On May 16, 2018, the Department of Justice (“DOJ”) announced that a federal grand jury returned an indictment against Christopher Lischewski, the President and CEO of Bumble Bee Foods LLC (“Bumble Bee”), for participating in a conspiracy to fix prices for packaged seafood sold in the United States.

The indictment, filed in the U.S. District Court for the Northern District of California in San Francisco, charges Lischewski with participating in a conspiracy to fix prices of packaged seafood beginning in or about November 2010 until December 2013.  The one-count felony indictment charges that Lischewski carried out the conspiracy by agreeing to fix the prices of packaged seafood during meetings and other communications.  The co-conspirators issued price announcements and pricing guidance in accordance with these agreements.

Bumble Bee has already pleaded guilty and been sentenced to pay a criminal fine of at least $25 million as a result of the government’s ongoing investigation.

Bumble Bee CEO Indicted After Merger Review Debacle

The indictment of the Bumble CEO serves as a reminder to corporate executives and antitrust counsel that merger investigations can lead to serious trouble and even criminal prosecution.  In 2015, the DOJ informed Thai Union Group P.C.L., owner of Tri-Union Seafoods LLC, doing business as Chicken of the Sea International, and Bumble Bee that it had serious concerns about their deal.  The parties ended up abandoning the transaction but not until after providing the government with a lot of documents and information that the civil lawyers passed on to the criminal section.

Thai Union’s proposed acquisition of Bumble Bee would have combined the second and third largest sellers of shelf-stable tuna in the United States in a market long dominated by three major brands.  Reducing competition from three to two always draws scrutiny so it should have been no surprise that the parties received second requests for information.  When the DOJ completed the merger investigation, the DOJ said it was convinced that the parties knew or should have known from the get go that the market was not functioning competitively so further consolidation would only have made things worse.  Indeed, this deal should not have ever made it out of the boardroom.

Observations

Corporate executives and antitrust counsel must be mindful of the risks of turning over ordinary business documents and information to civil antitrust lawyers in a merger investigation.  Part of the company’s review is to determine whether the documents tell a competitive story so turning over documents demonstrate the merging parties and the industry is acting anticompetitively is certainly counterproductive.  While the government’s antitrust lawyers might be tasked with a merger review, merging parties should understand that they do not operate in a silo.  Civil antitrust lawyers at the DOJ and the Federal Trade Commission closely review the documents and if they spot anticompetitive activity within an industry, merging parties can expect an industry wide criminal or civil investigation into the conduct uncovered.  This is not the first time a merger review has resulted in an industry wide investigation, and it likely won’t be the last.  One thing is for sure, it is hard to imagine a worse-case scenario resulting from a failed merger.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Alabama Public Real Estate Auction Investigation

On October 31, 2014, the Antitrust Division announced that an Alabama real estate investor pleaded guilty for his role in a conspiracy to commit mail fraud related to public real estate foreclosure auctions held in southern Alabama.

To date, 10 individuals and two companies have pleaded guilty in connection with the DOJ’s ongoing investigation into bid rigging and fraudulent schemes in the Alabama real estate foreclosure auction industry.

Chad E. Foster, a resident of Theodore, Alabama, is the latest to plead guilty to an indictment filed in the U.S. District Court for the Southern District of Alabama.  Mr. Foster was charged with one count of conspiracy to commit mail fraud affecting a financial institution.  According to court documents, Mr. Foster knowingly joined a conspiracy with others to fraudulently acquire title to selected properties at artificially suppressed prices, to conduct secret, second auctions open only to members of the conspiracy, to make payoffs to and receive payoffs from co-conspirators, and to divert money away from financial institutions, homeowners and others with a legal interest in selected properties.

The charge of conspiracy to commit mail fraud affecting a financial institution is extremely serious as it carries a maximum penalty of 30 years in prison and a $1 million fine.

The Antitrust Division’s Washington Criminal II Section and the FBI’s Mobile Field Office, with the assistance of the U.S. Attorney’s Office for the Southern District of Alabama has an ongoing investigation concerning bid rigging or fraud related to public real estate foreclosure auctions in Alabama.

