Tag Archives: kimberly justice

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.

CCC’s: Farewell Remarks by John Pecman, Commissioner of Competition (Canada)

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Yesterday John Pecman gave his last public talk as Commissioner of Competition for the Canadian Competition Bureau.  The remarks were made at the Canadian Bar Association’s Spring Conference in Toronto.  Mr. Pecman became acting Commissioner in 2012 and was subsequently named Commissioner.  In his final remarks (here), Mr. Pecman discussed the four goals he had as Commissioner and the successes the agency achieved in realizing those goals:

“Looking at this job, I saw four must-do things to make the transition work:

  • Adopt a shared compliance approach;
  • Increase our guidance;
  • Enhance our domestic and international partnerships; and
  • Restructure the organization through an internal realignment.”

As always, Mr. Pecman was candid in describing areas where improvement was needed.  For example:

“Simply put, the Bureau’s current cartel model is inefficient.

It ties up Bureau resources and leads to poor outcomes. It needs to be examined and repaired, in keeping with the approach adopted by a number of our international counterparts, like the ACCC, who have employed “dual track” approaches to proceeding against hard-core cartels.”

Lastly, I was happy to see that Mr. Pecman and I share a strong support of “whistleblower” programs to prevent, destabilize and prosecute cartels.  Mr. Pecman stated:

Finally, I firmly support establishing a stand-alone “whistleblower” program, similar to the model employed by the Ontario Securities Commission and some of our international counterparts, which would provide financial rewards to whistleblowers who provide information and meet certain eligibility requirements. This would be an extremely effective enforcement tool for addressing the most egregious and most challenging anti-competitive behaviour to detect.

The full text of Mr. Pecman’s remarks is here.

I have written numerous posts on Cartel Capers in support of whistleblower legislation (here) (here).  They are summarized in an article I coauthored with a former Antitrust Division colleague, Kimberly Justice.  The article, “It’s a Crime There Isn’t A Criminal Antitrust Whistleblower Statute” can be found here.

Thanks for reading.  And many thanks to John Pecman for his long service on behalf of consumers and competition law enforcement.  Congratulations John on your successful stewardship!

CCC’s: European Commission Sets EU-wide Whistleblower Protection Rules

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The European Union just announced proposed rules designed to guarantee protection to whistleblowers who report infringements of EU law.  The proposal requires approval from EU countries and the European Parliament before it can become law. Currently only 10 EU countries offer full protection to whistleblowers.

From the EU Press Release

Brussels, 23 April 2018

Recent scandals such as Dieselgate, Luxleaks, the Panama Papers or the ongoing Cambridge Analytica revelations show that whistleblowers can play an important role in uncovering unlawful activities that damage the public interest and the welfare of our citizens and society.

Today’s proposal will guarantee a high level of protection for whistleblowers who report breaches of EU law by setting new, EU-wide standards. The new law will establish safe channels for reporting both within an organisation and to public authorities. It will also protect whistleblowers against dismissal, demotion and other forms of retaliation and require national authorities to inform citizens and provide training for public authorities on how to deal with whistleblowers.

First Vice-President Frans Timmermans said: “Many recent scandals may never have come to light if insiders hadn’t had the courage to speak out. But those who did took enormous risks. So, if we better protect whistleblowers, we can better detect and prevent harm to the public interest such as fraud, corruption, corporate tax avoidance or damage to people’s health and the environment. There should be no punishment for doing the right thing. In addition, today’s proposals also protect those who act as sources for investigative journalists, helping to ensure that freedom of expression and freedom of the media are defended in Europe.”

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality added: “The new whistleblowers’ protection rules will be a game changer. In the globalised world where the temptation to maximise profit sometimes at the expense of the law is real we need to support people who are ready to take the risk to uncover serious violations of EU law. We owe it to the honest people of Europe.

The European Commission also issued a press release on Whistleblower Protection: Frequently Asked Questions

My former Antitrust Division colleague, Kimberly Justice and I have been advocating strongly for a criminal antitrust whistleblower statute; one that would not only give retaliation protection to whistleblowers but would provide a financial incentive for information that leads to exposure and prosecution of a cartel.  See It’s a Crime There Isn’t an Criminal Antitrust Whistleblower Statute.

