Criminal Antitrust Update - September 2011

    9 September 2011


    Banking Industry: UBS AG was granted limited immunity related to an alleged conspiracy to manipulate the London Interbank Offered Rate (LIBOR). LIBOR is a benchmark used to set short-term interest rates around the world. The Department of Justice (DOJ) is currently investigating banks that assist the British Bankers’ Association in setting the LIBOR, including Bank of America NA, Citigroup Inc. and Barclays Capital Inc. UBS also received limited immunity for conduct relating to attempts to manipulate the Tokyo Interbank Offer Rate (TIBOR), a short-term interest rate benchmark for the euro and yen calculated using bank submissions to the Japanese Bankers Association. UBS’s limited immunity only concerns the bank’s conduct with respect to the LIBOR and TIBOR and hinges on UBS’s continued assistance to regulators in the investigation. UBS has publicly stated that the immunity may also limit its civil liability to actual damages and not punitive damages. The European Union (EU), UK and Japanese antitrust regulators are also conducting similar investigations into bank manipulation of the LIBOR.

    Auto Safety System Parts: DOJ subpoenaed the U.S. division of French corporation Valeo SA recently in its investigation of possible cartel behavior among auto equipment manufacturers. DOJ has also subpoenaed TRW Automotive Holdings Corp., based in Michigan, as well as Autoliv Inc., based in Sweden. Both TRW and Autoliv were among the auto equipment manufacturers raided by EU antitrust regulators in June 2011.

    Further, Japanese antitrust authorities raided four manufacturers of industrial bearings for alleged violations of Japan’s anti-monopoly laws. Industrial bearings are used to reduce friction at mechanical joints in the automotive industry as well as other industries such as construction and mining. The four manufacturers are NSK, Ltd., NTN Corp., JTEKT Corp. and Nachi-Fujikoshi Corp.

    Watch Supply Parts: EU antitrust regulators have initiated an investigation of luxury watch manufacturers based on claims that the manufacturers refused to supply spare parts to independent watch repair businesses. Swatch Group AG, based in Switzerland, is one of the companies under investigation. The EU investigation stems from a 2004 complaint by the European Confederation of Watch & Clock Repairers’ Associations (CEAHR) that claimed the manufacturers’ parts policies threatened to drive independent watchmakers out of business, given the lack of alternate sources for these spare parts. EU competition laws prohibit abuse of dominance by a market player as well as restrictive agreements that harm competition.


    While this is a rare case, it exemplifies the seriousness of all dealings with DOJ and the care with which companies must comply with a civil subpoena, investigative demand or other disclosure requirement.

    In an unusual case, DOJ recently obtained a guilty plea for obstruction of justice by a company accused of altering and falsifying documents before submitting the documents to DOJ pursuant to a routine pre-merger review. While this is a rare case, it exemplifies the seriousness of all dealings with DOJ and the care with which companies must comply with a civil subpoena, investigative demand or other disclosure requirement.

    Nautilus Hyosung Holdings, an automated teller machine (ATM) manufacturer, agreed to plead guilty and pay a $200,000 criminal fine for submitting false documents to U.S. regulators. Nautilus is a subsidiary of Korea-based Nautilus Hyosong Inc. (NHI). The false documents were submitted by NHI, as parent to Nautilus Hyosung Holdings, to DOJ in connection with a pre-merger filing. NHI sought to acquire a competitor, Triton Systems of Delaware Inc. Pursuant to the Hart-Scott-Rodino Antitrust Improvement Act (HSR Act), companies seeking to acquire another company or otherwise merge must, depending on the value of the transaction, submit a pre-merger filing to the DOJ and Federal Trade Commission (FTC) with specific information and documents about the merger or acquisition and the market involved.

    According to DOJ, in July 2008, NHI intentionally submitted false documents that “misrepresented and minimized the competitive impact of the proposed acquisition in the market for ATMs in the United States.” DOJ opened a civil merger investigation of the proposed acquisition before it learned that NHI falsified documents. NHI then submitted additional false documents in response to DOJ’s request for more information. NHI agreed to plead guilty to two counts of obstruction of justice, which carries a maximum criminal fine of $500,000 per count. DOJ agreed to a lower criminal fine based on NHI’s stepping forward and voluntarily admitting to falsifying documents and assisting DOJ with its investigation of the acquisition. The parties have since abandoned the acquisition.


