Category Archives: Antitrust Division

CCC’s: The Bid Rigging Whistleblower –Part 2

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Should the Antitrust Division Have a Whistleblower Czar?

Well, no.  Without legislation to create a criminal antitrust whistleblower statute, the Czar might have little to do.  But, the Antitrust Division should make some effort, short of Czardom, to encourage bid rigging whistleblowers.  As I noted in Part I (here), there is already a mechanism for a whistleblower to claim a reward for prosecuting collusion among contractors/vendors on government contracts.  The bid rigging whistleblower can file a False Claims Act (qui tam) case on behalf of the government alleging that the government was ripped off by illegal collusion among the bidders.  If the government recovers damages, the person who brought the suit (the Relator) can receive a percentage (10-25%) of the recovery.

As I mentioned in Part I, the Antitrust Division has brought both criminal and civil suits as a result of filed whistleblower cases. This is a pretty well-kept secret because as far as I know, the Division has never encouraged anyone to come forward as a bid rigging whistleblower or done anything to publicize the fact that whistleblowers of collusion on government contracts can and have recovered a portion of the government’s damages.  The government should make some effort to attract bid rigging whistleblowers.  Doing so would benefit the Antitrust Division in obvious and non-obvious ways.  Below are a few ideas I think are worth discussing.

  1. Welcoming Bid Rigging False Claims Act cases
  • Special Counsel for False Claims Act Cases

Over the years there has been a proliferation of counselors to the Assistant Attorney General for the Antitrust Division.  One counsel, with a criminal and civil background, could be designated as the Special Counsel for False Claims Act cases.  This would at least be a message to the bar that the Antitrust Division does have an interest in promoting whistleblowing on collusion on federal government contracts.  This special counsel could also oversee whatever efforts the Antitrust Division does take to encourage bid rigging whistleblowing.

  • Create a False Claims Act web page

The Antitrust Division has a page on its website for the Leniency Program.  The Antitrust Division promotes the heck out of leniency.  This page is an excellent source of information about everything one would need to know about the Corporate and Individual Leniency Programs.   There is also a Report Violations page on the Antitrust Division’s website. A False Claims Act page would signal the Division’s interest in possible False Claims cases as well as provide information a potential whistleblower might need to begin.

  • Better Coordination with Civil Division and United States Attorney’s Offices

 When a False Claim Act case is filed, notice of the case and the evidence supporting it must be filed with the Attorney General of the United States.  From there, the case will be assigned according to the subject matter of the alleged fraud: (i.e. health care, defense, antitrust).  Perhaps this is already being done, but the Antitrust Division might be more aggressive in claiming its seat at the table for bid rigging on government contracts.  A whistleblower will not file a Sherman Act case if she has information about collusion on a government contract—because there is no provision for antitrust whistleblowers.  The case will be filed as a Conspiracy to Defraud the United States with the bid rigging constituting the fraud.  A review of cases False Claims Act Cases on the Department of Justice website indicates that there have been a variety of False Claims Act matters that involved bid rigging yet were handled by local United States Attorney’s offices and the Civil Division of the Department of Justice, instead of the Antitrust Division.[1]

It would be good public policy to have all potential government bid rigging cases be referred to the Antitrust Division. Pardon the institutional pride (I worked there for 34 years), but nobody can spot, investigate and prosecute a viable criminal antitrust violation (i.e. bid rigging) better than an experienced Antitrust Division Attorney.  What may look like a bid rig too small for government intervention, may be spotted as the tip of the iceberg by an Antitrust Division prosecutor.  Likewise, a case that may appear weak to someone else, may look quite viable to a Division prosecutor that has experience investigating cartels—and tools like the leniency program.  A special counselor for False Claims Act cases would raise the profile within the Antitrust Division, the Department of Justice (and the outside bar) and may spur additional viable False Claim Act cases being referred to the Antitrust Division for a decision on whether the government should intervene and take over the prosecution.

     2.      The Benefits to the Antitrust Division of a Higher Profile for False Claims                                      Act Cases

The Antitrust Division could benefit in both obvious and non-obvious ways from a higher profile on False Claim Act cases.

  • The Obvious

Filing a False Claims Act case is a risky proposition for any potential whistleblower.  The blowback from being a whistleblower will likely be severe and the chances for success, especially if the government does not intervene, are far from certain.  Modest changes like these suggestions are not going to lead to an avalanche of new cases.  (Thus, the need for an SEC like criminal antitrust whistleblower statute as I argue in this article (here)).  But, it is certainly worth a try.  Nothing suggested above, and others may have additional/better suggestions, costs the government a nickel and the return on the investment may be substantial, even if just one additional cartel is uncovered.  Also, while a different subject, many believe that the value of leniency has been decreasing and the number of viable leniency applications is down. While this may be coincidence, not causation, the Antitrust Division’s statistics for cases and jail sentences and fines are way down.  It may be an opportune time to launch a new, if modest, initiative.

