling for significant prison sentences.
Toyo is charged with price fixing in violation of the Sherman Act, which carries a maximum penalty of a $100 million criminal fine for corporations. 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 charges are 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 each of the Antitrust Division’s criminal enforcement sections and the FBI. Today’s charges were brought by the Antitrust Division’s Chicago Office and the FBI’s Cleveland Field Office, with the assistance of the FBI headquarters’ International Corruption Unit and the U.S. Attorney’s Office for the Northern District of Ohio. Anyone with information concerning the focus of this investigation should contact the Antitrust Division’s Citizen Complaint Center at 1–888–647–3258, visit www.justice.gov/atr/contact/newcase.html or call the FBI’s Cleveland Field Office at 216-522-1400.
WASHINGTON — A Cleveland federal grand jury returned an indictment against two executives of a Japanese automotive supplier for their roles in an international conspiracy to fix prices of automotive anti-vibration rubber parts sold to Toyota and installed in U.S. cars, the Department of Justice announced today.
The indictment, filed yesterday in U.S. District Court for the Northern District of Ohio in Toledo, charges Masao Hayashi and Kenya Nonoyama, both Japanese nationals, with participating in a conspiracy to suppress and eliminate competition in the automotive parts industry by agreeing to allocate the supply of, to rig bids for and to fix, raise and maintain the prices of anti-vibration rubber parts sold to Toyota Motor Corp., Toyota Motor Engineering & Manufacturing North America Inc. and affiliated companies (collectively Toyota) for installation in automobiles manufactured and sold in the United States and elsewhere.
Automotive anti-vibration rubber products are comprised primarily of rubber and metal, and include engine mounts and suspension bushings. They are installed in automobiles for the purpose of reducing road and engine vibration.
The indictment alleges, among other things, that from as early as March 1996 until at least December 2008, Hayashi and Nonoyama and their co-conspirators conducted meetings and communications in Japan to reach collusive agreements. The indictment alleges that the conspiracy involved agreements affecting the Toyota Corolla, Avalon, Tacoma, Camry, Tundra, Sequoia, Rav4, Sienna, Venza and Highlander.
“Today’s indictment reaffirms the Antitrust Division’s commitment to hold executives accountable for actions that corrupt the competitive landscape and harm consumers,” said Renata B. Hesse, Deputy Assistant Attorney General for the Department of Justice’s Antitrust Division. “The Antitrust Division continues to work closely with its fellow competition enforcers abroad to ensure that there are no safe harbors for executives who engage in international cartel crimes.”
Hayashi and Nonoyama are charged with a 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.
Including Hayashi and Nonoyama, 21 companies and 26 executives have been charged in the Justice Department’s ongoing investigation into the automotive parts industry. To date, more than $1.6 billion in criminal fines have been obtained and seventeen of the charged executives have been sentenced to serve time in U.S. prisons or have entered into plea agreements calling for significant prison sentences.
The charges are 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 each of the Antitrust Division’s criminal enforcement sections and the FBI. Today’s charges were brought by the Antitrust Division’s Chicago Office and the FBI’s Cleveland Field Office, with the assistance of the FBI headquarters’ International Corruption Unit and the U.S. Attorney’s Office for the Northern District of Ohio. 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 Cleveland Field Office at (216) 522-1400.
The American Antitrust Institute, in cooperation with co-sponsor Antitrust and Consumer Law Section of the District of Columbia Bar, presents Susan Crawford discusses telecom competition and her book Captive Audience with Bert Foer, Allen Grunes, and Don Resnikoff
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Interview with Susan Crawford on Telecom Competition and her book ‘Captive Audience’
Please note: You are not providing your information to the D.C. Bar, but to an organizer for this program.
Professor Susan Crawford and an expert panel will discuss her book, “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.” The book describes an internet service market with Comcast and a handful of other cable companies each dominating large geographic regions for wired service and with AT&T and Verizon dominating wireless service. Dominant cable companies also control important content, so there is potential to throttle independent providers of television content such as movies and sports.
This teleconference is sponsored by the Antitrust and Consumer Law Section, in cosponsorship with the American Antitrust Institute.
