Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel ‒ 3rd Quarter 2020
Quarterly Cartel Catch-Up: Recent Developments in Criminal Antitrust for Busy Corporate Counsel ‒ 3rd Quarter 2020
Despite the ongoing coronavirus (COVID-19) pandemic, the work of antitrust enforcers has continued largely uninterrupted in the second half of 2020. The Department of Justice Antitrust Division (the “Division”) has announced a slew of indictments and resolutions across a diverse number of industries, many of which are described below. Other recent developments may lay the groundwork for future enforcement efforts. Over the summer, the Division entered into a Memorandum of Understanding with the U.S. Securities Exchange Commission, intended to facilitate better cooperation and information sharing in monitoring competition in the securities industry. The Division and the Federal Trade Commission similarly entered into a multilateral agreement with antitrust agencies in Australia, Canada, New Zealand, and the United Kingdom, intended to facilitate sharing intelligence and coordination of cross-border investigations. And, on October 1, 2020, President Trump signed into law a continuing resolution that reauthorizes the Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA), which incentivizes companies to self-report and cooperate under the Division’s Corporate Leniency Policy through reduced civil damages.
Below we summarize significant cartel enforcement and policy efforts in recent months, including the first corporate resolution in the Division’s ongoing investigation into the broiler chicken industry, more developments in the long-running investigation into generic drugs, sentences for former traders convicted for manipulating foreign exchange rates as the Division announces an increased focus on the financial industry, new international leniency guidelines, and recent indictments for alleged collusion the ready-mix concrete industry. These updates and more are in this latest edition of the Quarterly Cartel Catch-Up.
Key Point: Division emphasizes it intends to scrutinize closely all aspects of financial industry, from cartel enforcement to mergers and acquisitions that could harm competition.
Recent statements from Division officials indicate that the Division’s investigations into financial markets the last several years are far from over. On October 14, 2020, Deputy Assistant Attorney General (DAAG) Michael Murray warned that the Division was “leaning in” with a “muscular role for antitrust in fintech, financial markets, and banking” in a way that could lead to increased enforcement actions in the future. In his remarks, DAAG Murray pointed to the Division’s “aggressive enforcement of the antitrust laws to police the financial markets” as one of the ongoing ways the Division would “lean in” to the financial industry. Murray cited to the foreign exchange rate investigation, described below, and similar investigations into the London Interbank Offered Rate (LIBOR) and American Depository Receipts (ADRs) as evidence of the Division’s commitment to criminal prosecution of antitrust crimes affecting financial markets. To date, these investigations have resulted in billions of dollars in fines and over 40 convictions.
In addition to continued criminal enforcement efforts, DAAG Murray indicated that the Division was evolving its approach to merger enforcement, particularly in emerging areas of interest such as blockchain and other fintech companies. These include changes to the makeup of the Division’s staffing structure and potential changes to the Division’s long-standing bank merger guidelines. DAAG Murray also touted the Division’s recent MOU with the SEC as solidifying the agencies’ partnership in enforcing competition in the financial industry.
Murray’s remarks demonstrate that the Division is one of many regulators that will be closely scrutinizing the financial industry for the foreseeable future. Given this complex enforcement landscape, financial institutions and other industry players should ensure that antitrust compliance is a key part of their overall compliance programs.
Key Point: The Division has charged ten individuals since the beginning of 2020 in an investigation that sprang from allegations in a civil class action lawsuit.
On October 7, 2020, the Division announced that a federal grand jury had returned a superseding indictment adding charges against six individual defendants for their alleged roles in a conspiracy to fix prices and rig bids from at least 2012 until early 2019. The indictment alleges that the individuals coordinated bids and monitored compliance in negotiations with restaurants and food distributors, while also agreeing to prices associated with various packages of broiler chickens. In addition, the Division has charged one individual with making false statements and obstruction of justice after purportedly providing false statements to special agents with the U.S. Department of Commerce and the Federal Bureau of Investigation during their respective investigations. The grand jury had initially charged four individuals for their roles in the conspiracy earlier in the year.
Just one week later, Pilgrim’s Pride Corporation announced that it had entered into a plea agreement with the Division for its purported role in the conspiracy. Pilgrim’s Pride indicated that, subject to court approval, it would pay a fine of $110,524,140 for its conduct that affected three contracts for the sale of broiler chickens to one un-named customer. The announcement indicated that the Division would not recommend a monitor, any restitution, or a term of probation under the terms of the agreement. Pilgrim’s Pride is the first corporate defendant to reach a resolution with the Division.
It is plausible that the Division could bring additional corporate and individual charges in the coming months as this investigation continues to unfold.
Key Point: The charges represent the sixth and seventh companies implicated in an ongoing probe that has already yielded multiple guilty pleas, five deferred prosecution agreements (DPAs), and hundreds of millions of dollars in criminal penalties.
The Division continued to build on its recent momentum investigating potential bid rigging, customer allocation, and price fixing in the generic drug industry in the third quarter of 2020, charging two additional companies for their involvement.