One objection I’ve heard to a criminal antitrust whistleblower statute is that a whistleblower statute would undermine the Corporate Leniency program.  I think the truth would be quite the opposite.  Once a whistleblower helps initiate a cartel investigation, the race would be on to be the first company to qualify for leniency.  Also, the fact that a whistleblower could come forward may also increase Type A Corporate Leniency—leniency for a company that self-reports before there is even an investigation. And, in the ideal world (except for those of us who make a living from cartel investigations), the threat of a whistleblower would prevent a cartel from forming in the first place.  This notion was expressed in a Reuters article about the proposed EU legislation (here):

The Association of Chartered Certified Accountants (ACCA) said increasing whistleblower protection will help businesses.

“Companies have to see speak-up as something that would help them manage risks and avoid more serious issues such as violation of law, inappropriate conduct, crime or any type of harms,” ACCA head of corporate governance Jo Iwasaki said.

Thanks for reading.  Bob Connolly

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: Top Comments on Antitrust Whistleblower Posts

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I’ve received several comments on the idea of an Antitrust Whistleblower Statute.  Some of the top comments are:

  1.    Didn’t you retire?  No.
  2.    Well, you should have.  I sometimes think the same thing, but what could be more fun than being an antitrust lawyer?
  3.    Your website design stinks and for a nominal fee I can fix it and help you lose weight.  I’m not worried about the website design.  But, please email me with the weight loss help.  
  4.    There were concerns that, particularly with international cartels, a whistleblower award could be excessive.  We agree that some allowance should be made to address this possibility.  John Connor offered this helpful comment:  “What is an appropriate standard for the size of the award? Using a percentage the employer’s fine is likely to be excessive. What about 5 or 10 years’ of the whistle-blower’s compensation?”   
  5.  There were some questions as to whether cartel whistleblower bounty provisions exist in other countries.  That is a good question.  We are researching that and will follow up.   
  6. Several people noted that an antitrust whistleblower idea is not a new idea and has never received support in the past from the Antitrust Division or Congress.  This is true, and we may get nowhere with our proposal this time.  But, as we’ve noted, the leniency “cash cow” is slowing down and the SEC whistleblower provision has been a huge success (by most people’s estimation).   Sometimes persistence pays off and the time may have come has come for a successful antitrust whistleblower push.  And, I may humbly suggest that Kimberly Justice and I may have some insights based on our many years with the Antitrust Division that have not been considered before.  We’ll see.

P.S.

The Grassley-Leahy Criminal Antitrust Anti-Retaliation Act of 2017, was just passed unanimously in the Senate.  The legislation would make it unlawful for an employer to retaliate against an employee who reports a violation of antitrust laws or a crime connected to antitrust laws.  This is the third time this legislation has passed the Senate unanimously, but it has never even been taken up by the House.

Stay tuned….

Thanks for reading.

CCC’s: It Is Time for an Antitrust Whistleblower Statute–Part 3

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This is Part Three of a four-part series of posts by myself and colleague Kimberly Justice on “It Is Time for an Antitrust Whistleblower Statute.”  Parts 1 and 2 can be found here and here.

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Note:   If the Grassley/Leahy Anti-Retaliation Act is passed, that protection would be part of the whistleblower statute. Ms. Justice and I are advocating that an antitrust whistleblower statute should go farther and provide a reward for actionable cartel-busting information.

The SEC whistleblower statute is a very successful model to be followed for a potential antitrust whistleblower statute. There should be differences in some areas (discussed below), but the SEC program has shown to be an effective tool in preserving the integrity of the nations’ securities market while conserving the investigative resources of the SEC.  But, it took a severe financial crisis to overcome the objections to an SEC whistleblower statute.  Many of the stakeholders, such as the Chamber of Commerce that opposed allowing a whistleblower award as part of the Dodd-Frank Act are likely to oppose an antitrust whistleblower statute.  But in November 2016, then SEC chair Mary Jo White said: “The whistleblower program has had a transformative impact on enforcement and that impact will only increase in the coming years.”

The success of the SEC whistleblower statute, at least from an enforcement perspective, is one reason why we think the time has come for a similar antitrust whistleblower statute.  It works.  The SEC, which pays the whistleblower 10-30% of the sanctions collected in successful actions, has rewarded 46 whistleblowers with approximately $158 million for information that has led to successful enforcement actions.

The SEC statute, like the antitrust statute we propose, is different than a typical False Claims Act-type whistleblower claim where the relator (whistleblower) brings an action in the name of the United States alleging the government has been the victim of fraud.  The SEC statute basically provides an informant with a reward (bounty) for coming forward with actionable information where the SEC obtains monetary sanctions.  The SEC, however, is precluded from making monetary awards “to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award.”