**This program is offered in a live teleconference format.
Please note: Teleconference information will be e-mailed to registrants 24 hours prior to the event.
http://mobile.dcbar.org/courses/details.cfm?eventCD=021407GEN&position=5-19
Divestitures at Airports in Boston, Chicago, Dallas, Los Angeles, Miami, New York and Near Washington, D.C. Opens Door for Low Cost Carriers to Compete Resulting in More Choices and More Competitive Airfares for Consumers
WASHINGTON — The Department of Justice today announced that it is requiring US Airways Group Inc. and American Airlines’ parent corporation, AMR Corp. to divest slots and gates at key constrained airports across the country to low cost carrier airlines (LCCs) in order to enhance system-wide competition in the airline industry resulting in more choices and more competitive airfares for consumers.
The department said the proposed settlement will increase the presence of the LCCs at Boston Logan International, Chicago O’Hare International, Dallas Love Field, Los Angeles International, Miami International, New York LaGuardia International and Ronald Reagan Washington National. Providing the LCCs with the incentive and ability to invest in new capacity and permitting them to compete more extensively nationwide will enhance meaningful competition in the industry and benefit airline travelers.
“This agreement has the potential to shift the landscape of the airline industry. By guaranteeing a bigger foothold for low-cost carriers at key U.S. airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country,” said Attorney General Eric Holder. “The department’s ultimate goal has remained steadfast throughout this process – to ensure vigorous competition in airline travel. This is vital to millions of consumers who will benefit from both more competitive prices and enhanced travel options.”
Six state attorneys general–Arizona, Florida, Pennsylvania, Michigan, Tennessee and Virginia–and the District of Columbia joined in the department’s proposed settlement, which was filed in the U.S. District Court for the District of Columbia. If approved by the court, the settlement will resolve the department’s competitive concerns and the lawsuit.
“The extensive slot and gate divestitures at these key airports are groundbreaking and they will dramatically enhance the ability of LCCs to compete system-wide,” said Assistant Attorney General Bill Baer of the Department of Justice’s Antitrust Division. “This settlement will disrupt the cozy relationships among the incumbent legacy carriers, increase access to key congested airports and provide consumers with more choices and more competitive airfares on flights all across the country.”
On Aug. 13, 2013, the department, six state attorneys general and the District of Columbia filed an antitrust lawsuit against US Airways and American alleging that US Airway’s $11 billion acquisition of American would have substantially lessened competition for commercial air travel in local markets throughout the United States. The department alleged that the transaction would result in passengers paying higher airfares and receiving less service. In addition, the department alleged that the transaction would entrench the merged airline as the dominant carrier at Reagan National, where it would control 69 percent of take-off and landing slots, thus effectively foreclosing entry or expansion by competing airlines.
The settlement requires US Airways and American to divest slots, gates and ground facilities at key airports around the country. Specifically, the settlement requires the companies to divest or transfer to low cost carrier purchasers approved by the department:
All 104 air carrier slots (i.e. slots not reserved for use only by smaller, commuter planes) at Reagan National and rights and interest in other facilities at the airport necessary to support the use of the slots;
Thirty-four slots at LaGuardia and rights and interest in other facilities at the airport necessary to support the use of the slots; and
Rights and interests to two airport gates and associated ground facilities at each of Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International.
The Reagan National and LaGuardia slots will be sold under procedures approved by the department. Under the terms of the settlement, JetBlue at Reagan National and Southwest at LaGuardia will be given the opportunity to acquire the slots they currently lease from American. The remaining 88 slots at Reagan National and 24 slots at LaGuardia plus any JetBlue or Southwest decline to acquire will be grouped into bundles, taking into account specific slot times to ensure commercially viable and competitive patterns of service for the recipients of the divested slots. The parties will divest these slot bundles and all rights and interests in any gates and other ground facilities (e.g., ticket counters, baggage handling facilities, office space and loading bridges) as necessary to support the use of the purchased slots.
The gates at the five airports will be transferred on commercially reasonable terms to the new acquirers. The acquirers of the slot and gate divestitures also require approval of the department. Preference will be given to airlines at each airport that do not currently operate a large share of slots or gates.
The proposed settlement allows the department to appoint a monitoring trustee to oversee the divestitures or transfers of the slots and gates. The settlement also prohibits the merged company from reacquiring an ownership interest in the divested slots or gates during the term of the settlement. The companies must also provide advance notice of any future slot acquisition at Reagan National regardless of whether or not it is a reportable transaction under the premerger notification law and further provides for waiting periods and opportunities for the department to obtain additional information in order to review the transaction.
