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…]

Last Friday Judge Lucy H. Koh issued an unusual ruling in a somewhat unusual case.  The ruling was unusual in that the court rejected a proposed settlement in the hi-tech wage collusion class action case.  Judge Koh denied a request to preliminarily approve a $324.5 million deal to end the antitrust class action against Google Inc., Apple Inc., Intel Corp. and Adobe Systems Inc.  The suit alleged the companies agreed to not compete for each others’ high-tech employees such as software engineers and computer scientists. The court found the proposed settlement too low and indicated it should be at least $55 million more.  The civil case followed a similar suit by the Antitrust Division charging a per se violation for agreeing not to compete, but the Division’s case was brought as a civil action.

Judge Koh was troubled by the fact that the settlement called for disproportionately less from the defendants than settlements reached earlier with Intuit Inc., Lucasfilm Ltd. and Pixar Animation Studios Inc. This didn’t seem right to the court because the $324.5 agreement was reached after the court had granted class certification, which should have upped the ante for the hold out defendants.  The court explained: “Counsel’s sole explanation for this reduced figure is that there are weaknesses in plaintiffs’ case such that the class faces a substantial risk of non-recovery.  However, that risk existed and was even greater when plaintiffs settled with the settled defendants a year ago, when class certification had been denied.”  More details about the case and settlement rejection can be found here:  (NY Times); here (WSJ); and here (Reuters).

The Class Action Followed USDOJ Antitrust Division’s Earlier Civil Suits

The plaintiffs’ case followed a civil lawsuit filed by the Antitrust Division in 2011 that was settled by consent decree   The defendants were perhaps fortunate that the Division chose to proceed civilly for collusion that in other contexts might have resulted in criminal prosecutions. The complaint charged a per se violation of the Sherman Act stating: “These no cold call agreements are facially anticompetitive because they eliminated a significant form of competition to attract high-tech employees, and, overall, substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.” One example from the complaint of the agreements reached is the Apple-Google agreement:

 17. Beginning no later than 2006, Apple and Google agreed not to cold call each other’s employees. Senior executives at Apple and Google reached an express no cold call agreement through direct and explicit communications. The executives actively managed and enforced the agreement through direct communications.

18. The Apple-Google agreement covered all Google and all Apple employees and was not limited by geography, job function, product group, or time period. Moreover, employees were not informed of and did not agree to this restriction.

[Read more…]

I’ve posted recently on my concerns with the Antitrust Sentencing Guidelines (2R1.1) as they relate to individual defendants (here).  Other submissions have been made to the Commission by people/institutions with great insight and influence in the cartel arena.  I’ve summarized a few of these below.

A. Department of Justice 

The Department of Justice, Criminal Division, in its annual report to the Sentencing Commission included a section on the Antitrust Offenses guideline (2R1.1)(here see pps. 24-25).  The DOJ believes the current guidelines are sufficient and provide the transparency and the flexibility to properly deter cartel behavior and other criminal antitrust offenses. David Baumann, who reports on cartel matters for PaRR, (Policy and Regulatory Report)(http://www.parr-global.com) wrote the following summary which he kindly allowed me to reprint:   [Read more…]

The United States Sentencing Commission posted a notice soliciting comments for possible revisions to USSG 2R1.1 (Antitrust Offenses) to be submitted by July 29th.  I have posted about this previously. (here)(here).  This week I submitted my comments to the Commission.  I limited my comments to my concerns over the guidelines as they apply to individual defendants.  My basic concern is that the volume of commerce is a poor measure of an individual defendant’s culpability, yet it is the primary driver of the offense level.  More specifically, my comments set forth my three primary concerns with the antitrust guidelines as applied to individuals: 1) that the maximum prison sentence of 10 years under the Sherman Act should be reserved for the most egregious cases such as recidivism or explicit economic coercion; 2) that the volume of commerce be de-emphasized as the primary determinant of an individuals’ culpability and be applied only for defendants who had the authority to commit their company to the cartel; and 3) that other factors that more accurately reflect culpability (such as motive) play a role in guidelines calculation.

I also discuss how the Antitrust Division has changed its investigative strategy from “Big Fish/Little Fish” to a “Race to the Courthouse.” This strategy, while successful on one level, has highlighted the inequity of the guidelines of relying principally on volume of commerce to determine an individuals’ recommended guideline sentence. The letter also explains how the failure of the guidelines to reflect an individual’s culpability has led Courts to nearly uniformly depart from imposing a  guidelines sentence, even when recommended by the prosecutors.

Finally, the letter asks the Commission to consider my suggested antitrust guideline reforms that I believe will better reflect an individual’s personal culpability.  While I have opinions based on my many years of prosecuting antitrust crimes, I certainly don’t have all the answers. My hope is to contribute to an informed discussion of how the antitrust sentencing guidelines can be amended to punish based on relative individual culpability and also best serve the purpose of general deterrence of price-fixing and bid rigging.