On July 23, 2020, Taro Pharmaceuticals announced it had entered into a Deferred Prosecution Agreement for conspiring to fix prices, allocate customers, and rig bids for certain generic drugs between 2013 and 2015. Taro agreed to pay a $205 million criminal penalty, admitted that its sales affected by the charged conspiracy were greater than $500 million, and agreed to cooperate with the Division in its investigation. This DPA follows the indictment in February 2020 of former Taro executive Ara Aprahamian, who is still awaiting trial. Taro’s penalty represents the largest fine imposed by the Antitrust Division for a purely domestic cartel but is not the full extent of its penalty. In addition to its criminal fine, Taro also reached a framework for a settlement with the Civil Division of over $213 million to resolve claims related to federal healthcare programs.
On August 25, 2020, the Division announced that a grand jury had returned a superseding indictment against Teva Pharmaceuticals USA for participating in three conspiracies to fix prices, allocate customers, and rig bids for certain generic drugs from 2013 until 2015. Each of the charged conspiracies links Teva to companies with whom the Division has already reached resolutions and involve generic drugs used to treat arthritis, blood clots, brain cancer, cystic fibrosis, and high cholesterol. In responding to the charges, Teva rejected the Division’s allegations and indicated it would “vigorously defend” itself.
Key Point: Guidance offers best practices for encouraging cooperation among competition agencies and to mitigate disincentives for prospective leniency applicants that face potential exposure in multiple jurisdictions.
In June 2020, the International Competition Network (ICN) released its Guidance on Enhancing Cross-Border Leniency Cooperation, the result of a year-long effort by the ICN’s Cartel Working Group. The Division, which helped lead the initiative, stated that the “guidance document is designed to assist competition agencies around the globe in engaging and cooperating with their international counterparts when dealing with leniency applicants and other cooperating companies in cross-border investigations.”
Competition enforcers are increasingly adopting leniency programs to encourage participants to report cartel conduct. But, as the guidance recognizes, the upsurge in leniency programs “has complicated the enforcement landscape.” In cases involving multijurisdictional enforcement, differences in leniency policies can reduce predictability and create disincentives for potential applicants that may fear that cooperation with one jurisdiction will be used against them in another.
The new guidance offers advice to help agencies design leniency programs that will improve the effectiveness of international enforcement efforts and minimize deterrents to self-reporting caused by the broader enforcement landscape. For example, the guidance attempts to streamline cross-border investigations through the coordination of interviews and other joint scheduling opportunities. In addition, the ICN encourages agencies to coordinate on fines and other sanctions to avoid “double counting” and emphasizes the importance of safeguarding confidential information obtained from leniency applicants.
That said, the guidance comes with no binding commitments for enforcers. Whether the initiative expands participation in leniency programs will thus, at least partly, depend on the extent to which agencies choose to adopt the best practices discussed in the guidance, which may vary widely by jurisdiction. The ICN’s new guidance is an acknowledgment by enforcers that the broader cartel enforcement landscape has potentially discouraged would-be leniency applicants. From a compliance perspective, the guidance underscores the importance of companies knowing how leniency in one jurisdiction may have ripple effects in other jurisdictions when investigating cross‑border conduct.
Key Point: Trader sentenced to prison after guilty verdict while cooperators given probation for roles in conspiracy to manipulate foreign currency exchange rates.
On September 17, 2020, former trader Akshay Aiyer was sentenced to eight months in prison and two years of supervised release for his role in a foreign exchange bid-rigging scheme. Aiyer must also pay a $150,000 fine. Aiyer was previously convicted in December 2019. At trial, the Department of Justice presented evidence that Aiyer communicated with his co-conspirators almost daily to coordinate their trades of African, European, and Middle Eastern currencies, all while pretending to compete. Aiyer and his co-conspirators agreed to withhold bids to influence the exchange rate and increase their profits.
The sentencing follows extended efforts by Aiyer to overturn his conviction as well as delays due to the COVID-19 pandemic. At sentencing, Aiyer’s attorney argued that Aiyer saw almost no financial enrichment as a result of his actions and his former bank probably profited less than $1 million. Aiyer’s sentence was substantially lower than the government’s requested sentence of 46 months of imprisonment, as well as the two‑year term given earlier to co-conspirator Mark Johnson as part of the same investigation. Aiyer’s attorneys have indicated they will appeal his sentence.
Several of Aiyer’s conspirators turned cooperators also recently received their sentences. On October 5, 2020, former trader Jason Katz was ordered to pay a $50,000 fine, serve two years of probation, and perform 120 hours of community service. Judge Koeltl praised Katz’s cooperation in the trial of Aiyer and credited that cooperation in sentencing Katz to probation, compared to the 27 to 33 months of imprisonment recommended by federal sentencing guidelines. On October 22, 2020, former trader Christopher Cummins was similarly sentenced to two years of probation, 120 hours of community service, and ordered to pay a $20,000 fine. Cummins had similarly testified at trial against Aiyer after initially pleading guilty in 2017.
Key Point: Division announces second corporate guilty plea in ongoing investigation into bid rigging in commercial flooring industry.