While the SEC statute provides a model, there are areas where adjustments for the nature of cartel violations may be made in an antitrust whistleblower statute.  The full SEC legislation can be found here, but below are a couple of key provisions and our suggestions about how they might be modified.

Payment of Award

The SEC whistleblower program allows for a reward, “In any covered judicial or administrative action, or related action.” 

The Antitrust Division does not have administrative actions.  An antitrust whistleblower would be eligible for an award, in our view, only based on original information that led to criminal Sherman Act convictions and the imposition of fines based on a conviction.

 Amount of Award

The SEC provides for a whistleblower award only where the penalties exceed $1 million.  In such cases the reward is an aggregate amount [if more than one whistleblower] equal to—

‘‘(A) not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and

‘‘(B) not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions.

In our view, this may not be an appropriate award schedule for an antitrust whistleblower.  At a minimum, the $1 million threshold should be eliminated. A whistleblower statute may be particularly effective in construction-type contracts where the loss to the victim is acute.  For example, a rigged electrical contract at a local hospital that would have been $750,000 with competitive bidding but has a low fixed bid of $1 million is as worthy of a whistleblower award as an international cartel where each consumer suffers a relatively small loss, but cumulatively the loss will easily exceed $1 million.

Also, the 10 to 30 percent award range may be excessive in a large cartel case.  The impetus behind our proposed legislation is not so much to make a whistleblower a mega-lottery winner, but to provide a way to help the whistleblower pay for what could be substantial attorney fees, and to compensate the whistleblower for what may be a long period of unemployment or underemployment, regardless of anti-retaliation protection. Therefore, we would eliminate the minimum award of 10%, leave the maximum of 30% and perhaps require that in making the award the Antitrust Division consider a) the attorney fees incurred; and b) the likely or actual loss of income over a period of time, as well as the value of the information provided, the level of cooperation and the amount of the recovery.

No Recovery for One Convicted of the Violation

No SEC whistleblower award can be made to ‘‘to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section.”

             An antitrust whistleblower statute should certainly retain this provision.  It is our sense that the most likely potential antitrust whistleblowers will be lower-level employees who know about a conspiracy and take some action in furtherance of it—thus creating criminal liability for themselves.  This will give the Antitrust Division much control over who can become a whistleblower.  The Division retains the discretion whether to give non-prosecution protection, a necessary first step before an insider can become a whistleblower.  If the potential whistleblower has a level of culpability such that the Antitrust Division is not comfortable accepting as a whistleblower, the simple answer is to not grant non-prosecution protection.  Another possible scenario is that the Antitrust Division grant non-prosecution protection to a highly culpable individual (making them eligible for an award because no conviction) but write into the cooperation agreement that the cooperator waive the right to a potential “bounty.”

There may be, and hopefully will be, some whistleblowers who do not need non-prosecution protection (customers, administrative staff or others who learn of a cartel but have no role in it).  But, in practice, the Antitrust Division would have significant control over the whistleblower program because it is likely that many potential whistleblowers would have to take as a first step, negotiating non-prosecution agreements.

 Office of the Whistleblower

            A key aspect behind the success of the SEC whistleblower provision is that the SEC actively promotes the program.  The SEC established an Office of the Whistleblower.  This is an excerpt from the office’s home page:

Assistance and information from a whistleblower who knows of possible securities law violations can be among the most powerful weapons in the law enforcement arsenal of the Securities and Exchange Commission. Through their knowledge of the circumstances and individuals involved, whistleblowers can help the Commission identify possible fraud and other violations much earlier than might otherwise have been possible.

The level to which the Antitrust Division promotes a new whistleblower statute will determine its level of success.  When the Division first began the revised leniency program, it rolled it out like a new iPhone.  The Division went to great lengths to advertise the program and make the program successful in practice by working with companies to help them qualify if at all possible.  The flexibility and discretion built in to an SEC style whistleblower statute will give the Antitrust Division the ability to accentuate the features the whistleblower provisions that work best for law enforcement while mitigating any possible downside (such as very culpable people getting awards).

Miscellaneous

We’ve only touched on the most significant feature of the SEC whistleblower program that may be mimicked in an antitrust whistleblower statute.  There would be more “sausage making” into creating actual legislation.  Other features of the SEC program worth noting are the reporting requirements to Congress and the Inspector General review and report on the program.  If an antitrust whistleblower statute is nearly as effective as the SEC statute, law enforcement and consumers will be the winners.  But, if an antitrust whistleblower statute is a bad idea, it can be a short-lived bad idea.  In light of the success of the SEC program, it is prudent to give it a chance.