  • Good Cases

One benefit of publicizing the potential benefits of being a bid rigging whistleblower is that even if only one new case emerges, these are great cases for staff to work on.  Here I speak from personal experience and my views may not be universally held, but I’m pretty sure they are held by most trial attorneys in the Antitrust Division. Government bid rigging cases are great cases to work on.  They are much lower profile than say a Forex or Libor or other international cartel matters.  These “big” cases have their own allure, but the front office, the Criminal Division, SEC, CFTC, foreign agencies, Batman and Robin and others all have a hand in these investigations.  While it is exhilarating to work on a matter that makes the front page of the Wall Street Journal, a staff member is a small cog in the big wheel. On a government contract matter, generally speaking, the staff has more responsibility and more ownership of the matter, including possible trial experience on manageable cases. It’s a great way to learn how to investigate, take chances and take ownership.  These cases also involve working with agents across the federal spectrum.  These relationships can last a career and produce results over a long period of time.

  • Deterrent Effect

Finally, one of the most important reasons for robust antitrust prosecutions is deterrence. If the Antitrust Division starts whistleblowers and prosecuting bid rigging cases, it should have a deterrent effect on all the bid riggers out there that are not currently being detected. Whistleblower awards on bid rigging matters should be well-publicized. There is great satisfaction in seeing taxpayer money restored (with appropriate penalties) if a successful case is brought.  In a cartel case like capacitors the price of an input is raised but the impact on the final cost to consumers is small.  The cumulative harm is great (and should be prosecuted), but it is very diffused.  With bid rigging on government contracts the harm is focused and the recovery can be significant with both criminal and civil penalties.  Also, many government bid rigging investigations can lead to finding more bid rigging and what often looks like a small matter can proliferate into a major investigation.  Road construction, school milk, Defense Department contracts are just a few of the government contract cases that led to uncovering “way of life” collusion in certain industries.

Part III

 Special Issues with A Big Rigging Whistleblower

 Thanks for reading. Please come back for Part III.

Bob Connolly

CCC’s: The Bid Rigging Whistleblower–Part 1

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I have been writing, along with my co-author Kimberly Justice, about the desirability of a criminal antitrust whistleblower statute.  Besides many blog posts, we have written a few articles such as It’s a Crime There Isn’t an Antitrust Whistleblower Statute, Wolters Kluwer, Antitrust Law Daily, April 8, 2018.

A principle objection to an antitrust whistleblower statute is that it would undermine the credibility of a witness if she received compensation for exposing a cartel.  Superficially that sounds right but doesn’t hold up when you consider the success of the Antitrust Division’s Corporate Leniency Program. Simply change “leniency applicant” to “whistleblower” and one can see that the Antitrust Division already has a form of whistleblowing; the Corporate Leniency Program which bestows rich rewards on the whistleblower.  As the Antitrust Division has stated repeatedly, the value of leniency is the tens of millions of dollars it can save a company.   Leniency/whistleblowing saves not only the leniency company money, but it can save multiple culpable executives from jail time in return for their cooperation: “When Calculating The Costs And Benefits Of Applying For Corporate Amnesty, How Do You Put A Price Tag On An Individual’s Freedom?” So, the government is rightfully not skittish about paying for information. It’s a necessary evil to breaking up secret cartels and hopefully deter their inception.

The reward of leniency does, of course, undermine the credibility of witnesses just as a whistleblower reward will ding the credibility of any whistleblower who testifies.  If the government has only the cooperation of a leniency applicant, it is likely to: a) not bring a case; or b) lose the case it brings.  But, that flaw in leniency that does not outweigh the benefits!  Leniency whistleblowing almost always leads to cooperation from other subjects of the investigation.  The value of leniency whistleblowing is that it starts the dominos falling of companies/individuals coming in to cooperate for the next best deal available. You don’t see many criminal antitrust trials based on a grant of leniency, because the grant of leniency to one company leads to many guilty pleas and an overwhelming case against whomever is left.[1] A criminal antitrust whistleblower statute for individuals will work the same way.

Pardon the advertisement for a criminal antitrust whistleblower statute because this post is not about that.  In writing about the need for a whistleblower statute, I may have given the impression that it is not currently possible to be a whistleblower on cartel cases.  This is not true.  An individual whistleblower already has a way to help the government recover damages from bidding collusion, while at the same time getting some reward for the great expense and risk in doing this.  If there is bid rigging or price-fixing and the federal government is a victim of the collusion, a qui tam(whistleblower) suit can be brought seeking damages on behalf of the government.  A whistleblower can file a False Claims Act case alleging that a defendant (or group of defendants as in a cartel) obtained a federal contract by means of making a material false statement.  If a bid was rigged, the false statement would likely be the non-collusion affidavit filed with a vendor’s bid package.  This is typically referred to as a Certificate of Independent Price Determination, or something similar.  But, even without such a certification, in the context of a competitive bidding situation, there would be an implied certification that each vendor submitted his bid independently and without collusion with the other bidders, or even non-bidders if the scheme involved payoffs to a potential competitor to not bid).

