The first team I can remember rooting for was the 1962 Mets. They went 40–120 (.250) and finished last in the National League, ​60 1⁄2 games behind the NL Champion San Francisco Giants.  The statistics for criminal cases filed by the Antitrust Division for the 2018 Fiscal Year that closed on September 30, 2018 were pretty close to being that bad.  There were 14 case filings naming 18 defendants; 8 of the cases were real estate foreclosure auctions.  By contrast, a high water mark was FY 2011 when 90 cases were filed against 109 Defendants.

Before anyone thinks, “Well it’s the Republicans” or somehow Makan Delrahim isn’t doing a good job, recall that the 1962 Mets were skippered by Casey Stengel—a Hall of Fame manager.  Stengel’s Yankees won the World Series five consecutive times (1949–1953).  Stengel remarked about the 1962 Mets “Can’t anyone here play this game?”  Delrahim may have quipped: “Didn’t they (the prior administration) leave me any cases in the pipeline?”  The investigation period for a criminal antitrust case is lengthy.  To a large extent, a new administration is bringing charges stemming from investigations that began under the previous administration.  So, don’t shoot the current Sheriff.

The next Cartel Capers post will explore some of the reasons the Antitrust Division’s case have tailed off so dramatically.  Also, I’d like to talk about some ways to get the pipeline full again (perhaps it is but its not yet apparent).  I welcome any reader comments about why case filings–particularly international cartel cases– may be down (other than it’s a cyclical business and auto parts and financial crime cases ran their course).  Are there ideas out there about what the Antitrust Division could be doing to generate a more robust criminal enforcement program?

Below are my very unofficial statistics for Antitrust Division criminal case filings for Fiscal 2018.  I have not compiled fines, but I believe the only “substantial fine” is the $90 million imposed on BP Paribas in a currency manipulation case.

PS.  I was a Casey Stengel fan even later in life. When I was Chief of the Antitrust Division’s Philadelphia Field Office I always followed Casey’s advice on being a successful manager: “The secret of successful managing is to keep the five guys who hate you away from the four guys who haven’t made up their minds.”  And, like Casey, I was eventually canned; when my office got whacked in 2013.

Antitrust Division Fiscal 2018 Cases  (unofficial)

Criminal Cases Filed:   14

Indictments:   6

Informations:  8

Total Defendants:       18

Corporate Defendants:  3

Individuals:     15

Cases by Subject Matter

Foreclosure auction -8

Seafood -1

Financial services – 2

Construction -2

Capacitors -1

1)         August 20, 2018         U.S. v. Detloff Marketing and Asset Management, Inc. et al.                                                               District of Minnesota

https://www.justice.gov/atr/case/us-v-detloff-marketing-and-asset-management-inc-et-al; press release at:

https://www.justice.gov/opa/pr/minnesota-real-estate-company-realtor-and-accountant-indicted-mail-and-wire-fraud-scheme

2)         June 8, 2018               U.S. v. Ivan Spinner            Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-ivan-spinner  (real estate foreclosure auctions)(SD Miss.)(no press release)

3)         May 16, 2018             U.S. v. Christopher Lischewski       California, Northern District

https://www.justice.gov/atr/case/us-v-christopher-lischewski; (ND. Cal.)press release: https://www.justice.gov/opa/pr/bumble-bee-ceo-indicted-price-fixing

4)         May 10, 2018             U.S. v. Akshay Aiyer            New York, Southern District

https://www.justice.gov/atr/case/us-v-akshay-aiyer(currency exchange, S.D. NY);press release:

https://www.justice.gov/opa/pr/former-currency-trader-indicted-participating-antitrust-conspiracy

5)         April 10, 2018            U.S. v. Chad Nichols            Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-chad-nichols  (real estate foreclosure auction bid rigging)(SD Mississippi)(no press release)

6)         April 3, 2018              U.S. v. Kevin Moore            Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-kevin-moore  (real estate foreclosure auction bid rigging)(no press release)

7)         April 3, 2018              U.S. v. Terry Tolar               Mississippi, Southern District

https://www.justice.gov/atr/case/us-terry-tolar  (real estate foreclosure auctions bid rigging) (no press release)

8)         February 1, 2018       U.S. v. Jason Boykin            Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-jason-boykin  (real estate foreclosure bid rigging) (no press release)

9)         Feb 1, 2018     U.S. v. Shannon Boykin                   Mississippi, Southern District

https://www.justice.gov/atr/case/us-v-shannon-boykin (real estate foreclosure bid rigging) (no press release)

10)       January 25, 2018       U.S. v. BNP Paribas USA, INC.      New York, Southern                                                             District  ($90 million fine)

https://www.justice.gov/atr/case/us-v-bnp-paribas-usa-inc  (price fixing currencies)(no press release)