Thanks for reading

[email protected]

Kimberly A. Justice, [email protected]

CCC’s: It Is Time For An Antitrust Whistleblower Statute–Part 2

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Objections to an Antitrust Whistleblower Statute

The idea of an antitrust whistleblower is not new, but it has never gained much traction in the past.  There have been significant objections, or at least disinterest—particularly from the Department of Justice.  The mood seemed to be “Our cup runneth over with Amnesty applications so let’s not screw this thing up.”  But, perhaps times have changed.  Our analysis is that the objections to a whistleblower statute were either superficial, or when having merit, still not enough to outweigh the benefits of a whistleblower statute.

Before considering some of the possible downside to an antitrust whistleblower statute, a little explanation of what we have in mind may be helpful.  We propose an SEC-style whistleblower statue where an informant can be awarded a level of compensation (bounty) when information of illegality leads to charges and recovery by the SEC. This is different than a False Claims Act qui tam case where a Relator brings a case in the name of the government alleging the government has been defrauded.  In fact, an antitrust whistleblower statute is needed because a qui tam case is not generally available in price-fixing matters since it is the private sector, not the government that has been harmed.

Concerns About an Antitrust Whistleblower statute

 It’s worth noting that the Criminal Antitrust Anti-Retaliation Act has been passed twice unanimously by the Senate in the last two Congresses and is up for vote again on the Senate floor.  It will no doubt pass—most likely again unanimously.  There is agreement that a person who reports criminal antitrust activity should not face retaliation in the workplace. (Despite the consensus, the House has failed to take up this bill the last two times it has passed the Senate).  There is controversy, however, about whether a whistleblower should be eligible for some type of bounty if the information leads to successful cartel prosecution and the imposition of fines.

In 2011, the General Accounting Office Published a report on Criminal Cartel Enforcement that reported stakeholders’ views on a possible antitrust whistleblower statute (here).  This is a summary of the GAO findings:

There was no consensus among key stakeholders GAO interviewed–antitrust plaintiffs’ and defense attorneys, among others–regarding the addition of a whistleblower reward, but they widely supported adding antiretaliatory protection. Nine of 21 key stakeholders stated that adding a whistleblower reward in the form of a bounty could result in greater cartel detection and deterrence, but 11 of 21 noted that such rewards could hinder DOJ’s enforcement program. Currently, whistleblowers who report criminal antitrust violations lack a civil remedy if they experience retaliation, such as being fired, so they may be hesitant to report criminal wrongdoing, and past reported cases suggest retaliation occurs in this type of situation. All 16 key stakeholders who had a position on the issue generally supported the addition of a civil whistleblower protection though senior DOJ Antitrust Division officials stated that they neither support nor oppose the idea.

The GAO report is several years old and it may be that positions have been reevaluated.  For example, I think the Antitrust Division today would support the anti-retaliation measures in whistleblower statute.  But below is an analysis of some of the objections raised to making a bounty available to an antitrust whistleblower.

Whistleblower Credibility

 The Antitrust Division’s principal concern was that jurors may not believe a witness who stands to benefit financially from successful enforcement action against those he implicated.  GAO Report p. 39.  But, a whistleblower is highly unlikely to ever be a principle witness at a trial.  An antitrust crime typically involves many culpable actors.  A whistleblower would generally “get the ball rolling” and provide evidence that will turn other witnesses, and allow subpoenas and search warrants from target companies.  Further, a single whistleblower who might receive a financial reward seems no less credible than witnesses from an amnesty company where everyone—including the highest-ranking culpable executives—will have escaped criminal prosecution.  Also, criminal antitrust trials are relatively rare—almost all cases are resolved by pleas.  Finally, it is not logical to worry about the credibility of a witness you would otherwise not even know about absent a whistleblower statute.

A Whistleblower Reward Could Result in Claims That Do Not Lead to Criminal Prosecution: 

 There was some fear expressed in the GAO report that would-be whistleblowers would fabricate information in order to conjure up a cartel in the hopes of collecting a reward.  GAO Report p. 40.  Anything is possible, but the Antitrust Division folks are pretty savvy and have standards for opening grand jury investigations.  Moreover, the possibility of fabricated charges exists today with a company applying for leniency in the hopes of knee-capping competitors who would have to deal with a criminal cartel investigation.  The reality is a “false accusation” simply wouldn’t be corroborated by anyone else and could land the accuser in jail for making a false statement.

