[In the near future there will be new leadership at the Antitrust Division.  But “near future” is a relative term so before I forget what I was thinking about, I offer this post. Bob Connolly, [email protected]]

When there is a new Assistant Attorney General for Antitrust she/he will no doubt have many new ideas for running the Division.  Attorney General Merrick Garland has a strong interest and background in antitrust and undoubtedly has also thought about the direction in antitrust enforcement he wants to see the Antitrust Division take.  Much of the discussion these days revolves around concerns about hi-tech, market concentration and a revisit of the Chicago School’s influence on civil antitrust enforcement.   The debate is important and fascinating but my experience is much more in the realm of cartels. I have some ideas that might be worth thinking about relating to the criminal antitrust enforcement program.

While I did have a long career in the Antitrust Division, I have also been out for a while now so these suggestions are modestly offered as simply some ideas I think are worthy of serious consideration.

1)         Reopen the Atlanta and Dallas Field Offices

2)        Support Legislation to Amend  the Sherman Act to Explicitly Make Price Fixing  and  Bid Rigging a Criminal Violation

3)         Support Senator Klobuchar’s Proposal to Provide a reward from Criminal  Antitrust Whistleblowers

4)         Establish an  Antitrust Division Office of  Whistleblower or Special Counsel for  Whistleblowers

5)         Clarify the Standards for Deferred Prosecution Agreements.

            Starting with the first recommendation–reopening two field offices–I will briefly explain why I think it is an idea worthy of serious consideration.

• Reopen the Atlanta and Dallas Field Offices

In late 2013, the Division closed down four regional field offices: Atlanta, Cleveland, Dallas, and Philadelphia.  The Division did not just lose regional coverage, but it lost a significant  number of experienced cartel prosecutors.  The regional offices that were closed were all in low(er) costs cities where dedicated cartel attorneys could stay with the DOJ as a career and still raise families.  Continuity and institutional memory suffered a big blow when a sledgehammer was taken to the Division’s structure.   While no one factor is responsible for the major decline in criminal antitrust prosecutions after the close of the field offices, this very bad decision certainly contributed.

There are two reasons why now is the right time to consider reopening the Atlanta and Dallas field office.  First, while the money is not in the bank yet, there seems to be bi-partisan support for a major increase in the Antitrust Division’s budget.  Secondly, field offices are well suited to support the Division’s focus on the Procurement Collusion Strike Force.  Establishing more local connections with the FBI and other federal agents and the various United  States Attorney’s offices was a prime strength of the regional field offices. Much of what the Procurement Collusion Strike Force is set up to do is what field offices did on an ongoing basis.  Long term relationships are very important.

Diversity in the Division is a worthwhile goal and regional diversity is also important.  Resurrecting two regional offices would give the Division the opportunity to create a more diverse workforce.  The South and Southwest are two very important areas in our nation’s economy and having offices in these regions can provide very important intelligence on economic trends important in the region, the judicial landscape, defense attorneys, local customs, and on. The previously closed field offices had all also brought major international cartel cases before they were closed.  The Dallas Field Office for example brought one of the earliest and largest international cartel cases:  Vitamins. (“The vitamin cartel is the most pervasive and harmful criminal antitrust conspiracy ever uncovered by the Division.”  https://www.justice.gov/atr/selected-criminal-cases-antitrust-division.  [This was written in 1999; before the auto parts cartel prosecution).

Thurman Arnold was perhaps one of the greatest, if not greatest, leader of the Antitrust Division.  Under Arnold, “Regional Offices were established throughout the country to uncover, investigate, and prosecute antitrust violations with an eye and ear to what was going on both locally and nationally.” Spencer Weber Waller, The Antitrust Legacy of Thurman Arnold, Loyola University Chicago, School of Law, (2004), available here https://lawecommons.luc.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1494&context=facpubs.  Closing four field offices was a very bad legacy.  Be like Thurman Arnold.   Build back better.  Rebuild the strong legacy of regional field offices.

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PS.     While the Cleveland and Philadelphia field offices were highly productive and did not merit being closed, they added minimal geographic diversity since a glance at the map shows their area is fairly covered by existing offices/sections.A more modest proposal for re-opening offices in Atlanta and Dallas has a better chance of catching on.

 

Thanks  for reading.

This Wednesday I will be among the speakers at a virtual event discussing whistleblowers and antitrust enforcement.  The Federal Bar Association Qui Tam Section is hosting a free Zoom roundtable on Wednesday, April 28^th at 12:00 noon Eastern on the False Claims Act and Antitrust Enforcement.  For more information and to register click here.

This is a timely program.  The Department of Justice has recently concluded an investigation/prosecution of bid rigging on Defense Department fuel contracts.  Several of the program speakers participated in this very successful matter.  In November 2018 the Antitrust Division and Civil Division announced that three South Korean oil refiners had agreed to plead guilty and to enter into civil settlements for rigging bids on United States Department of Defense Fuel Supply Contracts (here).  The investigation was started by a whistleblower filing a False Claims Act case.  The DOJ press release noted, “The United States’ False Claims Act civil investigation resulted from a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act.  Those provisions allow for private parties to sue on behalf of the United States and to share in any recovery.” Claims submitted for payment are “false” if the underlying contract has been fraudulently obtained by rigged. The government has entered into civil settlements of $205 million.  DOJ  Press  Release April 8, 2020 DOJ Agrees to Civil Settlement with Additional Firm Involved in Bid Rigging and Fraud Targeting Defense Department Fuel Supply Contracts for U.S. Military Bases in South Korea.  While the amount awarded to the whistleblower[s] who initiated the investigation is not known, at 15-25% of the total recovery, there was ample reward for coming forward and exposing the scheme.