Northern California Public Real Estate Auction Investigation

On October 21, 2014, the Antitrust Division announced that a federal grand jury in San Francisco returned an eight-count indictment against five real estate investors for their role in bid rigging and fraud schemes at foreclosure auctions in Northern California.

The indictment was filed in the Northern District of California in San Francisco, California.  The indictment charged Joseph Giraudo, Raymond Grinsell, Kevin Cullinane, James Appenrodt and Abraham Farag with participating in conspiracies to rig bids and schemes to defraud mortgage holders and others in violation of the Sherman Act.  The indictment alleges, among other things, that beginning in August 2008 and continuing until January 2011, the defendants agreed to rig bids to obtain properties sold at public foreclosure auctions in San Mateo and San Francisco counties, California, paid others not to bid, accepted payoffs not to bid, in turn defrauding financial institutions, mortgage holders, and struggling home owners.  Additionally, Mr. Giraudo, Mr. Grinsell and Mr. Appenrodt were charged with mail fraud.

Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  Each count of mail fraud carries a maximum sentence of 20 years in prison and a $1 million fine.  The government can also seek to forfeit the proceeds earned from participating in the mail fraud schemes.  The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million.

These were the latest indictments in the DOJ’s ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa, and Alameda counties, California.  The ongoing investigation is conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office.

To date, 47 individuals have agreed to plead or have pleaded guilty, as a result of the DOJ’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.

Lessons Learned

The Antitrust Division continues to punish real estate investors engaged in illegal activity.  Indeed, October was another busy month for criminal enforcement.  The guilty plea in Alabama and the indictments in Northern California demonstrate the Antitrust Division’s resolve to prosecute individuals who violate the Sherman Act by conspiring to defraud distressed homeowners and financial institutions and rigging bids at foreclosure auctions.  Real estate investors must understand that entering into an agreement to bid or not to bid with other individual real estate investors to obtain properties at a public auction is illegal and can lead to jail time.  Indeed, the Antitrust Division will continue to hold accountable individuals who subvert the competitive process for their own gains and profit illegally at the expense of struggling homeowners and mortgage holders.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

In addition, Mr. Hirano was charged with persuading company employees to destroy records that would reveal the conspiracy. According to the indictment, Mr. Hirano learned of a Department of Justice (“DOJ”) raid in February 2012, and the same month he encouraged his employees to destroy potentially incriminating documents.

Executives and company employees must understand that the destruction of documents during and prior to a government investigation will only cause more legal problems.  Because of technology advancements, the government will learn of the destruction because hitting the delete button is not the end of the document.  The document still exists somewhere.  The proliferation of electronic data storage means that an attempt to destroy documents is much more complicated than it used to be.  A potential evidence destroyer must canvass emails, hard-drives, cloud storage spaces as well as the traditional paper copies. Those who are not thorough enough usually make a bad situation worse, as is the case of Mr. Hirano and Tokai Rikai.  

Andre Barlow
202-589-1838
abarlow@dbmlawgroup.com

Mark Ye
202-589-1834
mye@dbmlawgroup.com

In addition, some rail parts manufacturers are being accused of counterfeiting certificates of quality for parts supplied to KR.

Finally, KR officials stand accused by the Board of Audit and Inspection of overlooking the bid-rigging conducted by construction companies in the railway building tenders for a new project that will create a new link between Wonju and Gangneung provinces.

Around 100 investigators have been sent by the prosecutor to the suppliers’ companies, the homes of KR officials allegedly involved in the affairs, and to KR’s offices.

Mark Ye
202-589-1834
mye@dbmlawgroup.com

In the allegations put forth by the employees, the management of GSK China directed staff to purchase fake receipts to cover up the cost of the bribes paid. In some instances, managers’ bribe directives were sent over personal emails, while junior employees were instructed to take out expenses (on the bribes) on behalf of their managers. All this was done to boost the sale of GSK drugs. These employees were also warned to not implicate their managers in any inquiries.

In March, disgruntled GSK China employees sent 25 representatives to GSK’s China headquarters in Shanghai, demanding reimbursements amounting to thousands of dollars per employee. They also accused the management of threatening them with denied bonuses and dismissal for the bribes, despite simply following the orders of their superiors.

