In its first Munibonds trial in 2012, the Antitrust Division convicted three former General Electric executives for rigging bids to suppress interest rates paid to municipalities on funds they raised through bonds and then invested in guaranteed investment contracts until such time as the funds were needed. The indictment charged that the interest rates were rigged on investment agreements ranging “from as short as one month to as long as thirty years.” The three defendants were in jail when the Second Circuit reversed their conviction in a split vote (2-1) on November 26 on statute of limitations grounds. An opinion followed: United States v. Grimm, 738 F.3d 498 (2d Cir 2013). The Antitrust Division sought an en banc hearing, which was denied last Friday in an 8-4 vote.
The case raised the statute of limitations issue because the Antitrust Division was relying on what is often called the “payments theory.” In a road construction case, for example, the bid may be rigged on Day 1 but the indictment returned outside the Sherman Act statute of limitations of five years. The payments on the rigged contract, however, are considered overt acts in furtherance of the conspiracy because the object of the conspiracy is to be paid at the rigged, inflated price. Therefore the statute does not begin to run until the winning conspirator has received its last payment on the rigged contract. Six circuits have endorsed the payments theory and held that conspiracies did not end when the rigged contract was obtained but continued as long as a conspirator made or received a contractual payment. United States v. Anderson, 326 F.3d 1319, 1328 (11th Cir. 2003); United States v. Evans & Assocs. Constr. Co., 839 F.2d 656, 661 (10th Cir. 1988); United States v. N. Improvement Co., 814 F.2d 540, 542 (8th Cir. 1987); United States v. A-A-A Elec. Co., Inc., 788 F.2d 242, 245 (4th Cir. 1986); United States v. Girard, 744 F.2d 1170, 1172-74 (5th Cir. 1984); United States v. Walker, 653 F.2d 1343, 1346-49 (9th Cir. 1981).
The government relied on the payments theory in Grimm. The applicable statutes of limitations were: five years for general fraud, and six years for conspiracy to defraud the United States by violating the internal revenue laws. The overt acts in question were the payments made by GE to the municipalities at suppressed interest rates. Each time such a payment was made the statute of limitations restarted. The government argued that this case fell within the payment theory as set forth in the Second Circuit in United States v. Salmonese, 352 F. 3d 608 (2d Cir. 2003). In Salmonese the Court held that a conspirator’s receipt of anticipated profits from the sale of stripped warrants constituted an “overt act in furtherance of an economically-motivated conspiracy.” 352 F.3d at 616. The Court, in accord with other circuits stated, “where a conspiracy’s purpose is economic enrichment, the jointly undertaken scheme continues through the conspirators’ receipt of ‘their anticipated economic benefits.’” Id. at 615. [Read more…]