In a similar vane, concern was expressed that a whistleblower statute may result in a deluge of complaints to the Antitrust Division that would take additional resources to sift through.  This seems like a good problem to have.  When Ms. Justice and I were at the Division, we received a fair number of complaints that amounted to no more than oligopoly pricing.  It did not take too much time to ask: “What else ya got?”

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CCC’s: It Is Time for an Antitrust Whistleblower Statute —Part I

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Kimberly Justice and I wrote an article published in Global Competition Review arguing that it is time for an “Antitrust Whistleblower Statute.”  [The article is behind a pay firewall (here).]  Kimberly and I will be expanding on this idea in Cartel Capers blog posts over the next two weeks.  Below is the first installment.  We explain why cartels are a great pond to be fishing in for informants, but a little “whistleblower” bait is needed.

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Over the last several years, Senators Chuck Grassley and Patrick Leahy have introduced antitrust whistleblower legislation that has passed in the Senate but died in the House.  Their proposed legislation would grant job protection to antitrust whistleblowers.  The legislation that Ms. Justice and I are proposing would go further; besides retaliation protection, we would offer potential financial reward to a whistleblower who initiated a successful cartel prosecution.

The time is right for antitrust whistleblower legislation. In 1993, the Antitrust Division revised its Corporate Leniency policy, setting the stage for similar, successful, legislation/polices to be enacted around the world.  Amnesty/Leniency rewards an entire company and its cooperating executives with non-prosecution for coming forward and reporting cartel behavior.  But leniency applications are slowing down—at least that is the perception of many observers—as the cost of obtaining leniency in terms of corporate time and attorney fees, in an expanding universe of jurisdictions, has would-be applicants reassessing the cost/benefit analysis.  A whistleblower statute would not replace, nor in our opinion undercut, leniency policies, but would add a new tool to uncover cartels that exist, and deter new cartels from forming.

There are two features of cartels that are key to understanding why an antitrust whistleblower statute would be a potent and needed weapon in the fight against cartels:

1)         There are many potential whistleblowers in virtually every price-fixing/bid rigging conspiracy.  The culpability level of the many players ranges from Masters (top-level) to Sherpas (working group guy).  Offering a potential whistleblower reward to a single cartel member still leaves a target rich enforcement of culpable executives to focus on; but

2)         It is costly for a potential whistleblower to come forward.  Any member of a cartel, even the least culpable, faces the possibility of significant jail time.  In order for a low-level cartel participant to come forward, he needs to engage a qualified attorney and negotiate a non-prosecution agreement with the Antitrust Division.  This is an expensive, potentially life changing decision.  Long-term unemployment may well follow.  Hefty attorney fees surely will.  Even the most desirable whistleblower—one with no culpability at all, such as a secretary, or customer– will not ensnare herself in a cartel investigation without some means to cover significant attorney costs and reap some compensation for doing “the right [but very costly] thing.”

Ms. Justice and I worked on two investigations which highlight these points.  The first was an international cartel investigation involving both US and foreign companies.  Within each company there were many executives—some retired—that had enough knowledge of the cartel that had they come forward, an investigation would have been opened.  If a single whistleblower had come forward, there still would have been many culpable individuals and companies left to prosecute.

Another prosecution involved a typical bid rigging scheme on a government contract.  This type of scheme is usually initiated by the owner/senior member of the company (who would not be eligible for whistleblower status).  But, it is also typical that an estimator who knows the boss has schemed with a competitor(s) is told to bump up the prices to reflect the agreement.  The estimator is liable as a participant in the cartel, but would make an excellent whistleblower.[1]

Given almost any cartel, international or local, a lower level employee could come forward and likely receive a non-prosecution/cooperation deal under the Antitrust Division’s current Individual Leniency Policy.  But the Individual Leniency Policy is almost never used because a rational person would likely prefer to lay low and hope the crime never gets uncovered than come forward, likely lose his job and have to pay an attorney to negotiate with the Antitrust Division for immunity.  Being an Antitrust Division witness is a marriage that lasts longer than many real marriages.  Criminal antitrust investigations take years, and if it is an international matter, a whistleblower will be called on to be interviewed by many jurisdictions around the globe.  Without some incentive of a reward, an individual would almost certainly not “volunteer” to assist in a cartel investigation.   Even a non-culpable witness/whistleblower such as a customer in whom a salesperson confided or a corporate administrative assistant who saw/heard incriminating information is not likely to come forward to the Antitrust Division on his/her own.