AMR is a Delaware corporation with its principal place of business in Fort Worth, Texas. AMR is the parent company of American Airlines. Last year American flew more than 80 million passengers to more than 250 destinations worldwide and took in more than $24 billion in revenue. In November 2011, American filed for bankruptcy reorganization.
US Airways is a Delaware corporation with its principal place of business in Tempe, Ariz. Last year US Airways flew more than 50 million passengers to more than 200 destinations worldwide and took in more than $13 billion in revenue.
WASHINGTON — Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) has entered into an agreement with the Department of Justice to pay a $325 million penalty to resolve violations arising from Rabobank’s submissions for the London InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (Euribor), which are leading benchmark interest rates around the world, the Justice Department announced today.
A criminal information will be filed today in U.S. District Court for the District of Connecticut that charges Rabobank as part of a deferred prosecution agreement (DPA). The information charges Rabobank with wire fraud for its role in manipulating the benchmark interest rates LIBOR and Euribor. In addition to the $325 million penalty, the DPA requires the bank to admit and accept responsibility for its misconduct as described in an extensive statement of facts. Rabobank has agreed to continue cooperating with the Justice Department in its ongoing investigation of the manipulation of benchmark interest rates by other financial institutions and individuals.
“For years, employees at Rabobank, often working with traders at other banks around the globe, illegally manipulated four different interest rates – Euribor and LIBOR for the U.S. dollar, the yen, and the pound sterling – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties,” said Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division. “Today’s criminal resolution – which represents the second-largest penalty in the Criminal Division’s active, ongoing investigation of the manipulation of global benchmark interest rates by some of the largest banks in the world – comes fast on the heels of charges brought against three former ICAP brokers just last month. Rabobank is the fourth major financial institution that has admitted its misconduct in this wide-ranging criminal investigation, and other banks should pay attention: our investigation is far from over.”
“Rabobank rigged multiple benchmark rates, allowing its traders to reap higher profits at the expense of their unsuspecting counterparties,” said Deputy Assistant Attorney General Leslie C. Overton of the Justice Department’s Antitrust Division. “Not only was this conduct fraudulent, it compromised the integrity of globally-used interest rate benchmarks – undermining financial markets worldwide.”
“Rabobank admitted to manipulating LIBOR and Euribor submissions which directly affected the rates referenced by financial products held by and on behalf of companies and investors around the world,” said Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office. “Rabobank’s actions resulted in the deliberate harm to counterparties holding products referencing the manipulated rates. Today’s announcement is yet another example of the tireless efforts of the FBI special agents and forensic accountants who are dedicated to investigating complex fraud schemes and, together with prosecutors, bringing to justice those who participate in such schemes.”
Together with approximately $740 million in criminal and regulatory penalties imposed by other agencies in actions arising out of the same conduct – $475 million by the Commodity Futures Trading Commission (CFTC) action, $170 million by the U.K. Financial Conduct Authority (FCA) action and approximately $96 million by the Openbaar Ministerie (the Dutch Public Prosecution Service) – the Justice Department’s $325 million criminal penalty brings the total amount to be paid by Rabobank to more than $1 billion.
According to signed documents, LIBOR is an average interest rate, calculated based upon submissions from leading banks around the world and 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.
LIBOR is published by the British Bankers’ Association (BBA), a trade association based in London. At the time relevant to the conduct in the criminal information, LIBOR was calculated for 10 currencies at 15 borrowing periods, known as maturities, ranging from overnight to one year. The LIBOR for a given currency at a specific maturity is the result of a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the BBA. From at least 2005 through 2011, Rabobank was a member of the Contributor Panel for a number of currencies, including United States dollar (dollar) LIBOR, pound sterling LIBOR, and yen LIBOR.
The Euro Interbank Offered Rate (Euribor) is published by the European Banking Federation (EBF), which is based in Brussels, Belgium, and is calculated at 15 maturities, ranging from overnight to one year. Euribor is the rate at which Euro interbank term deposits within the Euro zone are expected to be offered by one prime bank to another at 11:00 a.m. Brussels time. The Euribor at a given maturity is the result of a calculation based upon submissions from Euribor Contributor Panel banks. From at least 2005 through 2011, Rabobank was also a member of the Contributor Panel for Euribor.
According to the statement of facts accompanying the agreement, from as early as 2005 through at least November 2010, certain Rabobank derivatives traders requested that certain Rabobank dollar LIBOR, yen LIBOR, pound sterling LIBOR, and Euribor submitters submit LIBOR and Euribor contributions that would benefit the traders’ trading positions, rather than rates that complied with the definitions of LIBOR and Euribor.