A couple of things to note. To get a reward for this type of whistleblowing, it is not sufficient to simply go into the prosecutor’s office and lay out the evidence you have.[2]  Under the False Claims Act, the “Relator” [as the whistleblower is called] must file a qui tamsuit on behalf of the government alleging the government suffered damages as a result of the fraud.[3]  If damages are awarded as a result of the qui tamsuit, the Relator is entitled to between 15-25% of the amount the government recovers as a result of the bid rigging.  As an example, if a Relator files a qui tamaction alleging bid rigging on a $50 million contract and the contractor repays the government $10 million in overcharges, the whistleblower should recover between $1.5 million and $2.5 million.[4]

Once a qui tam suit is filed, the Relator’s attorneys must present the evidence they have to the government.  The government will decide whether they want to intervene and take over prosecution of the fraud.  If the government declines to intervene, (and the reason for declination can range from the government thinks your case is weak, or your case is fine, but they are just too busy with other matters).  Even if the government declines to intervene, the Relator can still prosecute the case, and some do, but it is obviously more difficult without the government’s assistance.  And in some fairly rare instances, the government can seek to have the Relator’s case dismissed if they believe it is without evidentiary merit or based on a legal theory the government doesn’t agree with.

The Antitrust Division has actually had successful criminal prosecutions that began based on evidence provided by a whistleblower who had filed a False Claims Act suit. The Antitrust Division neither publicizes the fact that whistleblowing rewards are available for exposing bid rigging on government contracts (and most states have similar False Claims Act statutes) and does not publicize when a whistleblower has successfully recovered damages for the government or himself.  When I was Chief of the Philadelphia Office of the Antitrust Division we prosecuted several cases where the investigation began as a result of a whistleblower False Claims Act case.  A publicly documented example of this was in 2012 when the Antitrust Division settled a civil bid rigging case where two companies were charged with rigging contracts for Bureau of Land Management gas leases.[5]  Because of the collusion, SG Interests and Gunnison Energy Corp. overcharged the government for leases by bidding less than they would have if they bid competitively. Each company paid a settlement of $550,000 in a civil case brought by the Antitrust Division.  The government’s case was based on a qui tamcase filed in 2009 by a former vice president of one of the companies.[6]  See, Justice Department Settlement Requires Gunnison Energy and SG Interests to Pay the United States a Total of $550,000 for Antitrust and False Claims Act Violations.

Also, there was a False Claim Act case filed in the Puerto Rican ocean shipping cartel matter.  That investigation resulted in the longest jail sentence ever received by an individual convicted of a Sherman Act violation–5 years[7].  Again, the fact that a whistleblower case was filed is not well known, but the following is an excerpt from an Antitrust Division appellate brief as Mr. Peake appealed his conviction:

Stallings, a former Sea Star executive, was the government’s first cooperator in its investigation into the shipping conspiracy, although he did not testify at Peake’s trial. Stallings’s [whistleblower] lawsuit sought damages for “injuries to the United States Government resulting from Defendants’ fraudulent course of conduct and conspiracy to allocate customers, rig bids, fix rates, surcharges and other fees for Puerto Rican Cabotage which resulted in the submission of false or fraudulent claims to the Government. [8]

The Antitrust Division noted in its brief:

The qui tam provisions of the False Claims Act permit whistleblowers (known as “relators”) to bring certain fraud claims on behalf of the United States. 31 U.S.C. § 3730(b). These actions “are filed under seal and remain that way for at least 60 days” to give “the government an opportunity to assess the relator’s complaint and decide whether to intervene and assume primary responsibility for prosecuting the case.” United States ex rel. Heineman-Guta v. Guidant Corp., 718 F.3d 28, 30 (1st Cir. 2013) (citing 31 U.S.C. § 3730(b)(2), (b)(4), (c)(1)). Regardless of whether the government intervenes, a relator is entitled to a portion of the proceeds from the lawsuit. 31 U.S.C. § 3730(d).

Coming Next in Part II:  Should There Be an Antitrust Division “Whistleblower Czar?”

Thanks for reading.  Please come back.  Bob Connolly  

[1]  To be honest, another reason there are so few criminal antitrust trials is the prohibitive cost and the draconian “trial penalty” a convicted defendant is likely to face for demanding his day in court.

[2]     It would be far more efficient if a whistleblower could simply provide the information he has to the government and cooperate in the investigation.  This is among the reasons Ms. Justice and I are advocating an SEC style whistleblower statute.

[3]     It is unquestioned that a scheme to rig bids not only violation the Sherman Act, but is a conspiracy to defraud the government where the government’s money is at stake.

[4]     31 U.S. Code § 3730 (d)Award to Qui Tam Plaintiff. — (1) If the Government proceeds with an action brought by a person under subsection (b), such person shall, subject to the second sentence of this paragraph, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action. Where the action is one which the court finds to be based primarily on disclosures of specific information (other than information provided by the person bringing the action) relating to allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government  Accounting Office report, hearing, audit, or investigation, or from the news media, the court may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation. Any payment to a person under the first or second sentence of this paragraph shall be made from the proceeds. Any such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.

[5]     https://www.justice.gov/atr/case-document/file/510616/download.

[6]     https://www.justice.gov/opa/pr/justice-department-settlement-requires-gunnison-energy-and-sg-interests-pay-united-states.

[7].   https://www.justice.gov/opa/pr/former-sea-star-line-president-sentenced-serve-five-years-prison-role-price-fixing-conspiracy.

[8]      US v. Frank Peake, Antitrust Division brief available at,https://www.justice.gov/atr/case-document/file/936611/download.