A complete copy of my letter to the Sentencing Commission can be found here.  Or, email me and I would be happy to send you a copy.

Thanks for reading!

 

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. [Read more…]

Mark Whitacre was the former Archer Daniels Midland (ADM) executive who blew the whistle on the international lysine price-fixing conspiracy of the early 1990’s. He is the highest ranking Fortune 500 executive to become an FBI whistleblower.  Whitacre’s actions launched the age of international price-fixing prosecutions that dominate cartel enforcement to this day. Mr. Whitacre has written an essay, “When Good Leaders Lose Their Way,” 45 Loy. U. Chi. L.J. 525 (2014), that recounts how he became involved in the conspiracy; why he decided to confess to the FBI; his two year saga as an FBI uncover operative across the globe; his decision to embezzle $9.5 million from ADM (his “self-help” severance pay); his resulting ten-year prison sentence; and how he landed on his feet today as the COO of a biotech company with his family intact.  Whitacre’s journey illustrates how a serious antitrust and ethics compliance program may have prevented a journey of  misery for him and his company.   [Read more…]

In an earlier post, I explained why I think the antitrust sentencing guidelines for individuals are in need of serious reform (here). The main defect in the current guidelines is that the primary driver of an individuals’ sentence is the volume of commerce of the conspiracy. As discussed in the previous post, under this formulation, the President of a successful bid-rigging scheme is likely to be found less culpable than a salesperson in an international company who is directed by his boss to attend cartel meetings and report back. Also, there is very little difference in culpability under the guidelines between the CEO who initiates and commits his company to a cartel and one of his employees who he directs to go to meetings or talk to a competitor. Both are tagged with the same volume of commerce (if their temporal participation in the cartel was the same).

Besides being unfair, or rather because of this, the individual sentencing guidelines are routinely ignored by the Courts. [Read more…]

My partner, Allen Grunes, will be the moderator for this ABA teleconference on July 16^, 2014 beginning at noon.  Mr. Grunes is a former Antitrust Division prosecutor and the panel will include Niall Lynch, Latham & Watkins, San Francisco, CA; Michael Tubach, O’Melveny & Myers, San Francisco, CA; and Wendy Waszmer, King & Spalding, New York, NY. The session will cover the DOJ’s recent real estate foreclosure and municipal tax lien auction bid rigging prosecutions. Several cases allege not only antitrust but also fraud and other criminal statute violations. These excellent panelists, including former prosecutors, will discuss some of the unique features of these cases, DOJ’s enforcement message, and what to expect next.   To tune in, register at: http://www.americanbar.org/content/dam/aba/marketing/20140716_at147016.authcheckdam.pdf.

Auction bid rigging cases garner much less attention than the headline grabbing and record-setting international cartel cases, but buyer collusion cases have a long history and an important role in establishing the legal principles that apply to all cartels—buyer or seller. Buyer cartels were unlawful even before the passage of the Sherman Act in 1890. At common law, agreements among bidders not to bid against each other were set aside as against public policy.   [Read more…]

On July 8, 2014 Rengan Rajaratnam was acquitted by a federal jury of participation in an insider trading conspiracy. This was the government’s first trial loss in its insider trading investigation that has led to 85 convictions, with most defendants sentenced to prison. Raj Rajaratnam, the defendant’s older brother, is currently serving an 11 year jail term. In an earlier post https://cartelcapers.com/blog/fugitves-return-us-upon-indictment-admissible-show-consciousness-innocence/ I reported that in a pretrial motion, Rajaratnam’s counsel persuaded the court that he should be able to introduce evidence that he was in Brazil at the time he learned of his indictment and he immediately returned to the United States to face the charges. This evidence, Rajaratnam argued, and the court agreed, could be considered by the jury as “consciousness of innocence.” The jury acquitted Rajaratnam, and no doubt many factors were at play, but in fact, Rajaratnam did introduce such evidence at trial.   [Read more…]

The Seventh Circuit has decided to rehear the appeal from a judgment dismissing nearly Motorola’s entire $3.5 billion antitrust claim against foreign manufacturers of LCD panels. The Court has not yet set a schedule for the filing of supplemental briefs.

In Motorola Mobility v. AU Optronics Corp, No. 14-8003, 2014 WL 1243797 (7th Cir. Mar. 27, 2014)(vacated), the Seventh Circuit (J. Posner) upheld a lower court ruling dismissing most of Motorola’s damage claims from price fixing of LCD panels. The commerce at issue was LCD panels sold by defendants to Motorola’s foreign subsidiaries and incorporated into products such as cell phones. The finished product was imported into the U.S. The Court found that a damage claim based on the purchases by Motorola’s foreign subsidiaries was barred by the FTAIA. The Court held that because the price-fixed panels were sold to customers overseas, the effect on U.S. commerce was indirect, even though the price of the finished product later imported into the U.S. may have been inflated by the component price fixing. [Read more…]