There are many potential antitrust whistleblowers.  But the disincentives to come forward voluntarily are significant.  Some “bait” is needed to entice a whistleblower:  protection from job retaliation and a financial incentive that would cover the significant costs of cooperation and perhaps even provide an “informants’’ bounty.”  The False Claims Act, the SEC and other whistleblower statutes are successful because individuals with knowledge can engage an attorney to guide them through the process in exchange for a possible award of attorney fees and a contingency fee.  The whistleblower’s attorney can develop the potential whistleblower’s claim, negotiate with the government, and represent the potential whistleblower throughout the process, all without an upfront cost to the potential whistleblower.  A former employee, for example, maybe one who has been fired or downsized—would have a way to report illegal conduct without assuming a tremendous legal bill—and even have a financial incentive to do so.

In the next blog post we will discuss some of the objections that have been raised to an antitrust whistleblower statute and why we think none of these concerns are serious enough to kill the whistleblower idea.  But, first, we’ll wrap this segment up by noting a couple of the benefits of a whistleblower statute which may be obvious:

  • A whistleblower can start a criminal cartel investigation with an insider’s view of the agreement and who is party to it. A single whistleblower does not preclude the Antitrust Division from also offering leniency, as it is unlikely one witnesses can provide indictable evidence.  But, whistleblower evidence/assistance should lead to an efficient investigation that preserves the most culpable cartel members for prosecution.
  • Like leniency, as the whistleblower tool gets used and generates publicity, it will be effective in deterring cartels from even forming. This effect is not capable of measurement, but it is logical that if a single member of a cartel (particularly lower-level Sherpas who may not be crazy about carrying out the Master’s scheme) has a means to report the cartel and be rewarded for actionable information, cartel members will have another reason to think twice before engaging in criminal antitrust behavior.

More to come.  Thanks for reading.

[email protected]

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[1]   Where the government is a victim of a fraud—and bid rigging is a fraud—a whistleblower case can currently be brought under the False Claims Act.  There are occasional instances of bid rigging whistleblower case.  But, it would be better to have these types of cases covered by a particular antitrust whistleblower statute and better publicized with an Antitrust Division Office Whistleblower Office.

CCC’s: It’s Time For an Antitrust Whistleblower Statute

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Kimberly Justice and I have written an article arguing that it is time for an “Antitrust Whistleblower Statute.”  The article was published in Global Competition Review, but is behind a paid firewall (here).  Kimberly and I will be expanding on this idea in Cartel Capers blog posts over the next two weeks.  The first installment will be on Monday and explain why cartels are a great pond to be fishing in for informants, but a little “whistleblower” bait is needed. Other topics will include:
1)      An evaluation of the objections to an antitrust whistleblower statute;
2)      A survey of whistleblower related incentives offered by foreign competition agencies;
3)      A preview of what an antitrust whistleblower statute should look like; and
4)      If we receive comments/feedback, we’d like to collect and post them together.
Stay tuned.  Thanks for reading.

***Antitrust Monitor (Inaugural Issue): 2013 Forecast***

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Renewed Vigilance Regarding Civil Enforcement; Continued Consolidation, Integration and Acceptance of Structural Changes at Criminal Program; Higher Morale

Baer’s Confirmation is unlikely to change momentum, policies or priorities.

As the Obama Administration prepares for a second term, Bill Baer has been confirmed as Assistant Attorney General.  The Antitrust Division’s informal profile photo of Baer captures his genuine humility and good will that many Antitrust Division attorneys will immediately recognize from numerous interactions with him when he represented clients as a partner at Arnold & Porter.  Baer’s easygoing nature is no contrivance and he will build on this long track record of good relations with many of the attorneys and mid-level managers at the Antitrust Division.  In addition to the normal productivity enhancements associated with having confirmed leadership at the helm, Baer’s tenure at the FTC suggests that he will implement an effective management style and push more expansive enforcement goals.  We also believe that Baer’s confirmation will improve morale (discussed more fully below) and Baer will quickly calm the ripples caused by programmatic changes that resulted in field office closure and attrition of seasoned prosecutors in the criminal program.