Mississippi Real Estate Investors Plead Guilty to Conspiring to Rig Bids at Public Foreclosure Auctions

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April 10, 2018

Real estate investors Kevin Moore, Chad Nichols, and Terry Tolar pleaded guilty today for their roles in a conspiracy to rig bids at public real estate foreclosure auctions in Mississippi, the Department of Justice announced.

Including Moore, Nichols, and Tolar, five real estate investors have pleaded guilty in this conspiracy. Separate felony charges against Moore, Nichols, and Tolar were filed on April 3, 2018, in the U.S. District Court for the Southern District of Mississippi.

“Today’s guilty pleas send a strong signal that the Division will prosecute and hold accountable those who conspire to corrupt the competitive process and harm the American consumer,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division. “We extend our thanks to our law enforcement partners, with whom we will continue to investigate bid-rigging crimes in Mississippi—and throughout the United States.”

“Individuals who harm homeowners and defraud companies by cheating our foreclosure system to enrich themselves will face swift and certain criminal prosecution in Mississippi,” said United States Attorney D. Michael Hurst, Jr. for the Southern District of Mississippi. “I applaud the FBI and the Antitrust Division for their tenacity and perseverance in pursuing these criminal actions and shutting this illegal scheme down.”

“Violations of the Sherman Act not only impact America’s financial institutions and distressed homeowners but also damage our free market society as a whole,” said Special Agent in Charge Christopher Freeze of the FBI in Mississippi. “We hope that others participating in this type of corruption understand that the FBI and Department of Justice will continue to protect Americans from price fixing and bid rigging that harm our economy.”

According to court documents, from at least as early as January 12, 2012, through at least as late as April 19, 2017, Moore conspired with others to rig bids, designating a winning bidder to obtain selected properties at public real estate foreclosure auctions in the Southern District of Mississippi. Nichols participated in the conspiracy from as early as April 14, 2010, through as late as February 25, 2015, and Tolar’s participation began as early as January 12, 2012, through as late as March 31, 2017. Co-conspirators made and received payoffs in exchange for their agreement not to bid.

The Department said that the primary purpose of the conspiracy was to suppress and restrain competition in order to obtain selected real estate offered at 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 any remaining proceeds paid to the homeowner. According to court documents, these conspirators paid and received money in connection with their agreement to suppress competition, which artificially lowered the price paid at auction for such homes.

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act 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.

The investigation is being conducted by the Antitrust Division’s Washington Criminal II Section and the FBI’s Gulfport Resident Agency, with the assistance of the U.S. Attorney’s Office for the Southern District of Mississippi. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact Antitrust Division prosecutors in the Washington Criminal II Section at 202-598-4000, or visit https://www.justice.gov/atr/report-violations.

CCC’s: Will the Antitrust Division Need Its Own Compliance Monitor?

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The headline sounds funny, but the story is no laughing matter.  A plea agreement in the electrolytic capacitor investigation between the United States and Nippon Chemi-Con (“NCC”) is in jeopardy because of an unfortunate conflict of interest lapse by an attorney at the Department of Justice.  There was a hearing before Judge Donato yesterday on NCC’s change of plea.  Judge Donato, who has been critical of previous plea agreements in the electrolytic capacitor investigation, accepted the guilty plea but reserved judgment on the sentence to be imposed.  The plea agreement calls for a fine of between $40 and $60 million.  NCC may withdraw its plea if the Judge imposes a fine greater than that called for by the plea agreement.  A sentencing hearing is scheduled for October 3, 2018.

Background

On October 18, 2017 a federal grand jury returned an indictment against NCC for participating in a conspiracy to fix prices for electrolytic capacitors. The indictment, filed in the U.S. District Court for the Northern District of California, charges that NCC, based in Japan, conspired to fix prices for electrolytic capacitors from as early as September 1997 until January 2014.  Three current NCC executives, and one former NCC executive, were previously indicted for their participation in the conspiracy: Takuro Isawa, Takeshi Matsuzaka, Yasutoshi Ohno, and Kaname Takahashi.  The DOJ’s press release can be found here.

The indictment alleges NCC carried out the conspiracy by agreeing with co-conspirators to fix prices of electrolytic capacitors during meetings and other communications.  According to the indictment, NCC and its co-conspirators took steps to conceal the conspiracy, including the use of code names and providing misleading justifications for prices and bids submitted to customers in order to cover up their collusive conduct.  The indictment can be found here.

To date, eight companies and ten individuals have been charged with participating in the conspiracy to fix prices of electrolytic capacitors.

The Problem (if you’re the Government) or Opportunity (if you’re the defense)

The issue that was debated at the change of plea hearing before Judge Donato was first identified in a Joint Status Report filed on May 11, 2018.  The parties reported that an attorney who formerly had represented NCC left his law firm, joined the Department of Justice and later did some work on an MLAT request the Department filed with the Japanese government that related to NCC.  In the Status Report the Antitrust Division wrote:

“The attorney left Firm A and joined OIA in February 2015. Shortly thereafter, in March 2015, he performed several tasks to assist the Antitrust Division in executing and transmitting a Mutual Legal Assistance Treaty (“MLAT”) request to interview a witness in Japan, on topics including NCC’s conduct in the charged price-fixing conspiracy. The Antitrust Division remained unaware of his prior representation of NCC until February 15, 2018.”