11)       November 2, 2017     U.S. v Avi Stern, Stuart Hankin, Christopher Graeve                                                                      Florida, Southern District

https://www.justice.gov/opa/press-release/file/1008621/download(copy of Indictment); press release:

https://www.justice.gov/opa/pr/three-real-estate-investors-indicted-bid-rigging-florida-online-foreclosure-auctions

12)       October 19, 2017                   U.S. v. Kenneth Keyes and Leroy Weber

                                                                    California, Eastern District

https://www.justice.gov/atr/case/us-v-kenneth-keyes-and-leroy-weber   (Conspiracy to Defraud United States—commercial construction); press release;  https://www.justice.gov/opa/pr/roofing-company-owner-and-former-facilities-manager-sierra-army-depot-indicted-conspiracy

13)       October 18, 2017                   U.S. v. Nippon Chemi-Con Corporation

                                                                   California, Northern District

https://www.justice.gov/atr/case/us-v-nippon-chemi-con-corporation  (capacitor price fixing), press release https://www.justice.gov/opa/pr/leading-electrolytic-capacitor-manufacturer-indicted-price-fixing

There is a sentencing hearing for Nippon Chemi-Con on October 3, 2018.  The plea agreement calls for a fine of between $40 and $60 million.  NCC may withdraw its plea if the Judge imposes a fine greater than that called for by the plea agreement.  See Cartel Capers: https://cartelcapers.com/blog/will-antitrust-division-need-compliance-monitor/

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

14*      October 19, 2017                   U.S. v. Yama Marifat [2018]            E.D. Cal        

                                                                  Case No. 2:17-cr-00189 

[This is an unusual case.  The original Information was filed in 2011.  The defendant pled guilty but later successfully withdrew his guilty plea. The Antitrust Division subsequently indicted him in 2017. I counted this Indictment in the statistics, though it was already counted in 2011.]

https://www.justice.gov/atr/case-document/file/502276/download  (1/28/2011); press release

https://www.justice.gov/opa/pr/real-estate-investor-indicted-bid-rigging-eastern-district-california

 

 

 

On August 20, 2018 the Antitrust Division announced in a press release (here) the return of an indictment (here) against a real estate company, a realtor and an accountant that does not include a charge of violating the Sherman Act.

The press release states:

[T]he Detloffs devised a scheme requiring repair contractors to pay the Detloffs kickbacks.  In return, Jeffery Detloff used his position as a realtor for the victim companies to steer housing repair contracts to contractors who paid the kickbacks.  The contractors paid kickbacks to the Detloffs through Detloff Marketing.  The indictment further alleges that Jeffery Detloff procured and submitted sham bids as part of the scheme to defraud the victim companies.

The indictment is unusual for the Antitrust Division in that it does not charge a violation of the Sherman Act.  Unusual, but certainly not unheard of.  The indictment alleges that the realtor who was handling the sale of forced properties was demanding kickbacks from contractors for work repairing foreclosed properties in preparation for sale.  The investigation, and indictment, likely grew out of the Antitrust Division’s real estate foreclosure auction bid rigging investigation.

It is not uncommon during a bid rigging/price fixing investigation for evidence of other crimes to be uncovered.  The question can then arise “What to do with the evidence?”  Title 18 violations, such as the charges in this indictment, are the province of the United States Attorney for the district in which the crimes were committed. The Antitrust Division is pretty careful to “stay in their lane” and defer to US Attorneys for Title 18 crimes. There are many situations where the evidence and investigation of non-Sherman Act wrongdoing is turned over to the Unites Sates Attorneys’ Office.  This is not always the case, however.  If Antitrust Division attorneys are immersed in the facts, and the crime does relate to a bidding process, for efficiency reasons, the Antitrust Division will often continue the prosecution.  It can be inefficient to turn the matter over to a new set of attorneys.  If the Antitrust Division wishes to continue with the matter and prosecute the case, it will consult with the US Attorney for the relevant district and seek her permission. That is what appears to have happened in this case.

During my time as Chief of the Philadelphia Field Office we prosecuted quite a variety of criminal offenses; from tax evasion, kickbacks, Iraq war zone graft cases and Buy American Act violations.  Typically, Antitrust Division lawyers are trying to leverage potential other charges to “turn” a witness to cooperate in price fixing/bid rigging investigation.  But, sometimes it turns out that there was no Sherman Act violation, but other offenses have been uncovered and should be prosecuted.  Naturally, the Antitrust Division attorneys who have spent time on the matter would like to finish what they started and prosecute the cases.  It can be great experience for an Antitrust Division lawyer who operates in a field where almost every matter is handled by Information (voluntary plea) as opposed to Indictment, with the prospect of a trial. The down side, and the push back sometimes from the Division’s front office, is that Antitrust Division resources should be focused on developing cartel cases.  I recall one senior Division official commenting that he would rather have Antitrust Division attorneys standing on a street corner handing out copies of the Corporate Leniency Policy than getting bogged down in the trial of small or Title 18 cases.  Bottom line don’t be surprised when the Antitrust Division files non-Sherman Act cases, but don’t expect it to be the norm either.

