Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel ‒ 1st Quarter 2020

As the coronavirus disease (COVID-19) outbreak continues to unfold, entire governments, economies, businesses, and countries are being adversely affected. The World Health Organization reports that there are “still many unknowns about the virus, including the clinical spectrum of disease, its severity and transmissibility.” This level of uncertainty, coupled with an onslaught of new cases and countries being affected, brings with it a plethora of wide-ranging global business and legal implications across a broad range of industries and geographies. MoFo has a regularly updated Resource Center available to assist corporate counsel through these difficult times.

Among the legal uncertainties is how cartel enforcement will be affected. In early February 2020, the Department of Justice (DOJ) proposed a fiscal 2021 budget that sought $53 million in appropriations for the Antitrust Division, which would be a 71 percent increase from FY2020. The DOJ sought this increase in funding as part of its focus on technology companies. In light of our current circumstances, it is unclear whether this budget will be approved and whether the DOJ will allocate its resources this way. Notwithstanding this uncertainty, cartel enforcement will continue to be a DOJ priority.

As always, businesses should avoid entering into agreements on price, allocation of territories or customers, or on how to respond to bids. For example, as prices go down for some products that are in lower demand during a crisis, joining with other suppliers to stop the fall in prices, or to “stop the bleeding,” by imposing a minimum price should be absolutely avoided. Agreements with competitors to hold a minimum price is just as much a violation of the antitrust laws as is an agreement to raise prices.

DOJ will no doubt be on the lookout for this type of potential conduct during, and in the wake of, the pandemic crisis. In fact, the Division recently announced that it would hold companies and individuals accountable that violate the antitrust laws as the country weathers the COVID-19 pandemic. Specifically, the Division noted that the entire supply chain — from manufacturing to sale — of public health items like face masks, respirators, and diagnostics are in its focus. DOJ, including the Division, is committed to preventing and deterring violations of law, including the criminal antitrust laws, in the wake of disasters and emergencies. For example, the DOJ secured the criminal convictions of two individuals who engaged in a conspiracy and bribery scheme following Hurricane Katrina.

Knowing that antitrust will continue to be important for the DOJ, below we summarize significant cartel enforcement developments from U.S. and other antitrust enforcers in recent months, including a look ahead to potential enforcement priorities of the Division after a quiet 2019, recent charges and resolutions in the Division’s ongoing investigation into price fixing in the generic pharmaceutical industry, cartel fines from Italy’s antitrust enforcer against telecom companies after increases to customers’ mobile phone bills, and recent trial victories for the Division in the foreign exchange and packaged seafood industries. These updates and more are in this latest edition of the Quarterly Cartel Catch-Up.

Despite a Quiet Enforcement Year, Division Policy Announcements Could Spell a Busier 2020/21

Key Point: After a year highlighted by a significant dip in criminal fines and victories over individual defendants, the Division will look to implement recent policy initiatives and increase enforcement efforts in 2020.

The downward trend of Division criminal enforcement fines and actions continued in 2019. The Division only collected approximately $200 million in criminal fines, down nearly 50 percent from the $400 million it collected in 2018. Many of the Division’s cases over the last year involved domestic investigations, including its probes into insulation contracting, flooring, promotional products, and real estate auctions. In addition, the Division’s trial victories largely involved individual defendants whose employers had already reached settlements with the government, as discussed below. Thus, 2019 appears to have been another quiet enforcement year.

However, the Division implemented several initiatives that could significantly shape future enforcement efforts. In July 2019, the Division announced that it would consider a company’s antitrust compliance program at the charging and sentencing stages of an investigation. Companies with robust compliance programs could benefit from a deferred prosecution agreement or a reduced fine. These changes may provide additional incentives for companies to self-report anticompetitive conduct. The Division has recently reiterated that compliance is only part of the equation, and that timely self-reporting and full cooperation (including participation in “covert techniques”) are equally important in charging and sentencing determinations. We will closely monitor how this policy affects the Division’s enforcement efforts as they take shape in 2020 and beyond.

In November 2019, the Division created the Procurement Collusion Strike Force (PCSF), aimed at uncovering collusive conduct related to government procurement and funding. The PCSF consists of investigators from across the federal government, and early indications are that its efforts are leading to additional enforcement actions. In recent remarks at the International Cartel Workshop, Deputy Assistant Attorney General Richard Powers noted that the PCSF has already led to multiple grand jury investigations.