The Antitrust Division conceded that the attorney should have recused himself but argued that there was no prejudice to NCC.  NCC strongly disagreed about the impact of a defense attorney “switching sides.”  The company unsuccessfully lobbied the DOJ to dismiss the indictment.  That request was declined but a plea agreement was reached that clearly was more favorable to NCC than the Antitrust Division  might have offered without the conflict issue.  The complete Status Report on the matter can be found here:  Case 4-17-cr-00540-JD Document 47 Filed 05:11:18

The Change of Plea Hearing

Judge Donato accepted the plea of NCC but reserved judgment on the sentence.  Sentencing is scheduled for October 3, 2018.  Judge Donato has required changes to negotiated plea agreements with other defendants in the capacitor investigation believing them to be too lenient.  If Judge Donato does not agree to sentence NCC within the parameters of its plea agreement, NCC can withdraw its plea.  The court spent approximately 30 minutes in closed session exploring the impact on the conflict lapse on the terms the Antitrust Division offered in the plea agreement.

Judge Donato was obviously upset at the lack of procedures at the DOJ to identify and prevent this conflict.  The Antitrust Division tried to demonstrate that it took the matter seriously by sending Marvin Price, the Acting Deputy Assistant Attorney General for Criminal Enforcement out to San Francisco to represent the Government at the hearing.

The case is U.S. v. Nippon Chemi-Con Corp., case number 4:17-cr-00540-JD.

More to come.

CCC’s: DOJ Announces “Coordination of Corporate Resolution Penalties” Policy

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On May 9, 2018 Deputy Attorney General Rod Rosenstein delivered remarks to the New York City Bar White Collar Crime Institute. He announced a new Department policy that encourages coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct.  The full prepared remarks are here.  Below is an excerpt:

Today, we are announcing a new Department policy that encourages coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct.

The aim is to enhance relationships with our law enforcement partners in the United States and abroad, while avoiding unfair duplicative penalties.

It is important for us to be aggressive in pursuing wrongdoers. But we should discourage disproportionate enforcement of laws by multiple authorities. In football, the term “piling on” refers to a player jumping on a pile of other players after the opponent is already tackled.

Our new policy discourages “piling on” by instructing Department components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.

In highly regulated industries, a company may be accountable to multiple regulatory bodies. That creates a risk of repeated punishments that may exceed what is necessary to rectify the harm and deter future violations.

Sometimes government authorities coordinate well.  They are force multipliers in their respective efforts to punish and deter fraud. They achieve efficiencies and limit unnecessary regulatory burdens.

Other times, joint or parallel investigations by multiple agencies sound less like singing in harmony, and more like competing attempts to sing a solo.

Modern business operations regularly span jurisdictions and borders. Whistleblowers routinely report allegations to multiple enforcement authorities, which may investigate the claims jointly or through their own separate and independent proceedings.

By working with other agencies, including the SEC, CFTC, Federal Reserve, FDIC, OCC, OFAC, and others, our Department is better able to detect sophisticated financial fraud schemes and deploy adequate penalties and remedies to ensure market integrity.

But we have heard concerns about “piling on” from our own Department personnel. Our prosecutors and civil enforcement attorneys prize the Department’s reputation for fairness.

They understand the importance of protecting our brand. They asked for support in coordinating internally and with other agencies to achieve reasonable and proportionate outcomes in major corporate investigations.

And I know many federal, state, local and foreign authorities that work with us are interested in joining our efforts to show leadership in this area.

“Piling on” can deprive a company of the benefits of certainty and finality ordinarily available through a full and final settlement. We need to consider the impact on innocent employees, customers, and investors who seek to resolve problems and move on. We need to think about whether devoting resources to additional enforcement against an old scheme is more valuable than fighting a new one.

Our new policy provides no private right of action and is not enforceable in court, but it will be incorporated into the U.S. Attorneys’ Manual, and it will guide the Department’s decisions.

This is another step towards greater transparency and consistency in corporate enforcement. To reduce white collar crime, we need to encourage companies to report suspected wrongdoing to law enforcement and to resolve liability expeditiously.

There are four key features of the new policy.

First, the policy affirms that the federal government’s criminal enforcement authority should not be used against a company for purposes unrelated to the investigation and prosecution of a possible crime. We should not employ the threat of criminal prosecution solely to persuade a company to pay a larger settlement in a civil case.

That is not a policy change. It is a reminder of and commitment to principles of fairness and the rule of law.

Second, the policy addresses situations in which Department attorneys in different components and offices may be seeking to resolve a corporate case based on the same misconduct.

The new policy directs Department components to coordinate with one another, and achieve an overall equitable result. The coordination may include crediting and apportionment of financial penalties, fines, and forfeitures, and other means of avoiding disproportionate punishment.

Third, the policy encourages Department attorneys, when possible, to coordinate with other federal, state, local, and foreign enforcement authorities seeking to resolve a case with a company for the same misconduct.

Finally, the new policy sets forth some factors that Department attorneys may evaluate in determining whether multiple penalties serve the interests of justice in a particular case.

Sometimes, penalties that may appear duplicative really are essential to achieve justice and protect the public. In those cases, we will not hesitate to pursue complete remedies, and to assist our law enforcement partners in doing the same.