Thanks for reading.  Bob Connolly

I just returned from a function of the Section of Antitrust Law of the American Bar Association.  It was such an enjoyable and educational experience that I wanted to reflect a bit on why belonging to the Antitrust Law Section is so important to me and how it may be of benefit to you.

I hope every lawyer takes pride in what they do in representing their clients and upholding the rule of law.  But to me, there is something special about antitrust law. In U.S. v. Topco Associates, Inc., Justice Thurgood Marshall announced that “[a]ntitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise.” I feel privileged to have spent my career in the antitrust field.  Through the Antitrust Section, I have met lawyers from across the street and around the world.

The Antitrust Section is not the largest section in the ABA, but it is one of the most productive in terms of the literature published, podcasts produced, conferences held around the world, including the crown jewel, the ABA Antitrust Spring Meeting in Washington DC, and the unparalleled opportunity to get involved and network. These are just a few of the highlights of the Section:

• There are over 9,000 members, predominantly from the United States, but also representing most jurisdictions from around the world.
• There are over 35 committees including Consumer Protection, Intellectual Property and various civil and criminal antitrust related committees. Most committees publish newsletters and presents teleconferences. It is easy to join a committee and help with these projects.
• Besides numerous teleconferences on antitrust, consumer protection, privacy, big data and a host of other subjects, there are major international conferences throughout the year. These conferences provide top-notch substance and CLE credit, but also are great networking opportunities.  They are a great way to get involved.

Antitrust Section membership is a great way for young lawyers to get involved.  If you volunteer, you will certainly be put to work.   Committee membership is an invaluable experience—the earlier in your career the better.  You can build lifelong friendships.  I recommend business lawyers join the Antitrust Section.  Even if antitrust/consumer protection is not in your daily practice, antitrust issues arise all the time in the business world. Simply being able to spot potential issues is invaluable.  (Right now, there are plenty of business lawyers, and their clients, who wish they were more familiar with the antitrust pitfalls of “no-poach” agreements.).  The Antitrust Section has also become very international with events held around the globe and a strong foreign lawyer membership.

Here are a few links for further information:

Section of Antitrust Law Homepage:

https://www.americanbar.org/groups/antitrust_law.html

Events and CLE:

https://www.americanbar.org/groups/antitrust_law/events_cle/events_cle.html

Spring Meeting:

https://www.americanbar.org/groups/antitrust_law/events_cle/events_cle/atspring.html.

Committees: 

https://www.americanbar.org/groups/antitrust_law/committees.html

Membership/Join:

https://www.americanbar.org/groups/antitrust_law/membership.html

Disclaimer:  This post is not endorsed by or represent the views of the Section of Antitrust Law or the American Bar Association.  It’s just my own sincere belief about the value of membership

As always, thanks for reading. If you have any questions, feel free to drop me an email or give me a call.  Bob Connolly

The DOJ issued a standard press release yesterday announcing yet another individual guilty plea in its long running real estate foreclosure auction collusion investigation: Seventh Mississippi Real Estate Investor Pleads Guilty to Conspiring to Rig Bids at Public Foreclosure Auctions.   According to the press release to date there have been “convictions of well over 100 other individuals who rigged foreclosure auctions all across the country.” Many of those convicted have been sentenced to prison.

What jumped out at me about the press release was that the individual is pleading guilty to rigging auctions “from at least as early as August 20, 2009 through at least as late as December 14, 2016.”   In other words, while the DOJ investigation, prosecution and sentencing of others to prison, this defendant continued to collude at auctions.  And you can’t collude by yourself, so others were still joining in.  I suppose it is more sad than surprising.  [People still rob banks.]  The temptation for a quick (and illegal) buck by colluding at auctions is too great for some to pass up.  After all, this the real estate foreclosure auction investigation is by no means the first widespread auction collusion investigation the Antitrust Division has had with large numbers of criminal prosecutions.  When I was the Chief of the Philadelphia office we prosecuted auction “rings” in antiques, jewelry, various types of commercial equipment and Department of Defense surplus auctions. In every investigation we learned was that collusion at auctions was a “way of life” in that business. The individuals prosecuted had excuses for their behavior: “it’s the only way to make money” “there were still other bidders we had to compete against” “the auctioneers pulled phantom bids” “it was a cloudy day” “it was a sunny day” and on and on.  But, each person I dealt with understood that what they were doing was a fraud. One guy even remarked in answer to a question about the collusion: “You mean the combination?”  I remember that many years later because I had never heard the Sherman Act term “combination” actually used by someone who was in one.  [Auction conspirators frequently use the term “the ring.”]