On August 27, 2020, the Department of Justice announced that Vortex Commercial Flooring Inc., a commercial flooring contractor based in Chicago, agreed to plead guilty to the charge of conspiring to rig bids and fix prices of commercial flooring services and products sold in the United States. Vortex has agreed to pay up to $1.4 million in fines and to cooperate in the Division’s ongoing investigation.
According to the charge, Vortex and its co-conspirators exchanged price information to enable complementary bids and ensure that the designated company would win the business. Vortex participated in the conspiracy from at least as early as 2009 through 2017, resulting in higher prices on a number of construction projects. Many of these projects involved publicly funded educational institutions.
In August 2019, PCI FlorTech Inc. became the first corporation to plead guilty for its role in the conspiracy. Since then, several executives, including Vortex’s Robert A. Patrey Jr. and Kenneth Smith, agreed to plead guilty. Vortex, which is the largest flooring corporation charged to date, was acquired by New York-based flooring contractor Consolidated Carpet in 2019.
Key Point: Division unveils first charges in Savannah, Georgia price-fixing and bid-rigging scheme in the ready-mix concrete industry.
On September 3, 2020, the Division announced that a grand jury in the Southern District of Georgia had returned an indictment against one company and four individuals for their roles in a conspiracy to fix prices, rig bids, and allocate markets for ready-mix concrete in the Savannah, Georgia market. The indictment charges Evans Concrete, LLC, James Clayton Pedrick, Gregory Hall Melton, John Melton, and Timothy Strickland with conspiring to fix prices, rig bids, and allocate markets for the sale of ready-mix concrete used in residential, commercial, and public projects between 2010 and 2016. According to the indictment, Pedrick allegedly served as a conduit for the competitors to communicate with one another, exchanging prices, coordinating bids, and allocating jobs in the Savannah area. Pedrick was also charged with making false statements, and Strickland was charged with both making false statements and perjury.
This indictment is the Division’s first in its investigation into ready-mix concrete, but is part of a recent trend of investigations into the construction industry more broadly, including commercial flooring and insulation.
Key Point: The Division’s investigation into the Florida oncology industry produces its first indictment after corporate resolution earlier in 2020.
On September 24, 2020, the Division announced that a federal grand jury in Florida had returned an indictment charging Dr. William Harwin, the founder and former president of Florida Cancer Specialists & Research Institute LLC (“FCS”), for conspiring to allocate medical and radiation oncology treatments for patients in Southwest Florida. The indictment accuses Dr. Harwin of entering into an illegal agreement with a competing oncology group granting FCS exclusivity to provide all medical oncology services in the region and the competing group the provision of all radiation cancer treatments. Specifically, Dr. Harwin allegedly actively monitored and enforced the conspiracy through communications with the unnamed competitor. In responding to the indictment, Dr. Harwin denied the allegations and indicated he would defend himself and his reputation in the medical community.
Dr. Harwin is the first individual indictment from the Division’s ongoing investigation into anticompetitive conduct in the oncology industry. Earlier this year, FCS entered into a deferred prosecution agreement with Division, under which the company agreed to pay a $100 million criminal penalty. No charges have been filed against any FCS’s alleged co-conspirator to date.
Key Point: International enforcers met to discuss how to apply antitrust laws in the digital age, including the impact of the digital economy on cartel enforcement.
The Division and Federal Trade Commission (FTC) hosted the ICN’s 19th Annual Conference on September 14 – 17, 2020, attended by over 2,500 delegates from national competition authorities, international organizations, and legal and academic institutions. The virtual conference addressed a range of topics related to international enforcement and policy, focusing in particular on antitrust issues in the digital economy.
Assistant Attorney General Makan Delrahim of the Antitrust Division addressed the conference, emphasizing that “[g]lobal engagement through ICN” is “essential to [the FTC’s] work in preserving market competition in the United States.” FTC Chairman Joseph J. Simons similarly noted the “strong commitment of the global competition community to reaffirming the central importance of competition policy to growth, innovation, and economic recovery ... [i]n these challenging times.”
One focus area for the ICN’s cartel working group was the intersection of big data and cartels, and the various ways in which the explosion of big data, coupled with the increasing use of algorithms and similar tools to analyze such data, could lead to a new generation of cartels. The working group discussed the ways in which algorithms could carry out and enforce a cartel agreement, whether by monitoring and responding to price changes to automated bid rigging. While enforcers around the globe have written extensively on the subject, there are still few cases that illustrate this concern in practice. Russia’s competition enforcer, the Federal Antimonopoly Service (FAS), pointed to its recent action against the country’s largest oil traders for coordinating trades of oil products as an example of this emerging threat. The FAS has indicated that its determination that trades took place via the same computer was a “key” piece of evidence, but has not released further details yet.
The recent ICN meeting underscores the extent to which international cooperation and increased scrutiny of digital markets are two significant competition trends that will have a lasting effect on the enforcement landscape.
*Morrison & Foerster associate Haydn Forrest assisted in the preparation of this edition