This roundtable will examine the intersection of FCA and antitrust enforcement, including a discussion of DOJ coordination between the Antitrust and Civil Frauds divisions. What do antitrust cases look like, and how are they prosecuted and defended?  Our speakers represent all perspectives, with strong experience in both areas of law. The second half of the program will discuss the recently passed Criminal Antitrust Anti-Retaliation Act that provides protection for whistleblowers.  The panel will also discuss possible legislation that will expand the breadth of antitrust whistleblower options by providing a “bounty” for information that leads to criminal antitrust convictions and fines–much like the SEC whistleblower program.

This event is organized by the Qui Tam Section of the Federal Bar Association.

** OPENING REMARKS **

R. Scott Oswald
Managing Principal, The Employment Law Group, P.C.
Chair, FBA Qui Tam Section

** MODERATOR **

Rachel V. Rose
Principal, Rachel V. Rose – Attorney at Law, PLLC

** SPEAKERS **

Zachary Arbitman
Senior Associate, Youman & Caputo, LLC

Robert E. Connolly
Law Office of Robert E. Connolly

Kimberly A. Justice
Partner, Freed Kanner London & Millen, LLC

Bernard (Barry) A. Nigro Jr.
Partner, Fried, Frank, Harris, Shriver & Jacobson LLP

Andrew Steinberg
Senior Trial Counsel, U.S. Department of Justice

 

Sorry for the late notice posting about this event.  I hope you can Zoom in. For more information and to register click here.

Bob Connolly

 

I am sorry to report the passing of John J. Hughes.  John was the longtime Chief of the Philadelphia Office of the Antitrust Division, United States Department of Justice.  I  had the good fortune of working under John for many years until his retirement in 1994.  John was loved by all who worked for him as a great boss, priceless mentor, and dear friend.  We all owe him a great debt.

https://www.legacy.com/obituaries/inquirer/obituary.aspx?n=john-j-hughes&pid=198435951

After John “retired” he really spread his knowledge throughout the Antitrust Division, acting as a trial advisor for many staffs.  Over the next two decades I think John worked with staffs from every field office.  Trial is the most stressful event for a Division attorney and John was always a wise, calm, and supportive counselor.  John left a trail of friendships throughout the Division.  John was also well like and respected by defense counsel, Judges–anyone he came across.  I would not normally post an obit but John was a very special person and I know many people will be sad to read this but glad to remember John.

John had many successes as a lawyer.  Too many to mention.  In any event, people remember John not for the great work he did, but how he made people feel; appreciated and respected whether you were with the government or on the other side.  I will, however, honor John with mention of one matter he was the lead on– the legendary:

The Great Electrical Equipment Conspiracy

https://reason.com/1972/03/01/the-great-electrical-equipment/

D. ARMENTANO| FROM THE MARCH 1972 ISSUE

Undoubtedly the most celebrated price fixing antitrust case of modern times is the electrical equipment manufacturers price conspiracy, decided in 1961 (1). Involved were some of the nation’s largest and most prestigious firms, such as General Electric, Westinghouse, Allis-Chalmers, Federal Pacific, I-T-E Circuit Breaker, Carrier, and many others. The charges: that various employees of said firms had, between 1956 and 1959, combined and conspired to “raise, fix, and maintain” the prices of insulators, transformers, power switchgear, condensers, circuit breakers, and various other electrical equipment and apparatus involving an estimated $1.7 billion worth of business annually. (2)

A series of Philadelphia grand jury indictments was returned during 1960. After much discussion between the defendants and the Department of Justice, the firms were allowed to plead guilty to some of the more serious charges, and nolo contendere to the rest. On 6 February, 1961, Judge Ganey sent seven executives off to jail, gave 23 others suspended jail sentences, and fined the firms involved nearly $2 million. Subsequent triple damage suits brought against the equipment manufacturers by the TVA and private firms that had been “overcharged”, increased the financial penalty manyfold. And so ended the most publicized price conspiracy in all business history.

Farewell and thanks dear friend.

Bob Connolly   [email protected]

In the coming months there will be many proposals advanced to amend the Sherman Act.  My offering is to amend Section 1 with this text: “Price fixing, bid rigging and market/customer allocation are per se illegal.”  You may think the Sherman Act already says this.  It does not.  The text simply states “restraints of trade” are illegal.  The Supreme Court has held that these three words somehow created two distinct substantive rules of law: the per se rule and the rule of reason.  The Antitrust Division has argued successfully defended criminal antitrust convictions based on the per se rule arguing: “it is as if the Sherman Act reads price fixing and bid rigging are illegal.”[1]  But, the Sherman Act does not say that.  Because the statute does not set forth a per se rule, whether the agreement was a restraint of trade is an element of the offense.  There have been recent challenges to the constitutionality of the per se rule in criminal antitrust cases because the judge, not the jury, makes the finding of whether this element of the offense has been proven. The per se rule takes away from the jury the question of whether the agreement in question was a “restraint of trade.”  So far, the constitutional attacks on the per se rule have been rejected by trial and appellate courts based on clear precedent upholding the per se rule.  Two recent Supreme Court cases, however, have strengthened my view that a textualist reading of the Sherman Act will result in the Supreme Court finding that the Sherman Act does not create a per se rule.  It is for the jury to decide whether the alleged agreement (if proven) constitutes a restraint of trade.