This has come on the heels of a high-profile Chinese probe in July 2013 into bribery and other illicit practices conducted by GSK China. GSK’s China sales have subsequently tumbled, despite the country being a growth market prioritized by the head office in London.

Consequently, GSK announced that it is redoubling efforts to audit expenses claims made by GSK China. In April, the company announced that a “very small percentage” of its 7000-strong China team has been dismissed following an audit of expense claims.

In addition, the company announced a change in the company’s marketing practices, including an end to target-based pay to sales representatives.

In March of 2013, the court found the Albans to have violated the FTC act by illegally providing immigration services to Salvadorian and Honduran immigrants, even though neither they nor their employees were licensed to provide any such services. Under federal regulations, only authorized providers, aside from attorneys, may accept money in exchange for preparing immigration forms on someone else’s behalf.

Despite this, the court found that the Albans took in an estimated $479,000 to $753,000 from unsuspecting immigrants.  “Misleading people to steal their money and destroy their dreams crosses the line,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “The FTC is here to protect people from just these kinds of scams.”

The court order requires Manuel Alban and his wife Lola Alban to pay the refund judgment in installments totaling up to $616,000, depending on the number of victims the FTC is able to locate to receive a refund.

In addition, the order prohibits the defendants, their employees, and others representing them from providing immigration services, misrepresenting anything about goods or services they are promoting.  It also requires all customer information held by the defendants to be destroyed, and all customer information held by a court-ordered monitor to be turned over to the FTC.

The FTC has information in Spanish that explains how to find legitimate free or low-cost immigration advice from authorized providers, and where to report immigration services fraud. Because scammers target immigrants from around the world, the FTC’s immigration-related materials (found here) are also in Chinese, Korean, Kreyòl and Vietnamese.

Mark Ye
202-589-1834
mye@dbmlawgroup.com

According to FTC’s press release, while its debt collection efforts in the past have focused on research and consumer education, the Commission has focused on law enforcement efforts in recent years, especially after the financial crisis.

In 2013, the FTC brought or resolved a total of nine debt collection cases. The FTC brought forth its first enforcement action against text-message debt collection, fined the largest third-party debt collection agency in the world the highest debt collection civil penalty, and obtained temporary restraining orders halting the unlawful conduct and freezing the assets of some defendants while the court case proceeded. For the most egregious violators, the FTC obtained orders which banned the responsible parties permanently from debt collection.

The most common violations cited by the FTC include:

• Failing to notify consumers of their right to dispute and obtain verification of their debts.
• Misleading customers into believing that their debt will cause them to be arrested, have their wages garnished, have the custody over their children stripped, or imprisoned for lengthy periods.
• Continuing debt collection activities without verifying the debt.
• Masquerading as entities other than debt-collection agencies, such as lawyers or law enforcement officers.
• Disclosing the status of customers’ debt to third parties, including family members, neighbors, or employers.
• Making phone calls early in the morning or late in the night, with the intent to harass customers.

The FTC also filed three amicus briefs in the last year. In its brief for the Seventh Circuit, the FTC argued that a payday lender’s mandatory pre-dispute arbitration clauses may be unconscionable, in part because they require alleged debtors to arbitrate in a remote tribal court, effectively pressuring those consumers to abandon their legal claims or defenses. The FTC joined the Consumer Financial Protection Bureau in filing two other amicus briefs. The first, submitted to the Seventh Circuit, argued that a debt collector violates the law whenever its communications tend to deceive or mislead consumers into believing that a time-barred debt could be the subject of a collection suit. The second, submitted to the Second Circuit, argued that debt collectors whose process servers failed to notify consumers that they were being sued violate the Fair Debt Collection Practices Act, which broadly prohibits deceptive and unfair collection practices in any form.

To this end, Wayland credited a great deal of the Division’s successes to what he called “front office” workers, a group of individuals consisting of senior managers and directors of criminal and civil enforcement who scrutinize and filter merger cases, selecting the ones in which litigations seem likely and leaving out the ones the pose no real harm to competition. Through this practice, as Wayland pointed out, the Division is able to maximize its resources and commit itself fully to only the most pressing anti-competitive matters. This is not to say, however, that the Antitrust Division has softened on its litigation abilities. As Wayland reiterated throughout his speech, the Division has taken measures to bolster its legal capabilities to ensure that when litigations do occur, it can win.