    The USAM expressly states that “prosecutors generally must take a broad view of materiality and err on the side of disclosing exculpatory and impeaching evidence.”

    A recent spat over document disclosures in a pending criminal prosecution in the Southern District of New York raised some interesting issues for antitrust defendants.

    David Rubin, Zevi Wolmark and Evan Zarefsky of CDR Financial Products Inc. were indicted in the Southern District of New York for bid-rigging and market manipulation under the Sherman Act, as well as several other types of alleged crimes, regarding competitive bidding on municipal investment contracts. Municipal investment contracts are investment vehicles designed to enable municipalities to invest money obtained from issuing municipal bonds. The indictment generally alleges that the individuals from CDR manipulated or rigged what purported to be competitive bidding for municipal investment contract providers.

    The defendants recently complained to the court that the government’s disclosures of information to the defense were unfair, overbroad and designed to bury the defendants. The government has turned over 4.5 terabytes of data, which approximately translates to 125 million or more pages of documents, as well as 750,000 audio files. The government has argued the disclosures were proper because the data was delivered in a searchable database, and because the prosecutors had specified particular transactions that allegedly broke the law.

    Prosecutors have a number of Constitutional disclosure obligations in criminal cases that help guarantee a fair trial. Evidence that may absolve a defendant must be turned over to the defense, for example, under Brady v. Maryland, 373 U.S. 83 (1963), as well as evidence that may undermine the reliability of a witness or impeach her testimony. Giglio v. United States, 405 U.S. 150 (1972); United States v. Bagley, 473 U.S. 667 (1985). Relatively recent decisions impose broad duties on prosecutors to identify and disclose exculpatory evidence from a wide range of sources. See United States v. Safavian, 233 F.R.D. 205 (D.D.C. 2006).

    In fact, the United States Attorney General implemented significant revisions to the United States Attorney Manual (USAM) designed to reinforce and emphasize prosecutors’ disclosure obligations. USAM 9 – 5.00. Consistent with established U.S. Supreme Court precedent, the USAM requires disclosure of evidence if there is a “reasonable probability that effective use of the evidence will result in an acquittal.” Because prosecutors may have difficulty evaluating whether evidence is truly material to innocence or guilt prior to trial, the USAM expressly states that “prosecutors generally must take a broad view of materiality and err on the side of disclosing exculpatory and impeaching evidence.” Likewise, prosecutors must “err on the side of disclosure if admissibility is a close question.” Even if isolated pieces of evidence may not individually appear to be exculpatory, prosecutors are required to assess the evidence collectively and disclose all of it if its cumulative effect could exonerate a defendant. The consequences for violating these Constitutional principles can be severe and can result in dismissal of serious charges with prejudice.

    Some prosecutors have responded to the emphasis on disclosure by engaging in “open file” discovery similar to that made in the CDR matter. Open file discovery effectively means sharing the entire investigative file compiled by the prosecution. The Supreme Court has at least indirectly accepted this approach as a valid way to satisfy Constitutional disclosure obligations and ensure a fair trial. Strickler v. Greene, 527 U.S. 263, 283 n.23 (2004) (“We certainly do not criticize the prosecution’s use of the open file policy. We recognize that this practice may increase the efficiency and the fairness of the criminal process.”). However, reviewing a massive disclosure like the one made to the CDR defendants can be extremely expensive and time-consuming, particularly during trial preparation. In the context of prosecutions under the Sherman Act, key pricing information and communications might be difficult to identify in such a broad disclosure. Grand jury subpoenas in antitrust investigations are notoriously broad and unfailingly result in disclosure of massive amounts of data.

    Still, broad disclosures are better, in our view, than the risk of having key evidence withheld, and some relatively simple but effective tactics can help address the burdens associated with open file discovery. A broad Brady letter that augments traditional language requesting exculpatory information by adding standard categories of information significant to defending an antitrust claim can be a very effective start. Even more importantly, defense lawyers must follow Brady requests with assertive advocacy. In our experience, courts will more likely enforce requests concerning specific, relevant subject matter. Further, using a broad list of standard categories pertinent to the Sherman Act (such as different categories of pricing information, communications with competitors and pricing-related communications with customers) can help locate specific information while not necessarily flagging key defenses for the government. Finally, we favor a coordinated approach in which lawyers familiar with the issues and experts who can help identify key economic data work together to fully identify and unearth key documents that may be “buried.”