There are three elements to Sherman Act Section 1 offense 1) an agreement, 2) in restraint of trade and 3) in interstate or foreign trade or commerce.  The Sixth Amendment provides that those “accused” of a “crime” have the right to a trial “by an impartial jury.” This right, in conjunction with the Due Process Clause, requires that each element of a crime be proved to the jury beyond a reasonable doubt, including whether the agreement restrained trade.[2] Under the per se rule, however, once the court makes the factual determination that the per se rule applies, the jury is instructed that the government has proven a restraint of trade beyond a reasonable doubt because price fixing is per se illegal.  This violates the Constitution. I have made the argument more fully, if not to the readers’ mind successfully, in several articles:  The End is Near For the Per Se Rule in Criminal Sherman Act Cases, March 20, 2019 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3356731 and In the Clash Between the Venerable Per Se Rule and the Constitution, the Constitution Shall Prevail (in time), Robert E. Connolly, Competition, Spring 202, Vol 30, No. 1.  Two fairly recent Supreme Court cases that have nothing to do with the Sherman Act, however, further convince me that the Supreme Court will find the per se rule in criminal cases unconstitutional.  The Court will agree that the text of Section 1 of the Sherman Act does not set forth a per se rule and therefore, it is the jury that must decide whether the charged agreement restrained trade.

In Facebook v. Duguid, et al., No., 19-511, (April 1, 2021) the Court held that to qualify as an “automatic telephone dialing system” under the Telephone Consumer Protection Act of 1991, a device must have the capacity either to store, or to produce, a telephone number using a random or sequential number generator.  The ruling was a result of a textualist reading of the words of the statute.  Justice Sotomayor writing for a unanimous Court explained, “We begin with the text.”  After concluding that the text of the statute required the holding the Court reached, Justice Sotomayor concluded: “Duguid’s counterarguments cannot overcome the clear commands of §227(a)(1)(A)’s text and the statutory context.”

In Bostock v. Clayton County, 140 S. Ct. 1731 (2020) Justice Gorsuch prohibited anti-LGBTQ employment discrimination on a textualist reading of Title VII of the Civil Rights Act.  The holding, surprising to some, was clearly a result of a textualist approach to the statute.  Justice Gorsuch wrote: “When the express terms of a statute give us one answer and extratextual considerations suggest another, it’s no contest. Only the written word is the law, and all persons are entitled to its benefit.” Id. at 1737.  Duguid and Bostock are only two of numerous recent Supreme Court cases where the decision was based on the plain text of the statute, notwithstanding policy and/or legislative history arguments.

A little quiz makes the point that the text of the Sherman Act does not set forth a per se rule and a rule of reason.

Question 1:    What do the words “restraint of trade” mean to you?

1. a reduction in competition
2. a suppression of trade
3. “1” and/or “2”
4. the creation of two distinct substantive rules; a per se rule and a rule of reason

As mentioned, the Antitrust Division has successfully swatted back previous challenges to the Sherman Act Section 1 convictions by arguing “It is as if the statute read….”  The Supreme Court has endorsed this view, writing that Section 1 “prohibit[s] only unreasonable restraints of trade” and that a restraint is unreasonable if it violates either of two substantive rules of law—the rule of reason or the per se rule. Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988).  But these rules were established in cases where the constitutional question of the per se rule in a criminal Sherman Act case was not before the Court.  The cases were not argued to and decided by a textualist Supreme Court.  To defend the per se rule before the current Supreme Court arguing “it is as if the Sherman Act read…” would be like arguing as if the advocate had not read a Supreme Court case in the last decade or so.  It would be as if that advocate did not didn’t know, as Justice Kagan has said, “We are all textualists now.”[3]

The textualist problem would be solved by amending the Sherman Act, either as a stand-alone bill or as part of any amendment to the Sherman Act, to read, “Price Fixing, bid rigging and market/customer allocation are per se illegal.”  Even if you are not convinced there is a constitutional defect in the per se rule, it is not better to argue the Sherman Act does read this way rather than “as if” it did?  This amendment would have bi-partisan, and perhaps unanimous, support, so why not?

Thanks for reading

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[1] United States v. Brighton Building & Maintenance Co., 598 F.2d 1101, 1106 (7th Cir. 1979).

[2]  The per se rule is a wonderful tool for prosecutors, which I myself used in many criminal cases when I was a prosecutor with the Antitrust Division.  I feel confident, however, that very few cases would have turned out differently if the jury, not the Court, decided whether the price fixing or bid rigging agreement in question was a restraint of trade.  Criminal jury trials almost always involving the defendants denying there was an agreement.  Admitting there was an agreement (which is secret, not in writing, often spoken of in code words, etc.) and arguing the collusion was somehow not a restraint of trade would be a defense only in rare cases where the proof of the agreement was beyond dispute.  Still, amending the Sherman Act to state that price fixing and bid rigging is per se illegal is befitting cartels: “the supreme evil of antitrust.”

[3]   Jimmy Hoover, Law 360, September 13, 2016, Scalia Won Battle over Statutory Interpretation, Kagan Says, available at, https://www.law360.com/articles/839739/scalia-won-battle-over-statutory-interpretation-kagan-says.  Justice Elena Kagan explained at a discussion at George Washington University in 2016:

     “Almost all of the justices have moved 80 percent the way toward is position.  I think what he convinced most people was that text matters profoundly in statutory interpretation…. When we do statutory interpretation, it’s not the statute that we would have written.  What matters is the statute they wrote.  We’re and agent of Congress and we’re bound by the statute that they wrote.”