Two notable policy changes that Wayland highlighted were the employment of experienced litigation attorneys from across the private sector and the establishment of a training program for young lawyers to hone and refine their trial skills. Overall, the speech reflected an Antitrust Division that is confident in its current capabilities, one that seemed well-equipped to meet the standards that it has set for itself.

Thomas Chao
(202) 589-1834
tchao@dbmlawgroup.com

Kyoungwon Pyo, a senior vice president for Hyosung Corporation, allegedly directed employees to alter corporate documents in July and August 2008 before submitting its documents to the Federal Trade Commission (“FTC”) and DOJ as required in its premerger Notification and Report Form. The DOJ investigated the proposed acquisition and subsequently requested additional documents through a second request. Mr. Pyo allegedly falsified additional documents in August and September 2008 that the DOJ claims misrepresented and minimized the competitive impact that the proposed transaction would have on the market for ATMs in the United States.

Mr. Pyo’s actions not only violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), but it also violated criminal laws. The HSR Act requires companies contemplating mergers and transactions that are in excess of $56.7 million to notify the DOJ and the FTC. Here, Mr. Pyo allegedly falsified documents before and after the receiving the formal second request.

The first set of falsified documents involved Item 4(c) of the Notification and Report Form. In filing the Notification and Report Form as required by the HSR Act, arguably the most important documents required for submission are the item 4(c) documents. Item 4(c) requires that studies, surveys, analyses and reports prepared by officers or directors of the company for evaluating or analyzing the proposed transaction be submitted to the government. At the time of this particular HSR filing, Item 4(d) did not exist. Nevertheless, Item 4(d) is also of importance, as this item requires filing of confidential information memoranda, banker’s books, and other third party consultant materials that also relate to the transaction so any intentional misrepresentations of these documents would be equally scrutinized. The second set of falsified documents submitted to the government was in response to the government’s second request. The documents gathered by the antitrust agencies before and after the second request are used to determine if the transaction may result in harm to competition. By falsifying these documents, the merger review process was tainted.

The criminal penalties imposed on the executive and the company for falsifying documents related to the merger review process sends a message to all senior corporate executives that the DOJ will hold executives accountable for any corrupt actions designed to impact the integrity of the merger review process. The harsh monetary penalties against the company and criminal time for its executive, reinforces the importance of providing accurate and complete responses to government requests for information. The antitrust agencies have always taken the companies’ obligations in connection with the merger review process to conduct a reasonable search for and produce responsive documents very seriously. Harsh penalties including a criminal fine and jail time demonstrate that all companies and executives who are preparing the HSR Notification and Report Forms and are preparing responses to government subpoenas, civil investigative demands, and second requests must take the merger review process and conduct investigations seriously.

Jennifer Om
(202) 589-1834
jom@dbmlawgroup.com

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

According to the Department of Justice (“DOJ), AGI took part in this anticompetitive behavior from 2001 to 2007. Specifically, Mr. Larson and Mr. Corbin were involved in the same conspiracy between March 1, 2005 and July 17, 2007. Mr. Cooley took part in the conspiracy between June 1, 2006 and July 17, 2007.

According to the charges, AGI and its former executives conspired with another ice packaging to company to allocate customers of packaged ice by exchanging information for the purpose of adhering to the agreed customer allocations and refraining from competing for the allocated customers.

AGI and its former executives have agreed to cooperate in the DOJ’s ongoing investigation.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

TFT-LCD panels are used in computer monitors, notebooks, televisions, mobile phones, and other electronic devices. Worldwide sales in 2006 were $70 billion.

Specifically, Epson’s subsidiary Seiko Epson Corporation participated in a conspiracy to fix prices of TFT-LCD panels sold to Motorola for use in Motorola Razr mobile phones from the fall of 2005 to the middle of 2006.