Factors identified in the policy that may guide this determination include the egregiousness of the wrongdoing; statutory mandates regarding penalties; the risk of delay in finalizing a resolution; and the adequacy and timeliness of a company’s disclosures and cooperation with the Department.

Cooperating with a different agency or a foreign government is not a substitute for cooperating with the Department of Justice. And we will not look kindly on companies that come to the Department of Justice only after making inadequate disclosures to secure lenient penalties with other agencies or foreign governments. In those instances, the Department will act without hesitation to fully vindicate the interests of the United States.

The Department’s ability to coordinate outcomes in joint and parallel proceedings is also constrained by more practical concerns.  The timing of other agency actions, limits on information sharing across borders, and diplomatic relations between countries are some of the challenges we confront that do not always lend themselves to easy solutions.

The idea of coordination is not new. The Criminal Division’s Fraud Section and many of our U.S. Attorney’s Offices routinely coordinate with the SEC, CFTC, Federal Reserve, and other financial regulators, as well as a wide variety of foreign partners. The FCPA Unit announced its first coordinated resolution with the country of Singapore this past December.

The Antitrust Division has cooperated with 21 international agencies through 58 different merger investigations during the past four years.

Here is a link to the policy on Coordination of Corporate Resolution Penalties.

As the Deputy Attorney General stated, coordination is not new.  The Antitrust Division routinely coordinates with other federal and state agencies on most investigations.  And some coordination always occurs on international investigations.  In the recent financial crimes investigations such as Libor and FOREX the amount of coordination was extensive among federal agencies such as the Antitrust Division, Criminal Division, FBI, SEC, CFTC, state AG office, as well as with many foreign jurisdictions.  It is rumored that meetings were held in the Great Hall at the Department of Justice since no conference room could hold the throngs of participating enforcers.

Coordination by the Antitrust Division with enforcers from other federal, state and international enforcers is not new, but there is a continual debate about whether such coordination prevents “piling on.”  Of course, what a defense attorney may call piling on, the prosecutors may deem to be a hard but fair hit.  There is no referee or instant replay.  The question of piling on or double counting is a subject of continuing debate in antitrust circles.  It’s a tough question as foreign jurisdictions are injured by international cartels and they have stakeholders that want a significant penalty.  Sorting out proportional penalties among sovereign nations is a particularly tough ongoing challenge. This new policy document is not going to end that debate but a written policy document (while creating no new rights) could enhance defendants’ power of persuasion with the Department of Justice if they have some credible numbers to back up a “piling on” argument.

Thanks for reading.

PS.  Several publications have reported that Richard Powers will become the next Deputy Assistant Attorney General for Criminal Enforcement in the Antitrust Division.  The Antitrust Division has made no announcement yet.  One of the many qualifications Mr. Powers will bring to the position, if he is named as the Criminal Deputy, is his experience in multi-agency, international prosecutions. He worked on both Libor and Forex while a member of the Antitrust Division’s New York Field Office.

CCC’s: What do we know about algorithmic collusion? (Guest Post by Ai Deng PhD)

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Dr. Ai Deng of Bates White Economic Consulting has been a long time and frequent contributor to Cartel Capers.  He is a leading voice in the area of artificial intelligence and algorithmic collusion.  You can follow him on LinkedIn (here).  HIs most recent post is below:

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I had the pleasure of speaking about artificial intelligence and algorithmic collusion at the American Bar Association Section of Antitrust Law Spring Meeting 2018 last month. The star war-themed session seemed to have gone very well. I want to thank again Paul Saint-Antoine, Lesli Esposito, Professors Maurice Stucke and Joshua Gans for putting together the panel with me.

I have just posted another article on algorithmic collusion on SSRN. The paper is partially based on my remarks at the Spring Meeting but expands on several fronts. Below is the abstract. You can download the full working paper at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3171315

Abstract

The past few years have seen many legal scholars and antitrust agencies expressing interest in and concerns with algorithmic collusion. In this paper, I survey and draw lessons from the literature on Artificial Intelligence and on the economics of algorithmic tacit collusion. I show that a good understanding of this literature is a crucial first step to better understand the antitrust risks of algorithmic pricing and devise antitrust policies to combat such risks.

Keywords: algorithmic pricing, algorithmic collusion, artificial intelligence, antitrust

This is one of a series of papers I have written in the past year about the general topic of machine learning and artificial intelligence, and their implications on antitrust issues.

As always, I appreciate your thoughts and comments. You can reach me at [email protected] or connect with me on LinkedIn [here]

Ai Deng, PhD

Principal at Bates White Economic Consulting

Lecturer at Advanced Academic Program, Johns Hopkins University

direct: 2022161802 | fax: 2024087838

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

CCC’s: It’s A Crime There Isn’t a Criminal Antitrust Whistleblower Statute

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Kimberly Justice and I are continuing to write about what we believe is a very important issue in cartel fighting–the passing of criminal antitrust whistleblower legislation.  Below are the opening paragraphs of our latest article on the subject.  The full article, kindly posted by Wolters Kluwer in their Antitrust Law Daily, can be found here.