Like many white-collar criminals, auction collusion defendants have not had previous encounters with the law.  The entire lengthy process of the investigation, prosecution, and jail sentence if there is one, is usually an absolutely devastating experience to the individuals’ business, family life and self. It can be tempting get involved in an auction ring if you compete against the same individuals/businesses time after time.  But, in my experience, auctions rings were by far the easiest bid rigging crime to prosecute. The payoffs to the ring members leave a detailed road map of who was involved and what the scam was.

I don’t know who reads Cartel Capers.  Probably not many in the auction business.  But, if you are and you are invited into an auction ring, RUN.  Be conspicuous that you are not part of the group.  If you are in an auction ring, GET OUT.  You may want to speak with an attorney and consider the Antitrust Division’s Leniency Program.  If it’s the only way to make money, find another line of work. (But don’t rob banks.)

Thanks for reading. Bob Connolly

Lisa Phelan has been the Chief of the Antitrust Division’s Washington Criminal 1 Section (called the National Criminal Enforcement before that) for the last 16 years.  But, Lisa is now moving on to new challenges as a partner in Morrison & Foerster’s Global Antitrust practice.

Lisa has had an amazing career, first as an Antitrust Division trial attorney, and then as Chief of one of the Division’s busiest criminal sections.  Lisa joined the Division in 1986 and worked on fax paper, one of the Divison’s first international cartel investigations.  It was the first of many cartel investigations Lisa led, first as lead attorney and later as Chief of the Section.  The wide-ranging, record-breaking auto parts international cartel investigation was led by Lisa.

Morrison & Foerster issued a press release announcing Lisa’s joining the firm (here). There is also an article in Law 360 about Lisa’s DOJ career here (behind a pay wall).  I’ll just add a few comments as someone who was Lisa’s colleague for many years.  I got to know Lisa well because we were both Chiefs of criminal sections. (Lisa had a Hall of Fame career.  I managed to get the Philadelphia Field Office closed and now write a blog :-). Lisa is very competitive. There was a healthy competition among the criminal sections for new matters and Lisa would always fight to get good investigations for her staff.  And antitrust law, particularly cartel investigations, excited Lisa the entire time she was with the Division.  She never lost her enthusiasm or energy.  When she began a new investigation it was not uncommon for Lisa (even as Chief) to hop on a train, plane or car to “drop-in” on potential witnesses to try to get that early break.  Lisa was a tremendous advocate for the consumers of the United States as a prosecutor and she will no doubt now bring that same talent and energy to assisting clients on the other side of DOJ cartel investigations.  She is also just a lot of fun to work with.

Congratulations Lisa.

Thanks for reading.  Bob Connolly

Special Issues with a Bid Rigging Whistleblower

To recap from the Bid Rigging Whistleblower Part 1 and Part 2, a potential whistleblower with information about bid rigging on government contracts cannot receive a financial whistleblower award simply by providing that information to the Antitrust Division. Criminal antitrust whistleblower legislation is needed to provide the Antitrust Division with the same tools that the SEC has used to recover tens of millions of dollars based on whistleblower tips.  See, It’s a Crime There Isn’t a Criminal Antitrust Whistleblower Statute.  But, there is a way a person with information about a cartel involving government contracts can become a whistleblower and be compensated.  That person would have to file a civil complaint under the False Claims Act alleging that the United States was defrauded by means of collusion on a government contract.  Once the suit is filed, the information underlying the allegations must be supplied to the Attorney General.  The government will then decide whether to intervene and prosecute the case.  If the government declines, the individual can still pursue the case on his/her own.  But the damage claims from the overcharges are the government’s.  If there is a settlement, the whistleblower (“Relator”) can recover between 15 and 30% of the government’s damages; plus, attorney fees and expenses.  These issues are discussed more fully in the Bid Rigging Whistleblower Part 1 and Part 2.

There are two types of potential whistleblowers—the non-culpable and the culpable. An example of a non-culpable whistleblower might be an auditor or bookkeeper who discovers unexplainable payments from one company to a competitor.  This may be a payoff for submitting a high bid or for not bidding at all.   Another non-culpable whistleblower may be an assistant who is suspicious of round-robin calls between competitors that seem to coincide with price movements.  The problem with having to file a lawsuit to be a whistleblower (as opposed to simply providing the information and cooperation to the government) is that the suspicion of collusion may fall well short of the evidence needed to file a case.  In addition, the whistleblower will not have the expertise needed to develop the facts. Filing a False Claims Act case can be a life changing event for an individual (and not always for the better) so it is not an area in which to be reckless with accusations.  In all likelihood, many valuable leads about cartels are simply lost because there is no incentive for a person with knowledge of bid rigging collusion to come forward and bear the expense and disruption of being a witness for the Antitrust Division.[1]

