Today’s guest post is by Ai Deng, PhD, Bates White Economic Consulting.

******************************************************************************

A few weeks ago, Professor Joseph Harrington of the University of Pennsylvania, whose work on cartel economics I first mentioned in another Cartel Capers post, kindly reached out and invited me to make a presentation on cartel issues (discussed here) at the 2016 CRESSE conference on “Advances in the Analysis of Competition Policy and Regulation (here).” I unfortunately cannot participate for both personal and work-related reasons. But it occurred to me that the readers of Cartel Capers may be interested in learning about this and other exciting events at CRESSE this summer. In addition to the 3-day conference, CRESSE also offers 2-week 7-module summer school on competition policy and regulation (here). These modules cover a wide range of antitrust economics, including discussions of industry economics and game theory, market dominance, cartels, mergers, IP, and competition policy and regulation. The detailed schedule can be found here. [Read more…]

Below is a guest post by my friend,  Osayomwanbor Bob Enofe, Sutherland School of Law Doctoral Scholar, UCD.

****************************************************************

The Federal Republic of Nigeria is currently in the process of enacting a competition law, including to criminalise cartel activity amongst competitors. While such is in line with moves made by various other jurisdictions and theories of ‘rational actor’, sanction and deterrence, on ground realities suggest that criminalisation where transplanted might be seriously flawed.

[Read more…]

Last week I attended at the ABA Antitrust Spring meeting, which is the highlight of the year for many in the antitrust bar. Excellent panels, renewing old friendships and making new ones, and open bars at the many receptions– what’s not to like. One program that is always my favorite is the Chair’s Showcase. This year the topic was the Per Se rule. Roxann Henry was the Chair and the stellar panelists were Seth Waxman, Stephen Calkins, Carl Shapiro, and Hillary Greene. The program was a high-level discussion of the history of the per se rule, the contours of the per se rule, and suggestions for possible changes to the rule. I won’t try to recount the whole session. But one part of the discussion focused on how to define hard-core per se behavior—you know, the kind that can land you in jail in the United States, even if you’re price fixing meeting was in Fiji. There was some discussion of whether an agreement can be hard-core if there are pro-competitive effects such as efficiencies and innovation. Is it hard-core per se if there are any vertical aspect to the agreement? There was no easy satisfactory answer, which raised the question, if it is difficult to define hard-core, how do you counsel clients? [Read more…]

The Antitrust Division published its annual Spring Newsletter in connection with the ABA Antitrust Spring Meeting.  The newsletter can be found here.  The newsletter covers highlights of all the Division’s major activities including criminal enforcement.  One highlight of the newsletter is the Division’s charts on criminal enforcement, including number of cases files, fines and average jail sentences.  These charts (here) often find their way into compliance or other presentations.

Also in the newsletter is a short YouTube video of Bill Baer speaking about the highlights of the past year.  Mr. Baer was recently elevated from his position as head of the Antitrust Division to Acting Associate Attorney General, the number three post in the Department of Justice.  Not much is expected to change at the Division, however, as Mr. Baer will still supervise the Antitrust Division in his new role.  Additionally, Renata Hesse, a current deputy at the Division, will assume the role of Acting Assistant Attorney General for the Antitrust Division.  Ms. Hesse has held many senior positions in the Antitrust Division, including a previous stint as Acting Assistant Attorney General.

Thanks for reading.

Below is a guest post by a regular Cartel Capers contributor Ai Deng PhD.  Mr. Deng is an economist with Bates White Economic Consulting.

Mind-reading salmon, the law of truly large numbers, and two recent Daubert rulings

Have you ever gotten an email saying that a large amount of money will be transferred to you if you first make some initial deposit? And if you immediately recognized that message as a scam, did you also wonder why people are still sending these emails?

With today’s technology, the cost of compiling even a large mailing list is small. The cost of sending out messages is even smaller. While the probability that 90% of the recipients will send money to a stranger is almost nil and the senders probably know that, they also know that the more people get the email, the better the odds that someone will be tricked. That potential payoff likely explains why such mailings continue.

In his book The Improbability Principle, David Hand, Emeritus Professor of Mathematics and a Senior Research Investigator at Imperial College London, calls this phenomenon “the Law of Truly Large Numbers.” He defines the principle succinctly: “With a large enough number of opportunities, any outrageous thing is likely to happen.”