 

Bob Connolly     [email protected]

In late 2019 the European Union issued a Directive requiring comprehensive and coherent protection of whistleblowers.  The twenty-seven Member States have until December 2021 to incorporate the Directive into their national legislation.  The member states are required to provide protection from retaliation for whistleblowers but not a system of monetary reward.  Conversely, in the United States, Senator Amy Klobuchar recently proposed sweeping antirust reform legislation including a proposal to “establish a bounty system to reward criminal whistleblowers for providing evidence in antitrust cases resulting in the collection of a criminal fines.” Cartel Capers, February 4, 2021, Senator Klobuchar Unveils Wide-Ranging Antitrust Reform Legislation.  The lack of whistleblower rewards, at least for cartel whistleblowers, is a missed opportunity to reenergize cartel detection and further deter their formation in the first place.

Background

The DIRECTIVE (EU) 2019/1937 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 October 2019 on the protection of persons who report breaches of Union law covers potential whistleblowers across many sectors and potential infractions including whistleblowers who report breaches of competition law:

• Preamble Paragraph 17:

“Specifically, the protection of whistleblowers to enhance the enforcement of Union competition law, including concerning State aid, would serve to safeguard the efficient functioning of markets in the Union, allow a level playing field for business and deliver benefits to consumers. As regards competition rules applying to undertakings, the importance of insider reporting in detecting competition law infringements has already been recognized in the leniency policy pursued by the Commission under Article 4a of Commission Regulation (EC) No 773/2004 (27) as well as with the recent introduction of an anonymous whistleblower tool by the Commission. Breaches relating to competition law and State aid rules concern Articles 101, 102, 106, 107 and 108 TFEU and rules of secondary law adopted for their application.”

The nature of the protection for whistleblowers is set forth in the Directive:

• Protection Measures, Article 19–Prohibition of Retaliation

Provides Member States “shall take the necessary measures to prohibit any form of retaliation against persons referred to in Article 4, including threats of retaliation and attempts of retaliation including in particular in the form of: (a) suspension, lay-off, dismissal or equivalent measures; (b) demotion or withholding of promotion; (c) transfer of duties, change of location of place of work, reduction in wages, change in working hours; [and a lengthy list of other forms of retaliation.]

The EU Directive does not discuss why the provision of a potential monetary award for whistleblowers is not part of the Directive.  An article in the Wall Street Journal, March 15, 2021, by Mengqi Sun, With Its Whistleblowing Directive, EU Charts a Different Course From U.S. offers possible explanations behind the decision not to make potential whistleblower rewards part of the required EU scheme for whistleblower protection:

“European authorities are seeking to set up a minimum standard for whistleblower rules across EU member states, but they don’t favor paying for tips—a key part of an SEC program widely seen as a success.”  The article discusses two reasons why the EU may not favor providing the potential for whistleblower rewards:

• Financial rewards are unnecessary “because the main factors that drive people to blow the whistle are moral considerations, such as concerns over fairness or others’ well-being, rather than pragmatic or personal ones, such as job satisfaction or career benefits.”
• “Julia Arbery, a partner at global advisory company StoneTurn in Germany, said the EU might be concerned that paying for tips would clash with another part of its agenda: improving organizations’ internal compliance. “The idea behind the EU directive is to encourage individuals to report internally from organizations, and only should they feel like the internal reporting is not helpful, should they go outside,” Ms. Arbery said.”

My Thoughts

             I think the EU Directive is severely weakened by not proving for a potential whistleblower reward for cartel exposure (though individual members may provide for a monetary award and some already do). The EU recognizes the enormous risks whistleblowers take:

“Whistleblowers shouldn’t be treated unfairly or lose their job because of their actions, but as a general rule, whistleblowers who report wrongdoing do so at considerable personal risk and pay a high personal and professional price.

There are huge asymmetries between whistleblowers and corporations or national authorities. Corporations will use all the tools at their disposal to hit back against whistleblowing, from invoking trade secret law, to inquiries into individual motives for public interest whistleblowers. The cost of legal proceedings alone reveals the huge imbalance of power.” (here).”

It is unfortunate to recognize the tremendous risk and expense and whistleblower takes and yet not provide an avenue for potential compensation.  Simply putting a whistleblower back to the position, they had before they blew whistle–if they can prove retaliation–would seem to provide little incentive for coming forward.  This is currently the situation in the United States with the recent passage on the Criminal Antitrust Anti-Retaliation Act.  see “On Dec. 23, 2020, the Criminal Antitrust Anti-Retaliation Act (the “Act”), finally became law Cartel Capers, February 1, 2021.  Providing a whistleblower reward is a needed incentive so that if retaliation is successful, yet not readily provable, the whistleblower can have financial resources to deal with the fall out.  Moreover, the award of a whistleblower payment by the EU or United States gives credibility to the whistleblower to show they expressed valid concerns and they are not just a troublemaker, crackpot, or disgruntled employee.

Another reason that just being a good citizen likely would not be enough to encourage a potential whistleblower is the expense involved.  Anyone exposing a cartel is likely to be interviewed many times, and perhaps by many authorities in different locations.  It would likely be a big mistake to engage with the authorities without counsel.  The cooperation could span many years and jurisdictions.  The whistleblower will have attorney fees–likely very significant fees.  It is asking a bit much for a good citizen to come forward and also take on the financial burden.