The other type of whistleblower is the “culpable” whistleblower such as an estimator who knows his boss is working with competitors to rig a government contract.  The estimator will likely be the one that has to inflate the bogus bid either to win at a supra competitive price or to inflate the bid enough to lose with a complementary bid.  These are exactly the types of whistleblowers the Antitrust Division should welcome and encourage.  As the Antitrust Division and Federal Trade Commission acknowledged in a joint September 12, 2017 press release, with all the rebuilding from natural disasters such as Hurricanes Harvey and Irma, the temptation and opportunity to rig bids is real:  “While natural disasters often bring out the best in human compassion and spirit, they can also lead to unscrupulous individuals and organizations taking advantage of those in need.”   If there is collusion going on, whether it be the result of natural disaster rebuilding or any other type of federal or state contract[2], it is highly likely an estimator or some other lower level employee will have knowledge of the wrongdoing and be enlisted in some manner, no matter how minor, to carry out the collusive agreement.  The problem a lower level employee may have in being a whistleblower is that he may also be culpable and potentially prosecutable if, having knowledge of the bid rigging, he takes any action to help rig the bid, such as preparing an inflated bid in accordance with the boss’s instruction.  Given the scope of conspiracy law, it is pretty easy to find yourself a member of the conspiracy if you are aware of the agreement—even if you were simply putting together a bid as directed or taking any other action “in furtherance of the conspiracy.”  One of my pet peeves with the United States Sentencing Guidelines is that the estimator who follows the CEO’s bid rigging orders is tagged with the same volume of commerce increase (value of contracts that were rigged) under the sentencing guidelines as the CEO.  It is, therefore, perilous for an estimator, or anyone who might have culpability under conspiracy law, to report a bid rigging conspiracy without first obtaining experienced antitrust counsel and securing immunity.  The Antitrust Division has an Individual Leniency Policy and a lower lever employee would almost certainly qualify for immunity in return for information and cooperation, but the process requires negotiation and should be handled by an experienced attorney.  Attorneys cost money, which is why some financial incentive for coming forward is an important ingredient for a cartel fighting program.

Under Assistant Attorney General Makan Delrahim, the Antitrust Division has made a point of stating that getting restitution for taxpayers from cartel activity is a priority for the Division.  AAG Delrahim, and other spokespersons have said that when the U.S. is a victim of cartel activity, the agency is going to use its authority under Section 4A of the Clayton Act to recover taxpayer dollars from the offending companies to provide an additional deterrence against cartel activity.  This is good. Encouraging and supporting whistleblowers who have valid False Claims Act cases would be better.  And, supporting enactment of SEC style whistleblower legislation would be best.

Strong whistleblower incentives can not only help uncover bid rigging cartels but prevent them in the first place. The Antitrust Division mentions how the possibility of leniency can prevent a cartel from forming because of fear that a cartel member may someday fold for leniency.  It is even more likely a business owner concerned that an employee could file a whistleblower suit might recalculate the odds and conclude that bid rigging could end up with a jail sentence. I just came across this statement in the Wall Street Journal from “Not Quite as Crazy As he Used to Be ‘Crazy Eddie’”

In the two decades I was deeply involved in the Crazy Eddie fraud, the only threat made us lose sleep at night was the possibility of a whistleblower blowing the lid on our crimes. Consistent studies by the Association of Certified Fraud Examiners have shown that most frauds are exposed by whistleblowers, far ahead of frauds exposed by any other source. The SEC will be handing a gift to white-collar criminals if it reduces whistleblower bounties.—-  Sam E. Antar, Former Crazy Eddie CFO, former CPA, and a convicted felon.

Thanks for reading.  Bob Connolly

[1]  The Antitrust Division does have a Report Violations tab on its website.

[2]  Many state contracts are funded with federal government money.  In addition, most states have False Claim Acts that mirror the federal False Claims Act.

Should the Antitrust Division Have a Whistleblower Czar?

Well, no.  Without legislation to create a criminal antitrust whistleblower statute, the Czar might have little to do.  But, the Antitrust Division should make some effort, short of Czardom, to encourage bid rigging whistleblowers.  As I noted in Part I (here), there is already a mechanism for a whistleblower to claim a reward for prosecuting collusion among contractors/vendors on government contracts.  The bid rigging whistleblower can file a False Claims Act (qui tam) case on behalf of the government alleging that the government was ripped off by illegal collusion among the bidders.  If the government recovers damages, the person who brought the suit (the Relator) can receive a percentage (10-25%) of the recovery.

As I mentioned in Part I, the Antitrust Division has brought both criminal and civil suits as a result of filed whistleblower cases. This is a pretty well-kept secret because as far as I know, the Division has never encouraged anyone to come forward as a bid rigging whistleblower or done anything to publicize the fact that whistleblowers of collusion on government contracts can and have recovered a portion of the government’s damages.  The government should make some effort to attract bid rigging whistleblowers.  Doing so would benefit the Antitrust Division in obvious and non-obvious ways.  Below are a few ideas I think are worth discussing.