The principle is at work more generally. In a 2011 Scientific American article, “The Mind-Reading Salmon,” Professor Charles Seife of Columbia University illustrated this point with drug efficacy testing. This testing compares the effectiveness of a drug with that of a placebo. Professor Seife pointed out that with a sufficiently large number of comparisons, it is almost guaranteed that at least one comparison will appear to show that a drug is “effective,” when, in fact, it is not.[1] In the same article, Professor Seife also recounted a study that a team of neuroscientists once conducted on a salmon:

When they presented the fish with pictures of people expressing emotions, regions of the salmon’s brain lit up. …; however, as the researchers argued, there are so many possible patterns that a statistically significant result was virtually guaranteed, so the result was totally worthless. …, there was no way that the fish could have reacted to human emotions. The salmon in the fMRI happened to be dead.

If proper care is not taken in such circumstances, statistical analysis runs the risk of what is known as “data snooping.” Other colorful names for this concept include “data dredging” and “data torturing.” [2] The term “data mining” is sometimes also used, although it means something different in other fields.

This topic has received attention in two recent Daubert rulings. In In re Processes Egg Products Antitrust Litigation, the plaintiffs’ expert used a regression model to relate prices to other factors. The defendants’ expert applied the same model to “just one certain defendant’s transactions” and argued that the model was unreliable because some aspects of the regression results had changed. The plaintiffs countered that the defendants’ results were “the product of inappropriate ‘data mining.’” District court Judge Gene E. K. Pratter (E.D. Pa.) found the plaintiffs’ argument to be intuitive and convincing for the purpose of assessing reliability under Daubert standards.

In In re Karlo v. Pittsburgh Glass Works, an age discrimination case, Judge Terrence F. McVerry (W.D. Pa.) found one expert’s analysis of impact to be “improper” because it did not correct for “the likelihood of a false indication of statistical significance.” He added that it was “data-snooping, plain and simple.”

With only public information, it is impossible to comment on the merits of the arguments in these cases. But it is encouraging that important yet sometimes subtle statistical issues are being discussed in the courts. In particular, given the precedents established in the two cases cited here, I will not be surprised if this topic is discussed more often and in other types of litigation.

Finally, I should mention that there is also a fun side to the Law of Truly Large Numbers. Just think of the Twin Strangers project, which tries to bring together total strangers who look like identical twins.

[Disclaimer: Bates White was not and is not, at the time of writing, involved in either case cited here.]

[1] Technically, the false inference of “effectiveness” mentioned here arises when it is based on some unadjusted statistical procedure. Certain adjustment or corrections to account for the phenomenon discussed here are well-known.

[2] While these terms may have a negative connotation, the concept itself is just a statistical phenomenon.

On March 1, 2016 Federal District Court Judge William Alsup sentenced Alex Yeh to six months in prison for his participation in the international cathode ray tubes (CRT) cartel. Yeh, a citizen of Taiwan, voluntarily agreed to come to the United States five years after he had been indicted. Taiwan has no extradition treaty with the United States. While Yeh had agreed to an eight-month sentence in a plea agreement with the Antitrust Division, the judge imposed a shorter sentence of six months. Mr. Yeh attended cartel meetings on behalf of Chunghwa. The company received a leniency deal, but after Mr. Yeh had left. To date, he is the only individual from the cartel to plead guilty and be sentenced. [Read more…]

On March 16, 2016, Antitrust Division’s New York Field Office obtained a conviction against John Bennett the former Chief Executive Officer with Bennett Environmental Inc., a Canadian-based company that treated and disposed of contaminated soil. Bennett was convicted on an indictment returned on Aug. 31, 2009 that charged that he participated in the conspiracy by approving kickbacks to Gordon McDonald, the project manager at the Federal Creosote site, for “last looks” (i.e. the bids submitted by other contractors that Bennett could then undercut).  The kickbacks were in the form of money transferred by wire to a co-conspirator’s shell company, lavish cruises for senior officials of the prime contractor, and various entertainment tickets. The indictment alleged conspiracy began at least as early as December 2001 and continued until approximately August 2004. The Antitrust Division had sought Bennett’s extradition from Canada since 2009. On November 17, 2014 Bennett was extradited and made his first appearance before a US District Court Judge in New Jersey.

Bennett’s trial started about three and a half weeks ago and featured the testimony of a Bennett subordinate who himself had pled guilty and was sentenced to 14 years in prison. The jury convicted Bennett of both counts: one count of conspiracy to commit wire fraud and major fraud against the United States and one count of substantive major fraud for his role in the bid-rigging scheme, which prosecutors said netted the contractor $43 million in ill-gotten contracts. An $80,000 Mediterranean cruise, a $4,000 flat-screen television and a pricey wine refrigerator were among the gifts Bennett Environmental Inc. gave in exchange for information about the bid prices of Bennett’s competitors for a toxic waste cleanup project.