The second possible objection mentioned in the WSJ article to whistleblower rewards is a concern that this might undermine corporate compliance programs.  My view is the opposite. A robust whistleblower program with a potential bounty would be a strong incentive to increase internal compliance measures.  The increased threat that a cartel could be exposed by whistleblower should lead companies efforts to insure there is no cartel on which to blow the whistle, or if there is, it is uncovered by the compliance program. At least with respect to cartels, public policy should favor the whistleblower to come to the authorities first because there may be opportunities for covert investigation such as consensual monitoring, wiretaps, and/or search warrants/dawn raids. The Antitrust Division now recognizes serious compliance program in its charging decisions.  If the target company had a vigorous compliance program despite the breach, the Antitrust Division may even, should they choose to, offer the whistleblower’s company Corporate Leniency to break an investigation wide open.

Note:   The UK’s Financial Conduct Authority is also encouraging whistleblowers to come forward, but also without the potential for a monetary reward.  See, Wall Street Journal, Mengqi Sun, March 26, 2021, U.K. Financial Regulator Pushes for More Whistleblowing.  However, the UK’s Competition and Markets Authority “offers financial rewards of up to £100,000 (in exceptional circumstances) for information about cartel activity.”

 

           I attended the 2021 ABA Antitrust Law Section Spring Meeting that was held over March 22-26, 2021.  Once again, and hopefully the last time, the meeting was held virtually but it was as good as a virtual meeting could be in my humble opinion.  The programs and structure were pretty much the same as the in-person Spring Meeting with a wide range of topics.  While I tend to favor the cartel related programs, I never miss what is titled “The Chair’s Showcase.”  This program always features thought leaders in the field who work hard to put on an engaging panel.  This year was no exception.  The current big cases like Google and Facebook, the plethora of antitrust related Congressional hearings and proposed legislation and the new (or more heard voices) in the field remind me of when I first started in antitrust in 1980.  At that time the Chicago school was upending much of what I had just learned in law school about antitrust.  Now, the Chicago School is facing a serious challenge.  I do not know what the future of antitrust is [I’m a simple cartel guy and the per se rule has enabled me to get by on limited brainpower] but I am excited as heck to watch it unfold.  Below is the program outline from the ABA materials–and the program delivered.

The Chair’s Showcase: The Future of Antitrust

 Description

Antitrust is at an inflection point. Voices across the political spectrum are asking: Is new antitrust legislation needed? If so, what should it look like? The Chair’s Showcase is the culmination of the Section’s yearlong exploration of the theme of The Future of Antitrust. Hear from these thought leaders about the prospect of legislative reform and what it might mean for antitrust enforcement.

             It was a great program and the 70^th Annual Antitrust Spring Meeting next year promises to be a most memorable event.  The virus will be gone (hopefully) and I will still be here (again, hopefully) so I am already looking forward to this event.

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Speaking of excellent programs, I’d also like to put a plug in for the California Lawyers Association Antitrust and Unfair Competition Law Section annual program–the Golden State Institute:

31st Annual Golden State Institute

Please save the date for the 31st Annual Golden State Institute on November 17-18, 2021!

This annual marquee event sponsored by the Antitrust and Unfair Competition Law Section promises expert panels on front page issues and cutting-edge legal developments, along with the unrivaled socializing and networking opportunities the Antitrust and Unfair Competition Law Section is renowned for. 2021 also marks the return of the Section’s star-studded California Antitrust Lawyer of the Year events. Don’t miss out!

Bob Connolly   [email protected]

The Department of Justice’s Antitrust Division today issued the 2021 edition of its annual Spring Newsletter. The newsletter highlights the division’s recent activities and successes on civil and criminal enforcement, diversity initiatives, international cooperation, and competition advocacy.  The newsletter highlights the division’s accomplishments and features profiles of division staff. It can be found at https://www.justice.gov/atr/division-operations/division-update-spring-2021.

With respect to Criminal Enforcement, the newsletter contains the following bullets:

• Generic Drugs Investigation Targets Anticompetitive Schemes
• PCSF Expansion and Early Success
• Investigation Into Procurement Irregularities at the Department of Energy Strategic Petroleum Reserve Results in Guilty Plea and Indictment 
• North Carolin Drainage Investigation Leads to Grand Jury Indictment for Bid Rigging and Fraud. 

ADDITIONAL NOTE From ABA Antitrust Section Spring Meeting

At the ABA Antitrust Spring Meeting today, Marvin Price, Director of Criminal Enforcement, Antitrust Division, USDOJ emphasized that labor market cases (wage fixing and allocation agreements) continue to be  high priority for the Division.  Mr. Price noted that these collusive employer agreements cause real harm to employers who are directly affected in the wages they earn or the opportunities open to them.  I couldn’t agree more!  See, Cartel Capers, April 18, 2018,  Employee No-Poach Agreement Compliance Message:  Knock it Off!  Now!!; Cartel Capers, December 17, 2020 A Look Back at the Road to the Antitrust Division’s First Criminal Wage-Fixing Case.

Thanks for reading.

Bob Connolly    [email protected]

The last several Antitrust Division, DOJ press releases for criminal case filings may appear to be out of place if you are not familiar with the history of Division’s occasional foray into bringing non-Sherman Act cases.  None of the last four criminal cases brought by the Division contain a charge of violating the Sherman Act:

• South Korean National Pleads Guilty to Scheme to Defraud U.S. Department of Defense   DOJ Press release:      March 11, 2021

“From at least as early as February 2015 until at least June 2018, Jo submitted hundreds of falsified or materially altered laboratory reports, misrepresenting to U.S. military officials that laboratory testing and analysis had been performed on samples taken from U.S. military installations located in South Korea, when, in many cases, no such testing was performed. As part of the scheme, Jo emailed the forged laboratory reports and invoices seeking payment for those reports to the Department of Defense, causing the Defense Financial Accounting Service to wire more than $280,000 in payments.”