In addition, according to the statement of facts accompanying the agreement, from as early as January 2006 through October 2008, a Rabobank yen LIBOR submitter and a Rabobank Euribor submitter had two separate agreements with traders at other banks to make yen LIBOR and Euribor submissions that benefitted trading positions, rather than submissions that complied with the definitions of LIBOR and Euribor.
The Rabobank LIBOR and Euribor submitters accommodated traders’ requests on numerous occasions, and on various occasions, Rabobank’s submissions affected the fixed rates.
According to the statement of facts, Rabobank employees engaged in this conduct through electronic communications, which included both emails and electronic chats. For example, on Sept. 21, 2007, a Rabobank Yen derivatives trader emailed the Rabobank Yen LIBOR submitter at the time with the subject line “libors,” writing: “Wehre do you think today’s libors are? If you can, I would like 1mth libors higher today.” The submitter replied: “Bookies reckon 1m sets at .85.” The trader wrote back: “I have some fixings in 1 mth so would appreciate if you can put it higher mate.” The submitter replied: “No prob mate let me know your level.” The trader responded: “Wud be nice if you could put 0.90% for 1mth cheers.” The submitter wrote back: “Sure no prob. I’ll probably get a few phone calls but no worries mate!” The trader replied: “If you may get a few phone calls then put 0.88% then.” The submitter responded: “Don’t worry mate – there’s bigger crooks in the market than us guys!” That day, as requested, Rabobank’s 1-month Yen LIBOR submission was 0.90, an increase of seven basis points from its previous submission, whereas the other panel banks’ submissions decreased by approximately a half of a basis point on average. Rabobank’s submission went from being tied as the tenth highest submission on the Contributor Panel on the previous day to being the highest submission on the Contributor Panel.
On Nov. 29, 2006, a Rabobank dollar derivatives trader wrote to Rabobank’s Global Head of Liquidity and Finance and the head of Rabobank’s money markets desk in London, who supervised rate submitters: “Hi mate, low 1s high 3s LIBOR pls !!! Dont tell [another Rabobank U.S. Dollar derivatives trader] haa haaaaaaa. Sold the market today doooooohhhh!” The money markets desk head replied: “ok mate , will do my best …speak later.” After the LIBOR submissions that day, Rabobank’s ranking compared to other panel banks dropped as to 1-month dollar LIBOR and rose as to 3-month dollar LIBOR. Two days later, on Dec. 1, 2006, the trader again wrote to the money markets desk head: “Appreciate 3s go down, but a high 3s today would be nice… cheers chief.” The money markets desk head wrote back: “I am fast turning into your LIBOR bitch!!!!” The trader replied: “Just friendly encouragement that’s all , appreciate the help.” The money markets desk head wrote back: “No worries mate , glad to help ….We just stuffed ourselves with good ol pie , mash n licker !!”
In an example of an agreement with traders at other banks, on July 28, 2006, a Rabobank rate submitter and Rabobank trader discussed their mutual desires for a high fixing. The submitter stated to the trader: “setting a high 1m again today – I need it!” to which the trader responded: “yes pls mate…I need a higher 1m libor too.” Within approximately 20 minutes, the submitter contacted a trader at another Contributor Panel bank and wrote: “morning skipper…..will be setting an obscenely high 1m again today…poss 38 just fyi.” The other bank’s trader responded, “(K)…oh dear..my poor customers….hehehe!! manual input libors again today then!!!!” Both banks’ submissions on July 28 moved up one basis point, from 0.37 to 0.38, a move which placed their submissions as the second highest submissions on the Contributor Panel that day.
As another example, on July 7, 2009, a Rabobank trader wrote to a former Rabobank yen LIBOR submitter: “looks like some ppl are talking with each other when they put libors down. . . quite surprised that 3m libors came down a lot.” The former submitter replied: “yes deffinite manipulation – always is tho to be honest mate. . . i always used to ask if anyone needed a favour and vise versa. . . . a little unethical but always helps to have friends in mrkt.”
By entering into a DPA with Rabobank, the Justice Department took several factors into consideration, including that Rabobank has no history of similar misconduct and has not been the subject of any criminal enforcement actions or any significant regulatory enforcement actions by any authority in the United States, the Netherlands, or elsewhere. In addition, Rabobank has significantly expanded and enhanced its legal and regulatory compliance program and has taken extensive steps to remediate the misconduct. Significant remedies and sanctions are also being imposed on Rabobank by several regulators and an additional criminal law enforcement agency (the Dutch Public Prosecution Service).