The interesting part of the case for me was the question of why Bennett chose to go to trial, and, of course, I can only speculate. One reason to go to trial is because you believe you are innocent (or believe the government cannot prove its case beyond a reasonable doubt), and you hope to be acquitted.  It can be often difficult for the government to convict “the boss” because the evidence often is solely that of a subordinate who says the boss knew what was going on and approved the illegal conduct. Subordinates are subject to tough cross-examination for the “deal” they got for cooperating with the government and other possible impeachment problems that may be in their background. If the sole or principal evidence against the “boss’ is the testimony of a subordinate, a jury will often conclude the boss probably knew, but the government did not prove its case “beyond a reasonable doubt.”

Indeed, Bennett said he was unaware of the illegal conduct of a subordinate who he called a “misguided drug addict.” And, since the conspiracy ended long ago in 2004, and Bennett’s extradition fight delayed the trial by many years, Bennett might also have hoped that he would benefit from fading memories. But here, the testimony of the subordinate was corroborated by incredibly incriminating emails that showed Bennett’s direct knowledge of the scheme. One email to Bennett detailed the particulars of the scheme; another incriminating email said “Print and Delete.” Bennett’s explanations varied from, “I’m not sure I even had a computer at that time, if I did, it might not have been working, if it was working, I never read the emails.” He also testified that he thought the “Print and Delete” email was some kind of joke.  There were also very incriminating phone records.  Still, given the long sentence Bennett faced under the guidelines, and the long fourteen year sentence already received by his subordinate that might normally be a “floor” for the boss, Bennett might have thought that even a small chance of acquittal was worth the chance. [And a convicted defendant gets another shot on appeal.].

Another reason cases sometimes go to trial, in my opinion, is because they can serve as an extended sentencing hearing, giving the defense a chance to show the court the limited role of the defendant, or how the defendant’s role compared to other conspirators who may have gotten leniency, or very reduced sentences. Even after conviction after trial, courts have typically departed downward from the Antitrust Division’s recommendation of a very long guideline sentences. But, as noted above, in this case Bennett made the unusual choice to testify. The choice to testify was particularly risky in light of the damning emails the government had.  Its true, that without some explanation of the emails, it highly probable Bennett would have been convicted. But, by testifying, Bennett seemingly put himself in a worse position for sentencing. The jury did not believe his testimony and it is highly unlikely the sentencing judge found him credible. Putting the government to its proof, while the defendant’s right to be sure, is a sentencing “demerit” on the acceptance of responsibility score. Bennet likely made his situation much worse by testifying. One reason white-collar defendants don’t often take the stand is because if the judge believes that defendant has given false testimony, under oath, in their courtroom, this can really put the defendant in the hole (not literally).  Under the circumstances, it would be unlikely that Mr Bennet could receive a sentence less than 14 years received by his subordinate.  Mr. Bennett, however, is 80 years old, so his sentencing presents so interesting issues.

Sentencing is scheduled for June 27, 2016 before Judge Susan D. Wigenton. The fraud conspiracy for which Bennett was found guilty carries a maximum penalty of five years in prison and a $250,000 criminal fine. The major fraud against the United States conviction carries a maximum of ten years in prison and a $1 million criminal fine for individuals. The maximum may be increased to twice the gain derived from the crime or twice the loss. Mr. Bennett intends to appeal his conviction.

A Word About “Last Look” Schemes

The case involved a “last look” scheme, not an “antitrust”bid-rigging scheme. No Sherman Act violation was charged. In a Sherman Act bid rig, one competitor asks another (or multiple competitors) to come in over a certain bid price with a complementary (cover) bid. (i.e. be over $1 million).  In this case, the conspirators paid off an insider for a “last look” so they can come in with a lower price. In theory, the “last look” may be somewhat less anticompetitive than traditional bid rigging because the company paying the bribe still has to beat a bid submitted by a bona fide competitor. But, it is still corruption of the competitive bidding process because instead of possibly coming in significantly under the competition, the conspirator company learns the price they have to be “just under.”  This typically leaves enough illegal gain to pay the kickbacks and make a nice profit.  Its fraud, and in this case, because of this scheme corrupted a federal contract over $1 million, the crime was Major Fraud. (18 U.S. Code § 1031 – Major fraud against the United States).

Thanks for reading.