• Construction Company Owners Pleaded Guilty to Defrauding Federal Program Intended for Service-Disabled Veteran-Owned Small Businesses    DOJ Press Release:      March 5, 2021

“Michael Wibracht of San Antonio, Texas, the former owner of several companies in the construction industry, conspired to defraud the United States in order to obtain valuable government contracts under programs administered by the U.S. Small Business Administration (SBA) for which neither his nor his co-conspirators’ companies were eligible. One co-conspirator, Ruben Villarreal, also of San Antonio, pleaded guilty on Nov. 20, 2020, to participating in the same conspiracy.”

• Louisiana Man Charged With Conspiracy to Defraud the Government and Violate the Procurement Integrity Act and Lying To Federal Agents   DOJ Press Release:      February 25, 2021

“According to the indictment, Guillory conspired with Cajan Welding & Rentals, Ltd., and other unnamed co-conspirators to defraud the United States by corrupting and impairing the government procurement process, and by obtaining non-public pricing and cost information in order to obtain subcontract awards and payments from the U.S. Department of Energy in connection with its operation of the nation’s Strategic Petroleum Reserve.”

• Foreign-Language Training Companies Admit to Participating in Conspiracy to Defraud the United States     DOJ Press Release:      January 19, 2021

“According to court documents, as part of the conspiracy, Berlitz and CLCI facilitated the submission of false and misleading bid information to the NSA.  As a result, competition was suppressed among legitimately qualified bidders for the contract, obstructing, by dishonest means, the government’s ability to benefit from a competitive bidding process.”

The Antitrust Division and Non-Sherman Act Cases

            Within the Department of Justice, the Antitrust Division is charged with bringing Sherman Act cases.  For criminal cases that is usually 15 U.S.C. § 1.  The United States Attorney’s Office and the Criminal Division of the USDOJ have jurisdiction over all other crimes in Title 18 of the U.S. Code.  The FTC does not have authority to bring criminal cases.  These lines, however, are not inflexible.  The Antitrust Division has typically brought criminal  charges for obstruction/perjury offenses related to one if its investigations.  The Antitrust Division, as far as I recall, also started added mail fraud counts in the early days of the road construction cases in the late 1970’s.  The fraud counts were related to the bid rigging such as the mailing of invoices for payment on a bid fraudulently obtained.  The Division also often adds Conspiracy to Defraud the United States (18 U.S.C. § 371) counts in bid rigging cases where the victim was the United States government.  Since bid rigging is a form of fraud, almost any bid rigging case allows for related Title 18 charges.  When these counts are added it is typically to highlight the fraudulent nature of the scheme to a jury, and to possibly obtain higher jail sentences.  The downside of adding fraud counts is that fraud charges require proof of specific intent, a higher bar than the general intent required under the Sherman Act. There are also occasions when the United States Attorney’s office charges a bid rigging scheme without a Sherman Act count, as a conspiracy to defraud.  This may happen when there is also some public corruption involved in the scheme.

There have also been other occasions where the Antitrust Division may bring a criminal charge unrelated to the Sherman Act.  If the Division conducts an investigation which uncovers a federal crime unrelated to competitor collusion a decision may be  made, with the blessing of the relevant United States Attorney’s office, to bring the case. During my time with the Antitrust Division I was involved in a tax fraud case and a charge of obliterating the foreign markings from goods that were then sold to the US government as made in the USA.  Obviously these charges were far afield from bid rigging but once the conduct was discovered it was more efficient to have the Division lawyers handle the case–and there was hope that the leverage might induce a witness to cooperate. These kinds of cases, however, occur infrequently.

Something else is at work, however, with the recent string of non-Sherman Act cases brought by the Division.  In 2019, the Antitrust Division established the Procurement Collusion Strike Force:  a coordinated national response to combat antitrust crimes and related schemes in government procurement, grant, and program funding at all levels of government—Federal, state, and local.  A feature of the program is outreach to federal agents across the gamut, FBI, Defense Dept investigators, EPA, etc.  Division lawyers talk to agents and procurement officials about criminal antitrust violations, what some of red flags are, and maybe most importantly, that Antitrust Division lawyers are interested in leads and will work with the agents to try to develop cases.  What often happens, however, is that agents have leads on some other form of bidding corruption (i.e. bribes to a procurement official) which are pursued in the hopes that evidence of competitor collusion will also develop.  Sometimes that happens, often it does not.  As mentioned above, sometimes with the blessing of the relevant US Attorney’s office, the Antitrust Division will bring the non-Sherman case with the justification that, like competitor collusion, the conduct at issue involves “corruption of the bidding process.”  And occasionally, as mentioned above, a criminal violation is uncovered that is not even related to bidding, but if indictable evidence was gathered, the case is brought.  I assume the case above where the South Korean was charged with submitting fraudulent test results fits into this category.  Once an agent has devoted her time to developing an indictable case, barring some unusual circumstances, that case will/should be brought or you will not hear from that agent again.

There are pros and cons to an aggressive government procurement effort. The current Procurement Fraud Strike Force is essentially a rebranding of previous such efforts.  A similar effort was made in the Obama Administration after the financial crisis of 2018, called the Recovery Act Initiative, aimed at training government officials to prevent, detect, and report efforts by individuals to unlawfully profit from the stimulus awards.  The Division has also participated in broader DOJ procurement fraud task forces such as the Hurricane Katrina Task Force.  In October 2006, the DOJ formed, and the Division participated significantly in a similar National Procurement Fraud Task Force, which successfully targeted U.S. military procurement fraud related to conflicts in Iraq and Afghanistan. In less than three years, the efforts of the National Procurement Fraud Task Force led to more than 35 criminal convictions. Moreover, before the number of field offices was drastically cut during the Obama administration, field offices and the DC based criminal section, as a matter of course, aggressively worked with agents to try to develop procurement fraud cases.  This effort is described in a document the Antitrust Division submitted to the OECD: OECD Roundtable on Public Procurement Outreach and Training.  While the emphasis has varied in intensity over time, government procurement cases have always been a significant focus of the Antitrust Division.

