Earlier this year, the Division had its first trial in its ongoing real estate foreclosure auction bid rigging investigation. Three defendants, two real estate investors and an auctioneer, were indicted for bid rigging and mail fraud. The trial lasted four weeks. The auctioneer was acquitted. The other two defendants were acquitted of the fraud charges, but convicted of the Sherman Act violation. The jury also convicted one defendant, Andrew Katakis, of obstruction of justice. Katakis was charged with destroying electronic records (emails) related to the conspiracy. The trial judge, however, overturned the obstruction conviction for lack of evidence.
On June 6, 2014, the government filed a notice of appeal from the court’s acquittal order regarding the obstruction count. In view of that appeal, the court ordered, “all proceedings in this action are hereby stayed pending receipt of an order of remand from the Court of Appeals.” The government asked the trial court to lift the stay explaining: “If all proceedings in this Court remain stayed pending resolution of the government’s appeal, Katakis and Parker face a long wait for a ruling on their new trial motions and, depending on those rulings, for a new trial or sentencing Lifting the stay also avoids unnecessary delays in the sentencings of the other defendants in this case, none of whom were charged with obstruction. Some of them pleaded guilty long before trial and have cooperated with the government for years.” Individuals who have pleaded guilty so far, beginning in 2011, are cooperating in the ongoing investigation and the Division has requested successfully that their sentencing be delayed until after their cooperation has been substantially complete. Accordingly, there have been no sentencings yet, and with this recent development, it appears sentencing could be delayed into at least 2015.
The Division to date has charged approximately 60 individuals in its California real estate foreclosure auction cases. (A similar far-reaching real estate auction collusion investigation is taking place in the Atlanta region). The schemes worked this way: after the conspirators’ designated bidder bought a property at a public auction, they would hold a second, private auction, at which each participating conspirator would bid the amount above the public auction price he or she was willing to pay. The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the price at the public auction and that at the second auction was the group’s illicit profit, and it was divided among the conspirators in payoffs. Auction collusion cases were covered in an earlier post that outlines some of the key developments in Sherman Act jurisprudence that arose from auction collusion cases. (here)
Auction bid rigging cases can be a double edge sword for the Division. On the one hand, the collusion demonstrably suppresses bids and amounts to theft from the seller. On the other hand, auction collusion is unfortunately so prevalent, the cases can seem endless. The damage from any one auction pales in comparison to international cartel cases. But, the resources necessary to bring these cases can be substantial. The sole trial to take pace so far took four weeks and an appeal is ongoing. The results were a mix of acquittals and convictions.
Some Suggestions to Consider
The Antitrust Division has always taken a strong stance against auction collusion. It has been very successful in its recent real estate foreclosure and tax lien auction collusion cases. Some of the suggestions below may further enhance that success while using fewer resources.
1. Drop the Appeal
The best course of action for the government may be to drop the appeal and get on with post trial motions in Katakis and possibly sentencing. The court overturned Katakis’s obstruction conviction based on a lack of evidence. This fact specific finding poses no precedential threat to future obstruction prosecutions. Moreover, the court has already heard the evidence regarding the obstruction and the auction collusion in great detail. It seems unlikely that the court would base sentencing on whether the defendant’s conviction on obstruction was reinstated. The facts are already before the court.
If the Division drops the appeal it will hasten the time when it can get on with the sentencings. Some defendants who plead guilty and are cooperating have already waited years to be sentenced. Prolonged delays are not helpful to the government’s case at sentencing. Awaiting sentence for such a long period of time is a punishment in and of itself that courts do not ignore. It is very difficult to get on with life with a possible jail sentence hanging over your head. It is one thing to tell a prospective employer that you may need to take some time off for a family event or medical issue; its is a another to mention that you may have to go to jail for a few years some time down the road. The individuals in this case own their own businesses, but the delay can be no less onerous. Besides the personal anxiety, conducting business such as getting loans, finding partners, etc., all must be adversely impacted by long delays in sentencing. Defendants pled guilty in large part to put the matter behind them. A many year delay in sentencing is often recognized by the court as a heavy price already being paid.
2. Drop the Multi-count Indictments
The Division has been charging even the cooperating defendants in the auction bid rigging cases with multi-count indictments that include fraud charges. There are some good reasons for this. First, the conduct really does smack of fraud. Most defendants may have no idea they are violation Section One of the Sherman Act, but they know they are defrauding the seller. Despite the verdict in the Katakis trial, juries often understand this too. Also, the additional fraud charge gives the government a chance for a spilt verdict as happened in Katakis—a conviction on a “lesser offense.” Finally, the fraud charge gives the defendant greater exposure in sentencing.
But, I think the negatives outweigh the benefits of bringing the additional fraud charges in auction collusion cases. Precisely because of the increased exposure, defendants may elect to go to trial. If the old mantra “short but certain jail sentences are the best deterrent” has any vitality left, it should be in these auction cases. The Division should seek short terms of incarceration while bringing many cases, and move on. Also, adding fraud charges adds length and complexity to any cases that do go to trial, and in my mind the court is going to sentence based on the conduct; not the particular statute(s) the Division chose to charge. These Division needs to balance the need to bring these cases with the need to limit scarce resources to the conduct.
3. Seek Reinforcements
To the extent possible the Division should not go it alone in auction bid rigging cases. It is likely that the real estate auction collusion that took place in Northern California and the Atlanta region has occurred in many other markets around the country. The Division can’t devote all of its criminal resources to auction collusion cases. But it could provide training, a detailed attorney, and other assistance to US Attorneys offices, State AG’s offices, and even DA’s offices. Perhaps the Division has already tried this. With the closing of so many regional field offices, local help is needed now more than ever. But, with the closing of regional offices, maintaining relations at the local level is also more difficult than ever.
As mentioned, in an earlier post (here) I outlined a brief history of auction collusion. It seems it has existed as long as auctions have and will likely continue. The temptation is apparently often too much when vendors repeatedly see each other at auctions and the urge to not compete is strong. I don’t think vendors collude because the jail sentences are not high enough. I believe they just don’t think through and consider the odds of getting caught. Outreach through trade associations, journals and other social media that reaches commercial bidders would be a very good idea. (The defendants in auction cases are almost always businesses that are buying for resale. The presence of many individuals at auctions purchasing for their own use usually prevents a ring from forming or at least substantially negates its impact.)
5. Non-Collusion Affidavits
Given the long history of auction collusion, it seems worth the effort to have every registered bidder sign a non-collusion affidavit. It would also be very helpful for the auctioneer to sign some affidavit stating that he/she knows auction collusion is illegal and will announce this at the auction. Auctioneers often know the collusion is taking place—even if they are not in on the scheme—because the auctioneers can often see a group of bidders huddled in the corner, whispering among themselves, but not bidding against each other. Auction rings generally lack much sophistication.
The Division’s auction investigations are continuing so stayed tuned for further developments. Thanks for reading.