Continued Civil Enforcement Vigilance 

In its first term, the Obama Administration took some modest steps toward its goal of revitalizing civil enforcement.  The Division repudiated the Bush administration’s monopolization guidelines and expressed a greater willingness to challenge unilateral conduct and exclusionary business arrangements, although it only brought one monopolization case.  That the Obama administration managed a slight increase in second requests is significant since it occurred in the midst of significantly dampened merger activity caused by the financial crisis.  Perhaps the most telling metric was discovered by the Stanford Law Review (SLR Online, 65 STAN. L. REV. ONLINE 13, July 18, 2012):

“[t]he Bush Administration conducted 0.04 investigations per Hart-Scott filing; Obama conducted 0.05 investigations per filing. The Bush Administration made 0.013 second requests for information per Hart-Scott filing; Obama’s made 0.020—a 50% increase on a per capita basis.

Combine this 50% increase with a few more high profile enforcement actions that included AT&T/T-Mobile, H&R Block/TaxAct, NASDAQ/NYSE, and BCBS/Physicians Health, and the Obama administration can make a plausible case that it has already reinvigorated enforcement. During his Senate confirmation hearings in July, Baer told lawmakers that he supported Congressional action to repeal the Supreme Court’s Leegin decision which imposed rule of reason analysis for resale price maintenance where per se analysis, albeit with loopholes, had sufficed in the past.

This was music to Democratic ears in the Senate that clearly prefer more aggressive enforcement.  Senator Herb Kohl, D-Wis had expressed concerns back in July regarding Google potentially using its market power in search engine technology to favor its products and services.  Baer did not answer Kohl’s question as to Google, but he did share his enforcement philosophy generally: “being vigilant whether its Microsoft or Alcoa Aluminum about firms that are successful, and we don’t want to penalize success but to make sure it’s not improperly translated into unfair advantage in other markets, is really a key part of what antitrust is all about.”  This comment suggests a revival of monopoly leveraging, always a favorite of Democrat administrations even if the courts have been less receptive.

Will Baer lead the Division on a path to reinvigoration?  He may have provided an answer last week when he came out of the box swinging against the merger between Bazaarvoice and Powerreviews Inc. (involving online customer reviews for retailers) and Oklahoma Chiropractors (which challenged joint contracting agreements with insurers).  Of these first two significant actions of Baer’s tenure, Bazaarvoice is the one that is suggestive of reinvigoration and expansion.  The customer reviews market is evolving at rocket speed, there are challenges for the government regarding market definition and it is unclear that the barriers to entry can be all that high, particularly when well-funded behemoths like Google and Facebook seem to have position for market entry.  Notably, the company was vocal in its frustration about the “six months” it spent in negotiations with the Antitrust Division, suggesting that it could have announced this challenge prior to Baer taking the helm.  The fact that Baer announced it after he assumed his duties suggests that he sees a strong case.   Certainly it would not have escaped Baer’s attention that a decision like this would allow many to interpret this is a bullish signal that Baer plans to reinvigorate, revitalize and expand the Antitrust Division’s mission regarding civil enforcement.

At the FTC, Chairman Leibowitz, a Democrat, has served as an FTC commissioner for eight years and as chairman for almost four years. As rumors circulate regarding his likely departure, President Obama must consider potential replacements. The president could appoint a new chairman from the sitting Democratic commissioners, or he could choose someone from outside the agency. The president recently nominated Joshua Wright, a Republican, to replace outgoing Republican commissioner J. Thomas Rosch, whose term expired in September. Commissioner Rosch has indicated that he will stay in his position until the Senate confirms Wright. Although no more than three of the FTC’s five commissioners, who each serve seven-year terms, can be of the same political party, President Obama’s reelection ensures a Democratic majority at the FTC. Three of the five FTC commissioners will continue to be Democrats, and the chairman, who appoints the directors of the Bureaus of Competition and Consumer Protection, will also be a Democrat.  Accordingly, there is little reason to expect a new direction in antitrust enforcement priorities.

Continued Consolidation and Integration of Structural Changes at Criminal Program 

In the first Obama term, cartel enforcement was the Division’s top criminal priority to the exclusion of things like procurement fraud.  Almost certainly, these headwinds still exist, but time will tell whether Baer can be successful at reducing impediments to opening investigations that do not present themselves on first impression as Section 1 conduct.  Although people can argue over the causes, the Antitrust Division grand jury investigations plummeted from over 150 to fewer than 60 overall and new openings fell from 66 to 29.  Most of this came at the expense of Department’s procurement fraud program and overall anti-competitive deterrence in the area of government procurements has been grievously affected as a result.