These initiatives, coupled with early developments in long-running investigations discussed below, indicate that 2020 could be a busier year for criminal antitrust enforcement.

This Could Be the Year We See Significant Charges and Penalties in the Long-Running Generic Pharmaceutical Price-Fixing Investigation

Key Point: Corporate resolutions and individual charges show that the years-long investigation into price fixing in the generic pharmaceutical industry could be coming to a head.

On December 3, 2019, the Division announced that Rising Pharmaceuticals Inc., a generic pharmaceutical company based in New Jersey, was charged with and entered into a deferred prosecution agreement (DPA) for its role in a criminal conspiracy to fix the prices of a generic drug used to treat hypertension. Pursuant to the DPA, Rising agreed to pay a $1.5 million monetary penalty and $438,066 in restitution. Rising separately agreed to pay approximately $1.1 million in civil damages for alleged False Claims Act violations relating to the price fixing conspiracy. Rising is the second generic pharmaceutical company to settle pricing fixing allegations in the criminal investigation after Heritage Pharmaceuticals Inc. entered into a DPA with the Division in May 2019.

On February 4, 2020, Ara Aprahamian was indicted for conspiring to fix prices and allocate customers for numerous generic drugs from 2013 to 2015 and for making a false statement to an FBI agent. Aprahamian was the third individual to be charged by the Division in connection with the generic price fixing investigation after two other individuals previously pleaded guilty in January 2017.

On February 14, 2020, Armando Kellum, a former executive from another generic pharmaceutical company, pleaded guilty for his role in the conspiracy and agreed to cooperate with the Division’s ongoing investigation. Mr. Kellum’s former employer has since agreed to pay a $195 million fine to resolve criminal charges of fixing prices and rigging bids to stifle competition for generic drugs, the largest penalty imposed to date.

These recent developments signal that 2020 could be the year we see significant charges and penalties resulting from this long-running investigation, notwithstanding any short-term effects of the COVID-19 outbreak. In response to the outbreak, the Department of Justice has reportedly sought to extend the statute of limitations for price-fixing and bid-rigging cases by six months.

Heir Locator Company, President Sentenced for Customer Allocation Following Remand from 10^th Circuit

Key Point: Sentences handed down in market allocation case after court applies per se standard on remand.

On January 23, 2020, Judge David Sam of the District of Utah sentenced an heir locator company and its president after they reached a plea agreement to resolve charges of market allocation. The court imposed a $1.5 million fine on Kemp & Associates and $77,595.93 on its president, Daniel Mannix. However, Judge Sam declined to impose the Division’s recommendation of 21 months in prison for Mannix and sentenced him to one year of probation instead.

Kemp & Associates and Mannix pleaded guilty in July 2019 to charges of conspiring to allocate customers. The Division alleged that, beginning in 1999, Kemp & Associates, which connects unclaimed estates with missing heirs, conspired with its competitor, Blake & Blake, to divide the market for their services. The companies agreed that if one company contacted an heir after the other company, the first company would keep the heirs for that estate but pay a portion of the fees it collected from that estate to the other company. Blake & Blake’s owner previously pleaded guilty in Chicago federal court.

The guilty pleas followed Judge Sam’s ruling that the per se standard applied to the market allocation agreement, meaning that the agreement itself constituted a violation. Judge Sam originally determined that the charges against Kemp and Mannix should be tried under the rule of reason, and that the charges were barred by the statute of limitations. On appeal, the Tenth Circuit reversed Sam’s ruling on the statute of limitations because the companies continued to benefit from the customer allocation beyond the end of the agreement in 2008. The Tenth Circuit did not rule on Judge Sam’s rule of reasoning holding, but encouraged the district to revisit the ruling.

On remand, Judge Sam sided with the Division. In his opinion, Judge Sam noted that the per se rule may apply when a court has experience “with the particular practice being challenged” and need not have experience within “the specific industry in which the allegedly unlawful practice was used.” Judge Sam concluded that the agreement would typically be subject to the per se rule—an agreement existed, it sought to allocate territories, and the goal was to minimize competition—and that no special circumstances existed to render the rule inapplicable.