The Pros and Cons of Bringing Non-Sherman Act Cases

            The benefits of bringing the Antitrust Division bringing non-Sherman Act cases are many.  Briefly, an obvious reason for bringing such cases is that there is more than one way to defraud the government–and if indictable evidence is developed, a case should be brought as a matter of public policy. Bringing non-Sherman act cases, especially those that can rightly be characterized as “corruption of the bidding process” are a near necessity in a functioning relationship with investigative agencies since investigating collusion will often lead to evidence of other crimes.  Agents rightly want all indictable cases brought and will not look to the Division as partner if only Sherman Act cases are brought.  Sometimes it is appropriate to transfer and non-antitrust case to the US Attorney’s Office but it is often more efficient to leave the matter with the staff that helped develops the case.  These types of cases are also excellent training for Division attorneys.  They tend to be smaller cases with less meddling, (I mean oversight) from the front office.  The staff appreciates the sense of ownership  that comes from developing a case and seeing it to the end.  Also, speaking for myself, as a taxpayer I was particularly interested in prosecuting cases where tax money was pilfered by fraud.

The arguments against bringing non-Sherman Act cases, and one that has carried the day at times, is that it is not an efficient use of Antitrust Division resources.  Even small cases can consume large resources.  The rationale for a separate Antitrust Division is to develop expertise in that area and when the Division strays from its fundamental purpose it can undercut the reason for the Division’s separate existence.  It can also make requests for funding more difficult if it appears there is excess capacity in the Division such that non-Sherman Act cases can be pursued.

Balance is the Best Policy

            During my tenure in the Antitrust Division there were various policies with respect to bringing non-Title 18 cases.  The norm was that you could not open a grand jury investigation without a legitimate lead involving competitor collusion.  If, however, during the investigation another violation became readily indictable, that case would be pursued–after consulting with the relevant US Attorney’s office.  At other times, such as with the establishment of a procurement task force, the door for opening a grand jury became a little wider: not necessarily collusion between competitors but “corruption of the bidding process.”

Unfortunately (from my perspective) on at least two occasions while I was Chief of the Philadelphia Office, the front office did a complete turn around and ordered all non-antitrust investigations closed.  The rationale was that if we had available resources they should be deployed to larger cartel cases, and if we didn’t have larger cartel cases, the resources should be deployed looking for them. The main problem with this change of course was that after spending time and resources developing relationships with agents, and developing cases, everything was dropped.  This was not good for morale, either with Division attorneys who felt blindsided or with investigative agents who felt, justifiably, that their efforts were for naught.

I’m interested to see how the new administration views the current Procurement Fraud Strike Force.  I hope the emphasis on collusion in government contracting will remain.  Depending on the workload of the Division, it may be that marginal non-Sherman Act cases will be dropped, or significant ones handled by the US Attorney’s office.  Tweaks in resources allocation, however, can be made without abandoning the entire focus on government procurement. With trillions of dollars being pumped into the economy, the potential for government procurement fraud remains high.

The best way to insure the continuation of the government procurement effort is to maintain a vigorous enforcement against cartels that target the consumer in general.  Sandwiched between the press releases announcing non-Sherman Act criminal case filings was this press release:

First Corporation Pleads Guilty in Ongoing Criminal Antitrust Investigation into the Broiler Chicken Industry

DOJ Press Release:      February 23, 2021

“Pilgrim’s Pride Corporation (Pilgrim’s), a major broiler chicken producer based in Greeley, Colorado, has pleaded guilty and has been sentenced to pay approximately $107 million in criminal fines for its participation in a conspiracy to fix prices and rig bids for broiler chicken products, the Department of Justice announced today.”

As long as the Antitrust Division is actively bring the intentional/national cartel cases, there should be room for the government procurement cases to continue as well.

 

 

 

 

Bob Connolly   [email protected]

[I am aware that I post often about the desirability of criminal antitrust whistleblower incentives. The blog post below relates to an article I had published recently in Law 360.  Not everyone subscribes to Law 360, which I recommend, so I have excerpted a small portion in this blog post.]

There are a number of reasons to expect  increased criminal antitrust enforcement in the new administration.  One reason may be the activity in the pipeline from the previous administration. The Antitrust Division has reported a very robust number of active grand jury matters. The Procurement Strike Force has been underway for some time–and it takes times to see the full effect of those efforts. It can also be expected that the Antitrust Division will see a reasonable, and perhaps significant increase in funding. The antitrust reforms proposed by Senator Amy Klobuchar call for  significantly greater resources for the Antitrust Division.  See https://cartelcapers.com/blog/senator-klobuchar-unveils-wide-ranging-antitrust-enforcement-legislation/.  And the COVID pandemic, unfortunately, may be providing temptation for collusion.  As of September 1, 2020, roughly $2.59 trillion in new budgetary resources have been made available for federal agencies to respond to the pandemic. President Biden is seeking an additional $1.9 trillion. The Antitrust Division has long recognized that times of crisis can bring out the best, and worst, in companies and people. In the aftermath of Hurricanes Harvey and Irma in 2017 the Antitrust Division and FTC issued a joint statement on Antitrust Guidance that included this: “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.”