“The SEC’s wildly successful whistleblower program has returned hundreds of millions of dollars to investors as a result of actionable whistleblower information over the past six years.  The IRS paid one whistleblower more than $100 million for information that helped the government uncover a massive tax evasion scheme and led to a $780 million settlement.  The CFTC predicts that the results of its whistleblower program this year will be “huge.”  The Antitrust Division has paid $0 to whistleblowers and received $0 from cartels exposed by whistleblowers.  Or, as Charlie Brown would say, the Antitrust Division “got a rock.”

There is no cartel whistleblower program and this should change now.  Price-fixing and bid-rigging conspiracies are felonies costing American consumers millions of dollars in the form of artificially high prices.  These fraudulent schemes are particularly suited to exposure by whistleblowers because senior corporate executives frequently use lower level employees (and potential whistleblowers) to carry out the illegal scheme.  The time is right for serious antitrust whistleblower legislation.”

 

Full article here

Thanks for reading.  If you have any reaction/comment you’d like to share please use the comment section or through LinkedIn (here).

CCC’s: Employee No-Poach Agreement Compliance Talk: Knock it Off! Now!!

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A hot topic at the ABA Antitrust Section Spring Meeting in DC that I recently attended, and in antitrust in general, is the treatment of employee “no-poach” agreements between companies.  Naked no-poach agreements are illegal schemes wherein companies agree to not solicit or hire each other’s employees.  These per se illegal agreements have, till now, been prosecuted as civil violations.  In October 2016, however, the Antitrust Division and FTC issued joint Guidance to Human Resource Professionals warning that certain no poach agreements may be prosecuted criminally.  Since that time the Antitrust Division has repeated the message that naked no-poach agreements that begin or continue after October 2016 will be treated as any other cartel behavior; meaning the investigation and prosecution will likely be as a criminal violation.  Very recently, the Antitrust Division reached a civil settlement with rail equipment suppliers Knorr-Bremse and Wabtec over allegations of a long-standing agreement to not compete for each other’s employees.  The DOJ press release (here) explained the case was brought civilly because the illegal agreements ended before October 2016. There is more background in prior Cartel Capers posts here and here.

I applaud the Division’s commitment to treat naked no-poach agreement as possible criminal violations. It has puzzled me why employee (input) allocation agreements were ever thought to warrant civil treatment.  To be sure, there are times when an agreement not to hire away another company’s employees may be ancillary to some legitimate integration such as joint research.  You don’t want the other guy to size up your good people and steal them.  But, a naked agreement—I won’t hire away your employees if you won’t hire away mine—is a naked restraint of trade; to my mind just as bad as any customer or supplier allocation scheme.

A glimpse of how this collusion works is explained in an excerpt of a talk by then Assistant Attorney General Bill Baer discussing some of the details of a no-poach agreement between eBay and Intuit as alleged in a 2013 civil case (here):

“The behavior was blatant and egregious.  And the agreements were fully documented in company electronic communications.  In one email, eBay’s senior vice president of HR wrote Meg Whitman complaining that while eBay was adhering to its agreement not to hire Intuit employees, “it is hard to do this when Intuit recruits our folks.”  Turns out that Intuit had sent a recruiting flyer to an eBay employee.  Whitman forwarded that email to Scott Cook asking him to “remind your folks not to send this stuff to eBay people.”  Cook quickly responded with “…Meg my apologies.  I’ll find out how this slip up occurred again….”

Assistant Attorney General Bill Baer Speaks at the Conference Call Regarding the Justice Department’s Settlement with eBay Inc. to End Anticompetitive “No Poach” Hiring Agreements, Thursday, May 1, 2014.

Another graphic example of an employee collusion case is reported in the The Verge, Steve Jobs personally asked Eric Schmidt to stop poaching employees, January 27, 2012 (here)

  • Steve Jobs personally emailed Eric Schmidt to ask Google to stop poaching an Apple engineer, and Google responded by arranging to immediately and publicly fire the employee who initiated the call.

  • “Mr. Jobs wrote: “I would be very pleased if your recruiting department would stop doing this.”

  • Schmidt forwarded Mr. Jobs’s email to undisclosed recipients, writing: “I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can.”

  • Geshuri [a Google executive] told Mr. Schmidt that the employee “who contacted this Apple employee should not have and will be terminated within the hour.” Mr. Geshuri further wrote: “Please extend my apologies as appropriate to Steve Jobs. This was an isolated incident and we will be very careful to make sure this does not happen again.”

  • Three days later, Shona Brown, Google’s Senior Vice President for Business Operations, replied to Mr. Geshuri, writing: “Appropriate response, thank you. Please make a public example of this termination with the group.”

This behavior is a particularly damaging form of collusion.  Imagine you are an employee at a high tech, or any firm.  You really don’t like your job.  Maybe it’s the boss you don’t get along with.  Maybe you get lousy assignments; no opportunity for advancement; you think you’re under appreciated, overworked and underpaid (maybe you work at a law firm?).  You’d like to get another job, but your application/resumes go unanswered.  You can’t seem to get any interest from the other big firm in town.  You not only are stuck at the same pay, same boss, same job, but your self-esteem takes a hit too.  (When I was in law school applying for jobs, my roommates and I jokingly made a ‘wall of shame” of all the rejection letters.  But, the disappointment was real).  No-poach agreements are restraints of trade that are very focused on individuals and have a significant impact on their lives.  The harm seems greater to me, and perhaps to a sentencing judge, than a price fixing scheme that inflates prices a small amount, though over perhaps thousands of customers.