On paper, cartel enforcement was little changed from the Bush years, although some of the Division’s numbers were marginally inflated by splitting criminal information’s in non-traditional ways and there is a widespread concern that the pipeline of “small” or “bread and butter” investigations is dry.  Airline Shipping and Auto Parts are behemoth investigations that generate a wealth of statistics, but there are 90 fewer industries that are the subject of grand jury investigations and it is impossible to measure deterrence that is not happening.

In procurement fraud, the Bush administration gave the Antitrust Division a long leash and authorized its use of resources in most allegations that affected the pre-award contract process.  As the Obama Administration strained its resources to support invigorated civil enforcement and it pushed investigative resources toward financial crimes, the administration implemented a series of policy changes that significantly reduced Antitrust Division criminal investigations.  First, it was made much more difficult for attorneys to open grand jury investigations involving matters that did not present themselves on first impression as suspected antitrust conspiracies.  Since very few antitrust criminal cases ever “present” as fully-fledged antitrust conspiracies (i.e.. evident participation by more than one competitor), investigation requests plummeted.  This effect was particularly pronounced in procurement because so few government contracts are awarded through an invitation for bid (”IFB”) process and more are awarded sole source, best value and through a request for proposal procedure where price is not the only factor.  These contracting schemes make it difficult, if not impossible as a matter of law, to use the Sherman Act to prosecute schemes affecting contracts that were not awarded through an IFB process.

Second, the Antitrust Division implemented a new, computerized tracking system that made it harder to keep open investigations that were not being actively investigated.  Because grand jury authority is held at the AAG level in contrast to the Criminal Division (delegated to the DAAG) and the United States Attorneys’ Offices (delegated to line assistants), getting grand jury investigations opened takes the Antitrust Division greater resources than other components.  Line attorneys refer to this process with dread as “the investigation to get grand jury investigative authority.”  Because the Antitrust Division has to invest greater resources into securing grants of grand jury authority and because this authority requires higher levels of approval, it is relatively unusual to reopen a grand jury investigation after closure.  In the past, keeping investigations “on the books” might allow a staff to focus on another industry or to offer help to another investigative staff on an investigation that had “gone hot.”  It also might allow another contract to be awarded or another coordinated price increase to be implemented that might significantly further the investigation.  For these and other reasons, putting open cases on the back burner became verboten and if investigations did not hit success early on they got closed.  The new case matter tracking system often pushes staffs to make tactical decisions that would be better made later after the emergence of new leads, information or evidence.  Ironically, in some respects, the Antitrust Division now pursues an operations policy that reminds line attorneys of some partner investigative agencies who years ago would have to close investigations and then struggle to reopen them if a staff determined that a three month delay was advisable.  Because case filings (i.e. stats) are the paramount metric, this provides disincentives to working any case that is at all considered “marginal” and the Division’s deterrence footprint has shrunk.

Third, by January 30, 2013, the Division will have closed four of its seven field offices, a move that has adversely impacted morale.  Although this was sold as a serious consolidation plan for which many employees would avail themselves and relocate to Washington D.C. or the remaining field offices (San Francisco, New York, and Chicago), this does not seem to be happening in any great numbers.  Using the Philadelphia and Cleveland Field Offices as examples, we count a total of three attorneys who will be staying with the Division.

Baer’s mission is not an easy one.  He joins the Antitrust Division just prior to the formal shut down of four offices and significant attrition; he joins an Antitrust Division that has fewer raw materials in the investigations pipeline.  Still we have caucused Antitrust Division attorneys who are staying with the agency and there is reason for optimism.  As word filters back that Antitrust Division attorneys who severed or retired were dealt with fairly and considerately, active concerns will dissipate and we believe Baer can drive a newly structured criminal program to fire on all cylinders by the end of this fiscal year.   There could be reinvigorated activity as a rumored new section formed in Washington D.C. (staffed by detailees and transferring attorneys) and offices in San Francisco, Chicago (currently slated for one additional expat prosecutor) and New York receive transferring prosecutors and lateral hires to stem attrition, and we expect to see vibrant competition by attorneys for investigations.  Most notably, the rumored new section in Washington D.C., that will be comprised of expats from some of the closed field offices, will see the National Criminal Enforcement Section (NCES) as its main competition and we expect fierce competition to develop creative strategies for generating new cases.