Criminal Antitrust Update - October 2012

    11 October 2012


    E-books: Following its settlement with the U.S. Justice Department’s Antitrust Division (the “Division”) regarding price-fixing allegations related to electronic book sales, HarperCollins Publishers forged new pricing agreements with retailers. The initial allegations focused on distribution contracts that imposed limits on e-book pricing and contractual “most favored nation” clauses that retailers used to ensure competitors would not get more advantageous agreements or prices. Whether consumers can expect to see lower pricing on various types of books remains to be seen.

    Health Care: Hospitals in Michigan and Blue Cross Blue Shield of Michigan were recently ordered by a federal magistrate in the Eastern District of Michigan to provide documents to the Division. The document dispute grew out of a Division lawsuit claiming that most-favored nation clauses in Blue Cross contracts with hospitals violate anti trust laws. The clauses allegedly protect Blue Cross from competition by other insurers and increase the price of health insurance in Michigan. Michigan’s attorney general is part of the same lawsuit. Blue Cross also faces a class action lawsuit and billion-dollar allegations from a competing insurer.

    Freight Forwarding: Yamato Global Logistics pleaded guilty to fixing the price of air cargo fees in connection with freight forwarding. Yamato will pay a $2.3 million fine. Several other Japan-based freight forwarders previously pleaded guilty to similar allegations and paid fines close to $50 million, collectively, for their role in fixing the price of fuel and security fees.

    Regulators from a variety of countries are apparently investigating whether maritime freight forwarders engaged in anticompetitive behavior. Wilh. Wilhelmsen ASA announced that two of its subsidiaries are under investigation in Europe, the U.S., Canada and Japan. Nippon Yusen, Mitsui O.S.K Lines, and Kawasaki Kisen Kaisha were also reportedly implicated in the investigation. Japan’s antitrust regulators reportedly paid unannounced visits to several prominent ocean freight forwarders.

    Banking/Financial: Three former UBS executives were convicted for their role in rigging bids for municipal bond investment contract options. Peter Ghavami, Gary Heinz and Michael Welty were found guilty at trial of wire fraud, as well as conspiracy to commit wire fraud. Generally, the municipal bond auctions that were the subject of the fraudulent bid-rigging concerned public works funds accumulated by local municipalities, and the fraud artificially inflated prices paid to advise the municipalities about how the funds would be invested. The criminal conduct affected more than 10 investment agreements and was designed to illegally increase both the number of contracts awarded to UBS and the price UBS would be paid to advise the municipalities. Nearly 20 individuals had already been convicted of crimes in connection with municipal bond auction bid-rigging prior to the verdict in this case.

    Visa and Mastercard’s proposed billion-dollar interchange fee or “swipe fee” settlement gathered additional opponents as the National Restaurant Association went public with its opposition. A spokesman for the association claimed that the proposed settlement would not eliminate some basic problems in the credit card/banking business, and that the settlement has limited impact given the volume of interchange fees paid by a typical retailer or restaurant and would effectively perpetuate the problems that led to the settlement in the first place. The settlement requires Visa and Mastercard to reduce swipe fees – but only for eight months. Visa and Mastercard have claimed that retailers who oppose the settlement are merely using the objections to gain additional settlement money, and that their concerns were already addressed by how the settlement was structured.

    Crusader Servicing Corporation pleaded guilty to conspiring with other bidders in New Jersey’s ongoing investigation of municipal tax lien bid-rigging. Municipalities auction liens on properties with tax delinquencies; those who purchase the liens acquire the right to foreclose on the properties if the liens are not paid off. The interest rates that accrue for these types of debts are established through competitively bid auctions. Ideally, the auctions result in lower interest rates that delinquent property owners must pay to whoever acquires their tax delinquency. The Division has contended that individuals and companies in New Jersey colluded to pre-determine which parties would acquire particular tax liens. As a result, the Division has argued that tax lien interest rates were artificially inflated and more delinquent taxpayers suffered foreclosures. Several individuals and one company have already pleaded guilty in the investigation.

    Energy: A number of German companies were fined nearly $32 million for rigging bids and agreeing to limit competition in the German market for power transformers. Large players in the power transformer market divided up customers between each other, coordinating bidding behavior, and met during industry trade associations to discuss their agreements. The conspiracy ended in 2004. German cartel regulators have been investigating the power generation industry and previously slapped large fines on steam generator manufacturers.


    The impact of the price-fixing jury verdict against AU Optronics Corporation (“AUO”) hit home after a federal court in California sentenced AUO to a $500 million fine. Two of AUO’s executives, the company president and a vice-president, received three-year prison sentences for their role in the price-fixing. One AUO executive was acquitted at trial. The Division had sought a $1 billion fine and 10-year prison sentences.

    A number of AUO’s competitors resolved their criminal allegations years ago. LG Display Company agreed to a $400 million fine in 2008, Chunghwa Picture Tubes paid $65 million, and Sharp Corporation paid $120 million. At the time, LG’s sentence was the second-highest fine ever imposed for a price-fixing violation of the Sherman Act. Though Toshiba Corporation was not indicted for price-fixing, Toshiba lost a civil trial concerning allegations of price-fixing in the flat screen business over the summer. Toshiba was ordered to pay $87 million as a result. Four former executives from LG and Chungwha pleaded guilty to price-fixing allegations earlier in the case and received jail sentences ranging from six to nine months.

    Joseph Wayland, the Acting Assistant Attorney General in charge of the Division, has used the AUO verdict in recent speeches as a cautionary tale for business. Wayland noted in a recent speech that the Division has beefed up its litigation capabilities, creating new litigation management positions. Wayland said “we litigate to win” and touted the Division’s “outstanding track record in both criminal and civil litigation.”1

    In the past, the Division has encountered some difficulties at trial, particularly in prosecuting individuals in antitrust cases. Consequently, its record of success at trial has been mixed at best, but that trend appears to have reversed in 2012. In addition to the AUO trial, the Division also played a leading role in the jury trial that convicted former GE Capital executives Dominick Carollo, Steven Goldberg and Peter Grimm of rigging municipal bond bids – though all three were ultimately convicted of fraud offenses rather than violations of the Sherman Act. Earlier in the year, the Division obtained trial convictions against a number of companies and individuals related to kickback payments surrounding asbestos abatement, air monitoring and construction performed for New York’s Presbyterian Hospital. In that case, the defendants were convicted of a fraud conspiracy and wire fraud. Michael Yaron, a principal player in the Presbyterian Hospital fraud, received a five-year prison sentence.

    It may be too early to draw long-term conclusions based on the Division’s trial success in 2012, but the high-profile wins do suggest a stronger commitment to litigating cases. The Division’s strategy of focusing on the fraud aspects of various conspiracies has paid dividends as juries were likely more able to understand and evaluate the concept of a fraud scheme than a more complex antitrust allegation. Trials always represent a significant risk for corporations accused of Sherman Act violations due to the impact of the U.S. Sentencing Guidelines’ focus on volume of commerce as a benchmark for determining a corporate fine. See USSG §2R1.1(b). The size of the AUO fine and the length of the prison sentences the Division obtained should give corporations an additional reason to pause before deciding to take a hard line in an antitrust matter.

    [1]  “Litigation in the Antitrust Division,” Joseph F. Wayland, Remarks as Prepared for the Georgetown Law 6th Annual Global Antitrust Enforcement Symposium, September 19, 2012.