Criminal Antitrust Update - January 2012

    15 January 2012


    Real Estate: The United States Attorney for the Eastern District of California has charged investors and an auction company with rigging bids in public foreclosure auctions. The investors allegedly agreed that they would not bid against each other in the public auctions. Instead, they allegedly designated a single bidder who would buy the property at a low price, then re-auction the property at a separate, private auction among the investors. The investors would then allegedly split the difference between the higher private auction sale and the public auction among themselves. The investigation has already reportedly led to a number of guilty pleas.

    Technology: Executives from the Hitachi-LG Data Storage joint venture will plea guilty and be incarcerated for several months for their role in a conspiracy to fix the price of optical disk drives (such as CD and DVD drives in personal computers) sold to Dell Inc., Hewlett Packard and Microsoft. These pleas follow Hitachi-LG Storage’s earlier plea and agreement to pay more than $20 million in fines for its role in the conspiracies. All the conspiratorial meetings took place in Asia, and the conspiracy allegedly required information-sharing to enforce the agreement among the co-conspirators.

    Government Contracting: The U.S. government’s long-running false claims/bid-rigging suit against Harbert International ran upon rocky shoals recently. Harbert is accused of rigging bids for USAID projects in Egypt. A 2007trial yielded a substantial jury verdict against Harbert which was later shot down on appeal. During recent settlement negotiations, the government admitted that it had located 17 boxes of documents that were never turned over to Harbert.

    Disclosure failures continue to pose a significant challenge for the Department of Justice (the Department). The failure to turn over key evidence contributed to a federal judge’s high-profile decision to vacate Lindsey Manufacturing’s May 2011 bribery/Foreign Corrupt Practices Act (FCPA) conviction. During a recent trial arising from the Department’s Gabon FCPA sting, during which the government claims a group of arms dealers conspired to bribe foreign officials from Gabon, Judge Richard Leon struck portions of a key witness’s testimony due to the government’s failure to turn handwritten notes of significant conversations over to the defense.

    Financial: Bid-rigging allegations in municipal securities auctions led to another significant settlement. GE Funding Capital Market Services has settled with several government agencies regarding its activities in municipal investment auctions. According to investigators, GE Funding used relationships with brokers to win auctions with lower bids and “courtesy bids” from other financial institutions. GE Funding settled without admitting federal antitrust violations but will pay seventy million dollars to settle with a number of state and federal agencies.

    CDR Financial Products, an auction broker for municipal bond investment contracts, entered guilty pleas to bid-rigging and fraud charges. CDR Financial received payments from auction participants, manipulated the bidding to obtain artificially low winning bids, and then steered desirable contracts to investment companies that made payoffs to CDR.

    In December, Wachovia Bank (having been acquired by Wells Fargo) paid nearly $150 million to settle allegations regarding bid-rigging related to municipal derivatives contracts, obtaining a similar non-prosecution commitment from the Department’s Antitrust Division.


    Credibility, privilege and the potential impact on future antitrust challenges are just a few of the simple yet compelling reasons for committing time, attention and resources to a state-of-the-art antitrust compliance program which involves outside counsel.

    First and foremost, an antitrust compliance program that could truly impact the outcome of any investigation must meet certain standards of credibility. The United States Sentencing Guidelines emphasize that an effective compliance and ethics program must meet basic standards, including prevention and detection of criminal conduct; involvement of high-level corporate personnel; commitment of adequate resources; and periodic evaluations of a compliance and ethics program’s effectiveness. USSG § 8B2.1. In addition to advising on the contours of a compliance program, outside counsel should occupy the crucial role of regularly and independently evaluating the effectiveness of the compliance function.

    Second, outside counsel provides the best means of preserving any applicable attorney-client privilege. Antitrust investigations more often than not focus on international commercial activity, and privilege rules vary considerably. For example, in the United States, in-house counsel are generally afforded the same attorney-client privilege as outside counsel, so long as the in-house lawyer is not clearly functioning in a non-legal business capacity. In contrast, communications between in-house attorneys and their corporate employees and executives are not generally protected by the attorney-client privilege.

    Finally, multiple sources confirm the significant impact that an active, robust compliance program can have if a corporation finds itself in the crosshairs of an investigation by the Justice Department’s Antitrust Division. The United States Sentencing Guidelines expressly endorse lower sentencing scores (and fines) for companies with effective compliance programs in place. USSG § 8C2.5(f)(culpability score can be reduced by existence of compliance program); § 8C2.5(g) (reduced culpability score for self-reporting violations and cooperating with investigations). The Corporate Lenience Policy published by the Antitrust Division requires that illegal activity be disclosed as early as possible – prior to being reported by another source. Finally, the United States Attorney Manual’s principles governing the prosecution of business organizations specifically take into account a corporation’s timely and voluntary disclosure of wrongdoing (USAM 9-28.700) and “the existence and effectiveness of the corporation’s pre-existing compliance program.” (USAM 9-28.800). The significance of the potential relief associated with a compliance and ethics program underscores the importance of observing the highest possible standards in maintaining that program.