Italian Competition Authority Issues Fines in Telecom Cartel Case

Key Point: Enforcer’s use of interim measures likely prevents additional harm from coordinated price increase and results in lower fines to cartelists.

On January 31, 2020, the Italian Competition Authority (AGCM) fined four telecom companies (Fastweb, TIM, Vodafone, and Wind Tre) a combined €228 million (approx. $253 million) for allegedly coordinating a price increase to their Italian customers. The investigation began in February 2018, only a couple of months after the enactment of a new Italian law prohibiting invoicing periods of less than one month. Under this law, operators using a four-week (i.e., 28 days) billing cycle were given a period of 120 days to switch to monthly billing. According to the AGCM, the companies then agreed to an 8.6 percent price increase to offset a potential drop in revenue when complying with the new law, given the change in billing periods.

In early 2018, the AGCM was tipped off by an Italian consumer organization that had observed a simultaneous increase in the telecom operators’ rates following the introduction of the new law. This tip led the AGCM to believe that Fastweb, TIM, Vodafone, and Wind Tre had coordinated their commercial strategies and prices when implementing the required change. The AGCM then conducted dawn raids on the premises of each of the four competitors in February 2018. The evidence collected from the raids confirmed the authority’s concerns, which led the AGCM to exercise its power to issue interim measures in March 2018. These measures required each company to suspend their price increase and define their own, independent offerings, thereby preventing the complete implementation of the cartel. The impact of these measures was taken into account by the AGCM and ultimately resulted in a lower fine.

Interim measures allow competition authorities to intervene when there is a probable existence of a violation and an urgent need to avert the risk of serious and irreparable damage to competition. Although most European jurisdictions and the European Commission have the power to impose such measures, these are rarely used. Last year, the Commission issued interim measures for the first time in 19 years, in the context of its ongoing abuse of dominance investigation against Broadcom. In fast-moving digital markets, commentators have urged competition authorities to implement interim measures more frequently, since full investigations may take too long to prevent competitive harm. Broadcom has appealed the imposition of interim measures before the EU courts.

Korean Former Auto Parts Executive Pleads Guilty and Is Sentenced Following Extradition for Role in Auto Parts Bid Rigging Conspiracy

Key Point: Former auto parts executive pleads guilty to bid rigging conspiracy after five years on the run, becoming the second person in as many months to be extradited solely on antitrust charges.

On March 3, 2020, the Division announced that Eun Soo Kim, a former key accounts manager for Continental Automotive Korea Ltd. and a Korean national, had pleaded guilty to participating in a bid rigging conspiracy in the automotive parts industry after being extradited from Germany. Kim’s former employer, Continental Automotive Korea Ltd., pleaded guilty to participating in a bid rigging conspiracy in November 2014. Around that same time, Kim disappeared and remained a fugitive for nearly five years. German authorities apprehended him in Frankfurt in September 2019. After consenting to extradition to the United States, Kim pleaded guilty to bid rigging charges. He was sentenced to nine months in prison, with credit for time served, and ordered to pay a $130,000 fine. Kim is the latest of the more than 100 corporations and individuals charged in the automotive industry investigation, which has resulted in $2.9 billion in fines.

Though Kim is only the third person ever to be extradited solely on antitrust charges, he marks the second such extradition in 2020. In January, Maria Christina “Meta” Ullings, a former senior executive in the air cargo industry, pleaded guilty to charges of participating in an alleged global price fixing cartel shortly after being extradited from Italy. Kim’s fine is more than double what any previously extradited executive has been ordered to pay. Kim’s extradition underscores the Division’s commitment both to prosecuting individuals for their roles in antitrust conspiracies and to collaborating with foreign partners.

Former Foreign Exchange Trader Convicted of Conspiracy to Violate Antitrust Laws

Key Point: The Division is continuing to prosecute both individuals and companies for collusion in financial markets.

On November 20, 2019, former trader Akshay Aiyer was convicted for his participation in an antitrust conspiracy to rig bids and fix prices in the global foreign currency exchange (FX) market. According to the prosecution, from at least October 2010 through at least January 2013, Aiyer and his co-conspirators communicated almost daily by phone, by text, in-person, or through private electronic chat rooms. The conspiring traders are alleged to have coordinated their trades of Central and Eastern European, Middle Eastern, and African (CEEMEA) currencies, which were generally traded against the U.S. dollar and the euro, in the FX spot market. The Division relied heavily on testimony from two former co-conspirators who testified that traders orchestrated the scheme of rigging trades through chat rooms, phone calls, and social gatherings.