This is an ideal time to add  another tool for exposing covert conspiracies to the Antitrust Divisions’ arsenal: legislation that gives the Antitrust Division the same whistleblower incentives that has skyrocketed SEC prosecutions.  I recently had an article published on Law 360, DOJ Should Take Cue From SEC On Whistleblower Incentives.  The article describes a hypothetical situation facing a potential criminal antitrust whistleblower given the current situation of no potential financial reward:

But, to illustrate why a cartel whistleblower statute — bait — is needed to lure little fish, consider hypothetical Bill. Hypothetical Bill was recently hired as director of marketing for a large regional hospital system. Shortly after he started, the hospital CEO told Bill that there is an understanding with other health care providers to “stay in their lanes” in terms of patient services. This, according to the CEO, is done to provide more efficient services to patients. Bill is given a handwritten list of his counterparts and told to call and introduce himself. After making a round of calls and getting together for one meeting, Bill begins to understand that this is illegal collusion.

Bill consults a lawyer who tells Bill he can represent him and contact the government and he will likely be able to negotiate an immunity/cooperation agreement. But negotiations take time and likely require multiple trips by Bill and his lawyer to visit the prosecutors for interviews. This will be expensive. Obviously Bill’s employer will not be paying for his travel, lawyer fees, etc.

The Antitrust Division may ask Bill for emails/records to corroborate his story. Bill may be called upon by state authorities to appear for interviews. Besides the time and expense of cooperation, Bill’s attorney tells him he will likely be fired by the hospital when it learns of his cooperation — after all, it is shocked he was talking to competitors. Bottom line: “Bill, going to the government will incur hefty legal fees, possibly make you non-employable in your field and be a very unpleasant experience. What would you like to do?” Bill will almost certainly not expose the collusion. He could go to the hospital’s compliance counsel, but, since the CEO is involved in the illegal activity, Bill is guessing that he, not the CEO, will regret his internal reporting. At best, Bill will leave his job, get out the situation and keep quiet. Most likely, Bill will think of how his family needs the money from the new job, stay in the job and hope for the best. After all, even if the collusion gets exposed some other way, isn’t there a chance he could get immunity then? And, if Bill is a bit delusional, he may think, “”I was just following orders; the hospital will take care of me if anything happens.” Bottom line: Bill does not expose the cartel.

Now, imagine the Antitrust Division enjoyed SEC-like tools to encourage whistleblowers. Bill’s lawyer friend tells him that many of the bad things that can happen to a whistleblower may happen to Bill anyway, but the lawyer will work on a contingent fee basis and Bill may recover a substantial financial award if a case is successfully brought. Bill may even be able to stay anonymous throughout the entire process. The government will likely grant immunity in return for Bill’s full cooperation, which may even include asking Bill to record conversations. Since Bill’s potential award is based on the level/value of his cooperation and risk, Bill has an incentive to consider this cooperation.

In this scenario, Bill decides to cooperate and become a whistleblower. He gives the Antitrust Division what it needs to obtain a search warrant on Bill’s hospital. With a warrant in its pocket, the Antitrust Division asks for a meeting with the hospital’s counsel. At the meeting, government lawyers explain that the hospital has 3 days to get a leniency marker in before the investigation goes public and search warrants are executed. The hospital folds, the CEO, previous director of marketing and other hospital employees agree to cooperate under the leniency.

Bill’s cooperation as a whistleblower is never known, except by his banker if cases are brought and fines imposed. Of course, things may not always work out so well. The Antitrust Division will often receive nonactionable information. In some case, however, such as large international cartels with many potential whistleblowers, the results may be spectacular.

Is this an unrealistic example?  I don’t think so.  Senator Klobuchar’s sweeping proposals call for the establishment of antitrust whistleblower rewards.  I look forward to discussion in the coming months about whether incentives for criminal antitrust whistleblowers is a good idea, and if so, what the legislation should look like.

Thanks for reading.

PS        The Criminal Antitrust Anti-Retaliation Act became law at the end of 2020, but, while  helpful, standing  alone it will not do much to incentivize whistleblowers. See, https://cartelcapers.com/blog/an-update-on-criminal-antitrust-whistleblower-legislation/.

 

Bob Connolly   [email protected]    LinkedIn

The ABA Antitrust Law Spring meeting will, unfortunately, be virtual again this year.  This is disappointing to me as I have gone every year for, well, a very long time. I enjoy seeing old friends, making new ones, and getting away for a few days to DC. But as I was looking through the meeting program, a silver lining jumped out to me–especially for students.  Because the meeting is virtual, the program cost is greatly reduced for everyone.  For students it is just $25 until 2/5 (today) but only $50 thereafter. And, of course, there are no travel expenses.

If you are a student interested in antitrust, or just interested in learning more about antitrust and big tech, merger law and/or many other subjects that are currently in the news, this is a great opportunity to participate/learn in a uniquely economical way.  I love the ABA Spring Meeting for the diversity in topics and the quality of the panels. I always leave the Spring Meeting in awe of how smart and committed to competition this group is and how lucky I am to be a part of it.  Given the “low barriers to entry” I wanted to suggest students consider this opportunity. It may lead you to a career in a field you’ll never regret.

https://bit.ly/2JQgZpz?fbclid=IwAR3RMnEIhCmiejDZO_JmP9_CBMPqFQHtA0eD0jyQbQQT8VKMW4THDnvyl2s

Hope to see you on line.