Compliance guidance should not just explain the shift in DOJ policy towards naked no-poach agreements, but to explain how these agreements actually and very negatively can affect people’s lives and why they may be prosecuted criminally.  I rarely here the human side of the story emphasized or even mentioned in discussion about 15 U.S..C Section 1 (The Sherman Act); the per se rule versus rule of reason, etc.  Compliance guidance should also be clear about another potential human side to this story—some executive is going to be the first one facing a criminal charge with a possible sentence of up to 10 years in prison for an employee no-poach agreement.

PS.     Since no-poach agreements may be treated criminally by the Antitrust Division, it is important to remember that Corporate Leniency (that also covers cooperating individuals) may be available to the first organization that self-reports.

Thanks for reading.  Bob Connolly

CCC’s: Bumble Bee CEO Indicted for Price Fixing

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According to a Department of Justice press release, on May 16, 2018 a federal grand jury returned an indictment against Christopher Lischewski, the President and Chief Executive Officer of Bumble Bee Foods LLC, for participating in a conspiracy to fix prices for packaged seafood sold in the United States. The indictment was filed in the U.S. District Court for the Northern District of California in San Francisco, and charged Lischewski with participating in a conspiracy to fix prices of packaged seafood beginning in or about November 2010 until December 2013.

The one-count felony indictment charges that Lischewski carried out the conspiracy by agreeing to fix the prices of packaged seafood during meetings and other communications.  The co-conspirators issued price announcements and pricing guidance in accordance with these agreements.

An indictment merely alleges that crimes have been committed.  Mr. Lischewski is presumed innocent unless proven guilty beyond a reasonable doubt. The government’s full press release can be found here.  Mr. Lischewski’s is represented by John Keker of Keker, Van Nest & Peters LLP, who said in a statement (as reported by Law 360 here) that his client will be found not guilty:

“Chris Lischewski is a decent and honorable man, who has lived a hardworking and ethical life. He has been a leader and beacon within the seafood industry for more than twenty-five years. And most significantly on this dark day, he is innocent of any wrongdoing.”

Bumble Bee has already pled guilty and agreed to pay a $25 million fine.  The Lischewski indictment demonstrates that the Antitrust Division seeks to maximize deterrence by holding individuals accountable for criminal antitrust violations.  The Division seeks to indict the highest level executive they believe is justified by the evidence.

The indictment can be found here. I have no personal knowledge of the facts of this case other than from reading the public documents.  The indictment doesn’t specify whether the defendant personally attended meetings and reached agreements or whether Bumble Bee subordinates did so at his direction or with his knowledge/approval. Trials against CEO’s can be challenging because conviction often depends on the jury accepting the testimony of lower level officials at the company who may have gotten immunity or favorable plea agreements in return for their testimony.  A plea agreement with the defendant is always possible, but a trial is far more likely given the probable high sentencing guidelines range the defendant would be facing and the unlikely possibility that he would be eligible for a downward departure for cooperation at this late stage of the investigation.

Thanks for reading.

Real Estate Investor Sentenced to 30 Months in Prison for Rigging Bids at Northern California Public Foreclosure Auctions

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Wednesday, March 21, 2018

A real estate investor was sentenced today for his role in conspiracies to rig bids at public real estate foreclosure auctions in Northern California, the Department of Justice announced.

Michael Marr was charged on Nov. 19, 2014, in an indictment returned by a federal grand jury in the Northern District of California.  He was convicted on June 2, 2017, of conspiring to rig bids at foreclosure auctions in Alameda and Contra Costa County.  Today, Marr was sentenced to serve 30 months in prison and to serve 3 years of supervised release.  In addition to his term of imprisonment, Marr was ordered to pay a criminal fine of $1,397,061.59.

“Michael Marr was a driving force behind a multi-year conspiracy to corrupt the public foreclosure auction process through a system of illegal payoffs,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division.  “Today’s sentence reflects the seriousness of that crime.”

The evidence at trial showed that the defendant conspired with others to rig bids to obtain hundreds of properties sold at foreclosure auctions.  The conspirators designated the winning bidders to obtain selected properties at the public auctions, and negotiated payoffs among themselves in return for not competing with one another.  They subsequently conducted private auctions among themselves at or near the courthouse steps where the public auctions were held, awarding the properties to the conspirators who submitted the highest bids in those private auctions.

As the CEO of Community Fund, LLC and Community Realty Property Management Inc., Marr sent multiple employees to the foreclosure auctions to rig bids on his behalf.  As part of the conspiracies, Marr’s agents purchased several hundred properties through the bid-rigging conspiracies and were owed payoffs on hundreds more.

When real estate properties are sold at public auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with the remaining proceeds paid to the homeowner.

The sentence is a result of an ongoing investigation into bid rigging at public real estate foreclosure auctions in California’s San Francisco, San Mateo, Alameda, and Contra Costa counties, which is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300 or call the FBI tip line at 415-553-7400.