I’ve been following a blog for a while that I find informative and interesting: Grand Jury Target: Tracking Federal Prosecutions of Corporate Executives.  The blog is by Sara Kropf, a trial lawyer in Washington, D.C.  A March 8th post was titled:  “Why Are we Falling for the Department of Justice’s Sales Pitch?  The blog recounted Ms. Kropf’s experience at the recent White Collar Crime seminar, including the constant pitches by DOJ officials to rush in to confess.

This approach—to quickly rush to DOJ to win cooperation credit—seems to be the sad reality of current white collar practice when you represent large companies. (Don’t even get me started in the antitrust amnesty program and the problematic incentives that program creates.)

Check out the blog.  I think you’ll be well rewarded for your time.

Thanks for reading this one too!

Bill Baer testified today (March 9, 2016) before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights.  His prepared remarks covered all Division enforcement areas.  Below are his remarks regarding criminal enforcement.

Holding Companies & Individuals Accountable

As we discussed at this subcommittee’s 2013 hearing, halting and deterring pricing fixing cartels, dubbed the “supreme evil of antitrust” by the Supreme Court, is a top priority for us. Working with the Federal Bureau of Investigation and other law enforcement partners, we hold both corporations and senior executives accountable for criminal antitrust misconduct. We seek monetary penalties and jail sentences that are commensurate with the harm these crimes inflict on American consumers and businesses.

Last year we obtained over $3.6 billion in criminal fines and penalties, which resulted from our prosecuting collusion in many sectors. But a key target in recent years is the financial industry where we have exposed collusive conspiracies, including manipulation of the foreign currency exchange spot market and LIBOR rate setting, as well as bid rigging for municipal bond investment instruments and real estate foreclosure and tax lien auctions. The FBI is a critical partner to many of these investigations, providing support, expertise and state-of-the-art investigative techniques and technologies.

Over the last seven years, we have prosecuted over 400 individuals who committed antitrust crimes. We strive to hold accountable the highest level executives who participated in these conspiracies. In our ongoing auto parts investigation, for example, we so far have prosecuted nine parent or subsidiary presidents, seven vice presidents, two executive managing directors, one CFO and 30 division directors and general managers. We charged high-level executives in the DRAM and LCD investigations, including two chairmen/CEOs and four presidents. The president of the third largest LCD maker in the world is currently serving a 36-month jail term – the longest sentence ever imposed on a foreign national defendant for antitrust offenses.

The threat of prison time for individuals provides the single most valuable deterrent from cheating the system and profiting from collusion. The executives we convict are going to jail and for increasing periods of time. From 2006 to 2015, the average number of individuals sentenced to prison increased 85 percent, and the average sentence increased 65 percent over the preceding decade.

We hold offenders responsible for actions that injure U.S. commerce regardless of where they reside or whether they are citizens of the United States or foreign nationals. In the last 10 years we have increased by more than three times the number of foreign defendants convicted and jailed over the previous 10-year period. Over that same time period, the length of sentence increased by more than four times. Working with our international partners and Department of Justice colleagues, we seek extradition where appropriate and will continue to seek it in appropriate cases.

We continue as well to prosecute local, regional and national criminal conspiracies. In recent years, we have charged over 100 individuals in four states – Alabama, California, Georgia and North Carolina – for conspiring at local real estate foreclosure auctions. These conspiracies depressed auction prices and stole money from distressed homeowners and their lenders. In another example, the presidents of two heir location services firms recently pled guilty to conspiring to eliminate competition among their firms that identify people who may be entitled to an inheritance from the estate of a relative who died without a will. For nearly a decade, these companies lined their pockets at the expense of those heirs.

The use of technology to manipulate the prices for products and services is a growing concern for us. American consumers have the right to a free and fair marketplace online as well as in brick and mortar businesses. We recently charged two individuals and a U.K. corporation for fixing the price of certain posters sold online through Amazon Marketplace. The scheme was 21st century for sure. The conspirators coordinated pricing algorithms to offer identical prices for the sale of certain poster art on the Internet. This eliminated price competition by offering online shoppers the same price for the same product. The effect on consumers was the same as any other price-fixing scheme – eliminating the price competition to which they were entitled.

Mr. Baer’s full remarks can be found here.

PS. Mr. Baer noted that cartels are the “supreme evil of antitrust.”  I also note on Cartel Capers front page: “The US Supreme Court has called cartels ‘the supreme evil of antitrust.’ Price fixing and bid rigging may not be all that evil as far as supreme evils go, but an individual can get 10 years in jail and corporations can be fined hundreds of millions of dollars.”

Thanks for reading.