Aiyer is scheduled to be sentenced in May and faces up to ten years’ imprisonment and a $1 million fine. Aiyer filed several post-trial motions for relief, including a claim of juror misconduct, based on one juror’s research about the case during the trial and another juror’s discussion of the case on his podcast. The court rejected these arguments in January. Aiyer filed a separate motion for acquittal that is still pending. That motion raises a number of arguments, including challenging the credibility of the Division’s witnesses.

In October 2018, three other traders alleged to have been involved in the conspiracy were acquitted. In total, the Division has charged five companies and six individuals in its investigation of collusion in the FX market.

Former Bumble Bee CEO Convicted in Canned Tuna Price Fixing Conspiracy as Division Probes Collusion among Salmon Farmers

Key Point: First individual convicted in ongoing probes into collusion in the market for packaged seafood.

On December 3, 2019, the former President and Chief Executive Officer of Bumble Bee Foods LLC, Christopher Lischewski, was convicted for his role in fixing the prices of canned tuna sold in the United States. Between 2011 and 2013, when tuna demand began to drop (because of the inconvenience of opening cans), Lischewski colluded with rivals StarKist and Chicken of the Sea, to keep prices higher.

A jury in the Northern District of California found that Lischewski participated in the conspiracy and also authorized and supervised subordinates’ participation. The co-conspirators attempted to be discrete by meeting at offsite locations, using third-party email addresses, and discouraging retention of incriminating documents. In March 2020, the Court rejected Lischewski’s request to set aside the verdict, and sentencing is scheduled for early April.

In announcing the conviction, Assistant Attorney General Makan Delrahim reminded high-level executives that “no one, including members of the C-Suite, is above the law.” Lischewski is the fourth individual to be charged in this investigation; the other three executives pleaded guilty and testified against Lischewski at trial. Bumble Bee pleaded guilty and was sentenced to pay a criminal fine of $25 million. It has since filed for bankruptcy.

Lischewski’s conviction does not mark the end of the Division’s investigation into the seafood industry. In late November 2019, the Division opened a criminal investigation into salmon farmers, including Mowi, Grieg Seafood, SalMar, and Leroy Seafood Group based on allegations of colluding. The Division’s investigation follows an ongoing probe by the European Commission (EC), which included raids on several salmon farms earlier in 2019.

Flooring Manufacturer Executives Charged, Plead Guilty in Bid Rigging and Price Fixing Scheme

Key Point: Division’s recent indictments demonstrate a continued focus on bid rigging and related conduct in the U.S. construction industry.

On March 19, 2020, the Division announced that two commercial flooring executives, Robert A. Patrey Jr. and Kenneth Smith, had pleaded guilty for their role in a conspiracy to rig bids and fix process for commercial flooring services. According to the defendants’ plea agreements, the conspiracy started as early as 2009 and lasted through June 2017. The defendants coordinated on which competitor would win a particular bid on a number of projects and engaged on complementary bidding on a number of construction projects, the majority of which involved publicly-funded educational institutions.

Just weeks earlier, the Division announced that Carter Brett, an account executive for a commercial flooring manufacturer and service provider, had been charged for his participation in the purported conspiracy between 2013 and 2017. According to the two-count Information, Mr. Brett participated in 15 rigged bids related to a state-funded community college. The second count charged Mr. Brett with engaging in a money laundering conspiracy wherein Mr. Brett allegedly accepted kickbacks from his co-conspirators in exchange for offering those co-conspirators unusually low pricing.

To date, only a single corporation has been charged as part of the Division’s investigation. In August 2019, PCI FlorTech Inc. agreed to plead guilty for its role in the conspiracy. The Division’s investigation into commercial flooring follows a similar investigation into the insulation contracting industry.

Missouri Businessman Becomes Latest Defendant to Be Indicted in Ongoing Government Auctions Investigation

Key Point: A third individual has been charged for rigging bids in online auctions for government equipment.

