United States District Judge Phyllis J. Hamilton has ruled that the FBI did not conduct an illegal search by placing electronic eavesdropping devices outside two courthouses in the San Francisco area to capture conversations of bidders at real estate foreclosure auctions. In the long running northern California real estate auction investigation, the FBI bugged areas around the courthouse entrances without obtaining a search warrant. The recording devices were placed to capture conversations of real estate buyers who might huddle together and collude among themselves to suppress the foreclosed property’s sales price. The FBI placed recording devices in vehicles around the courthouses, in lights boxes near the entrances, in a backpack and other public but hidden places. The FBI was also working with cooperators (i.e. people who had agreed to plead guilty and were cooperating in the investigation) who were wearing wires and “consensually monitoring” conversations with other auction bidders. But, the addition of these audio recordings (and some video) devices was a more aggressive, additional step to gather evidence.

The defendants in an upcoming trial moved to suppress the recordings and any evidence derived from them. The issue with the eavesdropping was whether the recording of conversations was a search and seizure under the Fourth Amendment, and therefore, a warrant approved by a federal magistrate was required. The Antitrust Division had already agreed not to use these recordings at the trial of the four defendants. But, even if the recordings were not used, if the recordings constituted an unreasonable search, the government would have to prove that the evidence it was going to use at trial was not derived from leads garnered from the recordings. This would be a tedious and difficult process even if the government could successfully show its trial evidence was independent of any information on the recordings.

Judge Hamilton ruled that the recordings did not constitute an unreasonable search. While the judge called the bugging of spaces around the courthouse (where attorneys sometimes have discussions with clients) “at the very least unsettling,” she found that the defendants had no reasonable expectation of privacy. The judge noted that it was “unrealistic for anyone to believe that open public behavior including conversations can be private given that there are video cameras on many street corners, storefronts and front porches, and in the hand of nearly every person who owns a smart phone.”

There is another auction bid rigging trial scheduled in this investigation and a similar motion has been filed in that case by the defendants but a ruling is still pending.

Teachable Moment?

One takeaway from this episode is that if the FBI, working with the Antitrust Division, is willing to place electronic eavesdropping equipment near courthouse entrances in a real estate auction collusion investigation, you can be sure that the government explores every opportunity for covert investigation in all other cartel investigations. It seems like it isn’t always appreciated, especially by overseas businesspersons, that cartels are treated as very serious crimes in the United States. Prosecutors almost always work with the FBI on criminal antitrust investigations. And, if the alleged collusion involves contracts with the United States, the Antitrust Division will also team up with the appropriate investigative agency such as the Department of Defense Criminal Investigative Service (DCIS) and many others. (I don’t watch the TV show NCIS, but maybe they have done a cartel-busting episode). The government will always prefer search warrants to subpoenas (when probable cause exists to obtain a warrant). Opportunities for cooperating witnesses to do consensual monitoring are always explored. This can be a one-on-one conversation, or as the Mark Whitacre ADM price fixing tapes showed (audio and video), an entire meeting(s) among the cartel members can be recorded as long as one of the participants consents. In more limited, but not unheard of circumstances, a warrant can be obtained to eavesdrop (wire tap) conversations even where none of the parties are aware that a conversation is being recorded. I can say from personal experience that nothing excites the prosecution team more than thinking of creative ways to obtain evidence. [Note: Not every recording contains incriminating evidence. As a prosecutor I learned to temper my excitement when I heard “we have a tape” until we actually listened to and understood the recording.]

After obtaining the evidence needed to secure an indictment, Antitrust Division prosecutors may then use tactics such as returning an indictment under seal so the defendant will not know that he is “wanted’ in conjunction with Interpol Red Notices to try to apprehend foreign fugitives who may not be subject to extradition in their home country. All of these actions, when done properly, are legitimate tactics the Antitrust Division employs because they really do believe “price fixing is the supreme evil of antitrust.” As I say on the Cartel Capers home page, “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.” This information is important in counseling executives that cartels are not treated as “gentlemen offenses” in the United States. Instead, you may find yourself having a very lengthy, expensive and unpleasant experience with a determined Antitrust Division and the FBI.

Thanks for reading.