1. Welcoming Bid Rigging False Claims Act cases

• Special Counsel for False Claims Act Cases

Over the years there has been a proliferation of counselors to the Assistant Attorney General for the Antitrust Division.  One counsel, with a criminal and civil background, could be designated as the Special Counsel for False Claims Act cases.  This would at least be a message to the bar that the Antitrust Division does have an interest in promoting whistleblowing on collusion on federal government contracts.  This special counsel could also oversee whatever efforts the Antitrust Division does take to encourage bid rigging whistleblowing.

• Create a False Claims Act web page

The Antitrust Division has a page on its website for the Leniency Program.  The Antitrust Division promotes the heck out of leniency.  This page is an excellent source of information about everything one would need to know about the Corporate and Individual Leniency Programs.   There is also a Report Violations page on the Antitrust Division’s website. A False Claims Act page would signal the Division’s interest in possible False Claims cases as well as provide information a potential whistleblower might need to begin.

• Better Coordination with Civil Division and United States Attorney’s Offices

 When a False Claim Act case is filed, notice of the case and the evidence supporting it must be filed with the Attorney General of the United States.  From there, the case will be assigned according to the subject matter of the alleged fraud: (i.e. health care, defense, antitrust).  Perhaps this is already being done, but the Antitrust Division might be more aggressive in claiming its seat at the table for bid rigging on government contracts.  A whistleblower will not file a Sherman Act case if she has information about collusion on a government contract—because there is no provision for antitrust whistleblowers.  The case will be filed as a Conspiracy to Defraud the United States with the bid rigging constituting the fraud.  A review of cases False Claims Act Cases on the Department of Justice website indicates that there have been a variety of False Claims Act matters that involved bid rigging yet were handled by local United States Attorney’s offices and the Civil Division of the Department of Justice, instead of the Antitrust Division.[1]

It would be good public policy to have all potential government bid rigging cases be referred to the Antitrust Division. Pardon the institutional pride (I worked there for 34 years), but nobody can spot, investigate and prosecute a viable criminal antitrust violation (i.e. bid rigging) better than an experienced Antitrust Division Attorney.  What may look like a bid rig too small for government intervention, may be spotted as the tip of the iceberg by an Antitrust Division prosecutor.  Likewise, a case that may appear weak to someone else, may look quite viable to a Division prosecutor that has experience investigating cartels—and tools like the leniency program.  A special counselor for False Claims Act cases would raise the profile within the Antitrust Division, the Department of Justice (and the outside bar) and may spur additional viable False Claim Act cases being referred to the Antitrust Division for a decision on whether the government should intervene and take over the prosecution.

     2.      The Benefits to the Antitrust Division of a Higher Profile for False Claims  Act Cases

The Antitrust Division could benefit in both obvious and non-obvious ways from a higher profile on False Claim Act cases.

• The Obvious

Filing a False Claims Act case is a risky proposition for any potential whistleblower.  The blowback from being a whistleblower will likely be severe and the chances for success, especially if the government does not intervene, are far from certain.  Modest changes like these suggestions are not going to lead to an avalanche of new cases.  (Thus, the need for an SEC like criminal antitrust whistleblower statute as I argue in this article (here)).  But, it is certainly worth a try.  Nothing suggested above, and others may have additional/better suggestions, costs the government a nickel and the return on the investment may be substantial, even if just one additional cartel is uncovered.  Also, while a different subject, many believe that the value of leniency has been decreasing and the number of viable leniency applications is down. While this may be coincidence, not causation, the Antitrust Division’s statistics for cases and jail sentences and fines are way down.  It may be an opportune time to launch a new, if modest, initiative.

• Good Cases

One benefit of publicizing the potential benefits of being a bid rigging whistleblower is that even if only one new case emerges, these are great cases for staff to work on.  Here I speak from personal experience and my views may not be universally held, but I’m pretty sure they are held by most trial attorneys in the Antitrust Division. Government bid rigging cases are great cases to work on.  They are much lower profile than say a Forex or Libor or other international cartel matters.  These “big” cases have their own allure, but the front office, the Criminal Division, SEC, CFTC, foreign agencies, Batman and Robin and others all have a hand in these investigations.  While it is exhilarating to work on a matter that makes the front page of the Wall Street Journal, a staff member is a small cog in the big wheel. On a government contract matter, generally speaking, the staff has more responsibility and more ownership of the matter, including possible trial experience on manageable cases. It’s a great way to learn how to investigate, take chances and take ownership.  These cases also involve working with agents across the federal spectrum.  These relationships can last a career and produce results over a long period of time.