On January 30, 2020, a federal grand jury returned an indictment charging Alan Gaines with participating in a conspiracy to rig bids at online auctions for surplus government equipment. The indictment alleges that Gaines and his co-conspirators targeted auctions conducted by the General Services Administration (GSA). At GSA auctions, the general public can bid electronically on a wide variety of federal assets, including surplus computer equipment. Proceeds of the auctions are distributed to the government agencies or the U.S. Treasury general fund.

Between 2012 and 2018, Gaines and his co-conspirators allegedly exchanged their generic identifiers and communicated by phone, text message, and email before and during the auctions to decide which of them would submit winning bids and whether the items purchased would be split among them. Gaines is the third individual charged in this investigation. Marshall Holland and Igor Yurkovetsky previously pleaded guilty in the investigation, which has been frequently pointed to as part of the Division’s broader focus on anticompetitive practices involving the government.

Insurance Companies and Officers Charged in the Philippines for Alleged Decades-Long Mortgage Insurance Cartel

Key Point: Enforcement action highlights that long-standing conduct is still subject to scrutiny under the recently enacted Philippine Competition Act.

On December 27, 2019, the Philippine Competition Commission (PCC) alleged that the National Home Mortgage Finance Corporation (NHMFC) and a pool of insurance companies had entered into and maintained anticompetitive exclusive-dealing agreements for nearly four decades, with one of the cited agreements in force since 1980.

In the Philippines, homebuyers can seek mortgages from primary lenders. But for socialized and low-cost housing NHMFC can act as a secondary mortgagor and assume those loans, with the goal of encouraging affordable housing by providing a secondary market for mortgages. As a condition of participating in this program, homebuyers must obtain “mortgage redemption insurance” (MRI), a life insurance policy that pays any outstanding balance on an insured’s mortgage upon death.

According to the PCC, participating homebuyers were directed to purchase MRI from only a limited number of insurance companies, which “effectively deprived NHMFC and the housing loan borrowers of choosing MRI coverage from other providers which may offer better terms and conditions at lower premium rates.” The PCC’s complaint alleges that this resulted in “poor service, unfavorable premium rates, and lack of options to the detriment of the beneficiaries of the MRI coverage.”

NHMFC had previously tried to terminate these agreements but backed down in the face of threatened lawsuits from MRI providers. Following enactment of the new Philippine Competition Act in 2015, however, contracting parties had a two-year transitory period to renegotiate agreements, amend practices, or restructure their businesses to comply with the law. During that two-year period, NHMFC self-reported the agreements to the PCC, which has now brought charges against the companies and individual executives involved.

Under the Act, entities found to have entered into anticompetitive agreements face a fine of up to PHP 100 million (approximately $2 million).

Brazil’s Competition Authority and Attorney General Sign Agreement to Strengthen Partnership

Key Point: The agreement will help Brazil investigate cartels and other anticompetitive conduct more efficiently by requiring increased communication and the sharing of information.

On February 5, 2020, the Brazilian Competition Authority (Conselho Administrativo de Defesa Econômica (CADE)) and the Brazilian Federal Public Prosecutor’s Office (MPF) adopted a cooperation agreement (“ACT”) “to strengthen the institutional partnership of the entities in joint actions.” Specifically, the ACT requires CADE and MPF to exchange information and evidence obtained during civil and criminal investigations of cartels and other anticompetitive conduct. It also aims to improve cartel investigation practices and develop joint competition advocacy actions. The ACT is intended to help “establish mechanisms that allow for greater communication between the institutions and provide greater agility and effectiveness in the actions to repress cartel practices and other anti-competitive conduct.”

CADE has spent several years establishing similar agreements with prosecutors’ offices across Brazil to assist in CADE’s enforcement efforts. For example, by May 2019, CADE signed technical cooperation agreements with each of Brazil’s 27 state public prosecutors. The president of CADE, Alexandre Barreto de Souza, said that these agreements “allow[] us to count on their expertise and local anti-cartel operations” and have “improve[d] the investigations of conduct[] that harm the competitive environment.”

The agreement with the MPF comes as CADE continues to probe potential cartel conduct in a number of industries, including liquefied petroleum gas, telecom components, and railway construction.

*Morrison & Foerster associates Nitesh Daryanani and Haydn Forrest assisted in the preparation of this edition.