This ongoing investigation is being conducted by special agents, forensic accountants, and intelligence analysts of the FBI’s Washington Field Office. The prosecution of Rabobank is being handled by Assistant Chief Glenn S. Leon and Trial Attorney Alexander H. Berlin of the Criminal Division’s Fraud Section and Trial Attorneys Ludovic C. Ghesquiere, Michael T. Koenig and Eric L. Schleef of the Antitrust Division. Deputy Chiefs Daniel Braun and William Stellmach of the Criminal Division’s Fraud Section, Criminal Division Senior Counsel Rebecca Rohr, Assistant Chief Elizabeth B. Prewitt and Trial Attorney Richard A. Powers of the Antitrust Division’s New York Office, and Assistant U.S. Attorneys Eric Glover and Liam Brennan of the U.S. Attorney’s Office for the District of Connecticut, along with Criminal Division’s Office of International Affairs, have provided valuable assistance in this matter.
The investigation leading to these cases has required, and has greatly benefited from, a diligent and wide-ranging cooperative effort among various enforcement agencies both in the United States and abroad. The Justice Department acknowledges and expresses its deep appreciation for this assistance. In particular, the CFTC’s Division of Enforcement referred this matter to the department and, along with the FCA, has played a major role in the investigation. The department has also worked closely with the Dutch Public Prosecution Service and De Nederlandsche Bank (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. In particular, the Securities and Exchange Commission has played a significant role in the LIBOR investigation, and the department expresses its appreciation to the United Kingdom’s Serious Fraud Office for its assistance and ongoing cooperation.
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.gov.
WASHINGTON — A Georgia real estate investor and his company pleaded guilty today for their role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Georgia, the Department of Justice announced.
Separate felony charges were filed on Sept. 25, 2013, in the U.S. District Court for the Northern District of Georgia in Atlanta, against Penguin Properties LLC and its owner, Seth D. Lynn.
According to court documents, from at least as early as Feb. 6, 2007 until at least Jan. 3, 2012, Penguin Properties and Lynn conspired with others not to bid against one another, but instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in Fulton County, Ga. Penguin Properties and Lynn were also charged with a conspiracy to use the mail to carry out a scheme to fraudulently acquire title to selected Fulton County properties sold at public auctions, to make and receive payoffs and to divert money to co-conspirators that would have gone to mortgage holders and others by holding second, private auctions open only to members of the conspiracy. The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions.
Charges were also brought against Penguin Properties and Lynn for their involvement in similar conspiracies in DeKalb County, Ga., from at least as early as July 6, 2004 until at least Jan. 3, 2012.
“Today’s charges are the first to be filed in the state of Georgia in the Antitrust Division’s ongoing investigation into anticompetitive conduct in real estate foreclosure auctions,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The division’s investigation has already resulted in dozens of guilty pleas in other states, and the division remains committed to eliminating anticompetitive practices at foreclosure auctions.”
The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at Fulton and DeKalb County public foreclosure auctions at non-competitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner. According to court documents, these conspirators paid and received money that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.
“The core of this case was about an unlevel field and one of unfairness with regard to the auction/bidding process of foreclosed properties,” said Mark F. Giuliano, Special Agent in Charge of the FBI Atlanta Field Office. “The FBI remains committed in providing investigative resources to the U.S. Department of Justice’s Antitrust effort to address such matters.”
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals and a $100 million fine for corporations. The maximum fine for a Sherman Act charge may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either amount is greater than the statutory maximum fine. A count of conspiracy to commit mail fraud carries a maximum penalty of 20 years in prison and a fine of $250,000 for an individual, and a fine of $500,000 for a corporation. The respective maximum fines for the conspiracy to commit mail fraud charge may be increased to twice the gross gain the conspirators derived from the crime or twice the gross loss caused to the victims of the crime by the conspirators.
The investigation is being conducted by Antitrust Division attorneys in Atlanta and the FBI’s Atlanta Division, with the assistance of the Atlanta Field Office of the Housing and Urban Development Office of Inspector General and the U.S. Attorney’s Office for the Northern District of Georgia. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should call 404-331-7113 or visit www.justice.gov/atr/contact/newcase.htm.
Today’s charges were brought 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. For more information on the task force, please visit www.StopFraud.gov.