• Deterrent Effect

Finally, one of the most important reasons for robust antitrust prosecutions is deterrence. If the Antitrust Division starts whistleblowers and prosecuting bid rigging cases, it should have a deterrent effect on all the bid riggers out there that are not currently being detected. Whistleblower awards on bid rigging matters should be well-publicized. There is great satisfaction in seeing taxpayer money restored (with appropriate penalties) if a successful case is brought.  In a cartel case like capacitors the price of an input is raised but the impact on the final cost to consumers is small.  The cumulative harm is great (and should be prosecuted), but it is very diffused.  With bid rigging on government contracts the harm is focused and the recovery can be significant with both criminal and civil penalties.  Also, many government bid rigging investigations can lead to finding more bid rigging and what often looks like a small matter can proliferate into a major investigation.  Road construction, school milk, Defense Department contracts are just a few of the government contract cases that led to uncovering “way of life” collusion in certain industries.

Part III

 Special Issues with A Bid Rigging Whistleblower

 Thanks for reading. Please come back for Part III.

Bob Connolly

 

[1]For example, https://www.justice.gov/opa/pr/defense-contractor-ads-inc-agrees-pay-16-million-settle-false-claims-act-allegations; andhttps://www.justice.gov/opa/pr/accenture-pays-us-63675-million-settle-false-claims-act-allegations

by Bob Connolly

I have been writing, along with my co-author Kimberly Justice, about the desirability of a criminal antitrust whistleblower statute.  Besides many blog posts, we have written a few articles such as It’s a Crime There Isn’t an Antitrust Whistleblower Statute, Wolters Kluwer, Antitrust Law Daily, April 8, 2018.

A principle objection to an antitrust whistleblower statute is that it would undermine the credibility of a witness if she received compensation for exposing a cartel.  Superficially that sounds right but doesn’t hold up when you consider the success of the Antitrust Division’s Corporate Leniency Program. Simply change “leniency applicant” to “whistleblower” and one can see that the Antitrust Division already has a form of whistleblowing; the Corporate Leniency Program which bestows rich rewards on the whistleblower.  As the Antitrust Division has stated repeatedly, the value of leniency is the tens of millions of dollars it can save a company.   Leniency/whistleblowing saves not only the leniency company money, but it can save multiple culpable executives from jail time in return for their cooperation: “When Calculating The Costs And Benefits Of Applying For Corporate Amnesty, How Do You Put A Price Tag On An Individual’s Freedom?” So, the government is rightfully not skittish about paying for information. It’s a necessary evil to breaking up secret cartels and hopefully deter their inception.

The reward of leniency does, of course, undermine the credibility of witnesses just as a whistleblower reward will ding the credibility of any whistleblower who testifies.  If the government has only the cooperation of a leniency applicant, it is likely to: a) not bring a case; or b) lose the case it brings.  But, that flaw in leniency that does not outweigh the benefits!  Leniency whistleblowing almost always leads to cooperation from other subjects of the investigation.  The value of leniency whistleblowing is that it starts the dominos falling of companies/individuals coming in to cooperate for the next best deal available. You don’t see many criminal antitrust trials based on a grant of leniency, because the grant of leniency to one company leads to many guilty pleas and an overwhelming case against whomever is left.[1] A criminal antitrust whistleblower statute for individuals will work the same way.

Pardon the advertisement for a criminal antitrust whistleblower statute because this post is not about that.  In writing about the need for a whistleblower statute, I may have given the impression that it is not currently possible to be a whistleblower on cartel cases.  This is not true.  An individual whistleblower already has a way to help the government recover damages from bidding collusion, while at the same time getting some reward for the great expense and risk in doing this.  If there is bid rigging or price-fixing and the federal government is a victim of the collusion, a qui tam(whistleblower) suit can be brought seeking damages on behalf of the government.  A whistleblower can file a False Claims Act case alleging that a defendant (or group of defendants as in a cartel) obtained a federal contract by means of making a material false statement.  If a bid was rigged, the false statement would likely be the non-collusion affidavit filed with a vendor’s bid package.  This is typically referred to as a Certificate of Independent Price Determination, or something similar.  But, even without such a certification, in the context of a competitive bidding situation, there would be an implied certification that each vendor submitted his bid independently and without collusion with the other bidders, or even non-bidders if the scheme involved payoffs to a potential competitor to not bid).

A couple of things to note. To get a reward for this type of whistleblowing, it is not sufficient to simply go into the prosecutor’s office and lay out the evidence you have.[2]  Under the False Claims Act, the “Relator” [as the whistleblower is called] must file a qui tamsuit on behalf of the government alleging the government suffered damages as a result of the fraud.[3]  If damages are awarded as a result of the qui tamsuit, the Relator is entitled to between 15-25% of the amount the government recovers as a result of the bid rigging.  As an example, if a Relator files a qui tamaction alleging bid rigging on a $50 million contract and the contractor repays the government $10 million in overcharges, the whistleblower should recover between $1.5 million and $2.5 million.[4]

Once a qui tam suit is filed, the Relator’s attorneys must present the evidence they have to the government.  The government will decide whether they want to intervene and take over prosecution of the fraud.  If the government declines to intervene, (and the reason for declination can range from the government thinks your case is weak, or your case is fine, but they are just too busy with other matters).  Even if the government declines to intervene, the Relator can still prosecute the case, and some do, but it is obviously more difficult without the government’s assistance.  And in some fairly rare instances, the government can seek to have the Relator’s case dismissed if they believe it is without evidentiary merit or based on a legal theory the government doesn’t agree with.

The Antitrust Division has actually had successful criminal prosecutions that began based on evidence provided by a whistleblower who had filed a False Claims Act suit. The Antitrust Division neither publicizes the fact that whistleblowing rewards are available for exposing bid rigging on government contracts (and most states have similar False Claims Act statutes) and does not publicize when a whistleblower has successfully recovered damages for the government or himself.  When I was Chief of the Philadelphia Office of the Antitrust Division we prosecuted several cases where the investigation began as a result of a whistleblower False Claims Act case.  A publicly documented example of this was in 2012 when the Antitrust Division settled a civil bid rigging case where two companies were charged with rigging contracts for Bureau of Land Management gas leases.[5]  Because of the collusion, SG Interests and Gunnison Energy Corp. overcharged the government for leases by bidding less than they would have if they bid competitively. Each company paid a settlement of $550,000 in a civil case brought by the Antitrust Division.  The government’s case was based on a qui tamcase filed in 2009 by a former vice president of one of the companies.[6]  See, Justice Department Settlement Requires Gunnison Energy and SG Interests to Pay the United States a Total of $550,000 for Antitrust and False Claims Act Violations.

Also, there was a False Claim Act case filed in the Puerto Rican ocean shipping cartel matter.  That investigation resulted in the longest jail sentence ever received by an individual convicted of a Sherman Act violation–5 years[7].  Again, the fact that a whistleblower case was filed is not well known, but the following is an excerpt from an Antitrust Division appellate brief as Mr. Peake appealed his conviction:

Stallings, a former Sea Star executive, was the government’s first cooperator in its investigation into the shipping conspiracy, although he did not testify at Peake’s trial. Stallings’s [whistleblower] lawsuit sought damages for “injuries to the United States Government resulting from Defendants’ fraudulent course of conduct and conspiracy to allocate customers, rig bids, fix rates, surcharges and other fees for Puerto Rican Cabotage which resulted in the submission of false or fraudulent claims to the Government. [8]

The Antitrust Division noted in its brief:

The qui tam provisions of the False Claims Act permit whistleblowers (known as “relators”) to bring certain fraud claims on behalf of the United States. 31 U.S.C. § 3730(b). These actions “are filed under seal and remain that way for at least 60 days” to give “the government an opportunity to assess the relator’s complaint and decide whether to intervene and assume primary responsibility for prosecuting the case.” United States ex rel. Heineman-Guta v. Guidant Corp., 718 F.3d 28, 30 (1st Cir. 2013) (citing 31 U.S.C. § 3730(b)(2), (b)(4), (c)(1)). Regardless of whether the government intervenes, a relator is entitled to a portion of the proceeds from the lawsuit. 31 U.S.C. § 3730(d).

Coming Next in Part II:  Should There Be an Antitrust Division “Whistleblower Czar?”

Thanks for reading.  Please come back.  Bob Connolly  

[1]  To be honest, another reason there are so few criminal antitrust trials is the prohibitive cost and the draconian “trial penalty” a convicted defendant is likely to face for demanding his day in court.

[2]     It would be far more efficient if a whistleblower could simply provide the information he has to the government and cooperate in the investigation.  This is among the reasons Ms. Justice and I are advocating an SEC style whistleblower statute.

[3]     It is unquestioned that a scheme to rig bids not only violation the Sherman Act, but is a conspiracy to defraud the government where the government’s money is at stake.

[4]     31 U.S. Code § 3730 (d)Award to Qui Tam Plaintiff. — (1) If the Government proceeds with an action brought by a person under subsection (b), such person shall, subject to the second sentence of this paragraph, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action. Where the action is one which the court finds to be based primarily on disclosures of specific information (other than information provided by the person bringing the action) relating to allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government  Accounting Office report, hearing, audit, or investigation, or from the news media, the court may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation. Any payment to a person under the first or second sentence of this paragraph shall be made from the proceeds. Any such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.

[5]     https://www.justice.gov/atr/case-document/file/510616/download.

[6]     https://www.justice.gov/opa/pr/justice-department-settlement-requires-gunnison-energy-and-sg-interests-pay-united-states.

[7].   https://www.justice.gov/opa/pr/former-sea-star-line-president-sentenced-serve-five-years-prison-role-price-fixing-conspiracy.

[8]      US v. Frank Peake, Antitrust Division brief available at, https://www.justice.gov/atr/case-document/file/936611/download.