On April 27, 2009, Bock Kwon, a high level executive at LG Display Co. Ltd. (“LG”) pled guilty, agreed to serve one year in prison in the United States and pay a criminal fine of $30,000 for his role the same conspiracy. In March 2009, Hitachi Displays, Ltd. pled guilty and agreed to pay a fine of $31 million for its role in the same conspiracy. In January 2009, three former executives of three different electronics manufacturers pled guilty for their roles in a global price fixing conspiracy in the sale of TFT-LCD panels. According to the Department of Justice, these were the first individuals charged in the investigation into the TFT-LCD industry. On November 12, 2008, LG, Sharp Corp., and Chunghwa Picture Tubes Ltd. pled guilty for their role in a conspiracy to fix prices for LCD panels and agreed to pay criminal fines totaling $585 million.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

Cheng was previously indicted on Feb. 3, 2009, for his participation in a global conspiracy to fix prices of Thin Film Transistor-Liquid Crystal Display (TFT-LCD) panels.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

Although Ms. Blackmon was officially the owner/president of Patriot from November 2003, the operations of Patriot was actually run by Ms. Blackmon’s former employer who also ran other temporary staffing companies. Specifically, Ms. Blackmon admitted to providing false statements so that Patriot could receive a certification under Section 8(a) of the Small Business Act. This certification, designated for small businesses run by economically and socially disadvantaged people, qualified Patriot to receive government contracts specifically set aside for 8(a) companies. Since Ms. Blackmon is an African-American, Patriot qualified for the certification. In addition, Patriot also used Ms. Blackmon’s status as a service-disabled veteran to receive other contracts as well. The government had awarded Patriot $5.4 million in contracts.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

The cleanup of the Federal Creosote site, funded by the EPA and Army Corps of Engineers, was contracted out to private companies that oversaw the removal, treatment and disposal of contaminated soil, as well as other operations at the site. The prime contractor of the site sub-contracted these services to BEI and its co-conspirators.

Mr. Griffiths and his co-conspirators were given bid prices so BEI could bid the highest price and be awarded the sub-contract at the Federal Creosote site. On one occasion, Griffiths and his co-conspirators received $1.3 million in kickbacks from an inflated bid. Kickbacks usually took the form of wired transfers, lavish cruises, various entertainment tickets, pharmaceuticals and home entertainment electronics. In all, Mr. Griffiths and his co-conspirators were awarded $43 million in fraudulent sub-contracts. The conspiracy took place between December 2001 and August 2004.

Furthermore, Mr. Griffiths admitted in being involved in an international money-laundering scheme with another co-conspirator. From February 2003 to September 2004, Griffiths and his co-conspirator personally received $1 million in kickbacks through his shell company and laundered over $200,000 of the kickbacks to the co-conspirator’s bank account in New Jersey. Mr. Griffiths also pled guilty to a third charge of impeding an official proceeding of the SEC by providing false statements regarding his role in the fraudulent scheme.

On June 25, 2009, Frederick Landgraber, a co-owner of a New Jersey landscaping company, plead guilty to his role in a fraud conspiracy at Federal Creosote site. On February 26, 2009, Christopher Tranchina, an employee of a company temporarily responsible for electrical utilities, pled guilty to defrauding the EPA at that site. He is schedule for sentencing on July 13, 2009. On December 18, 2008, Zul Tejpar, a former employee at Bennett Environmental Industries pled guilty for defrauding the EPA at Federal Creosote site and agreed to pay a criminal fine of $1 million and help in the ongoing investigation. As a part of the same investigation, on July 31, 2008, Mr. Tejpar’s former employer, BEI, pled guilty and agreed to pay $1 million criminal fine for its role in a conspiracy to defraud the EPA at designated Superfund site, Federal Creosote in Manville, NJ. On June 23, 2008, JMJ Environmental Inc., a New Jersey wastewater treatment supply company, and its executives pled guilty to defraud the EPA at two New Jersey Superfund sites, including the Federal Creosote site.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

Mr. March participated in the conspiracy from June 2002 and December 2002. He as agreed to cooperate with the Department of Justice’s ongoing investigation. Several other executives have already pled guilty for participating in this conspiracy.

On November 17, 2008, Andrew Barmakian, the former president of a California-based marine products company, pled guilty and agreed to serve a sentence and pay a criminal fine for his role in a conspiracy to rig bids for contracts for marine products purchased by the U.S. Navy, the U.S. Coast Guard, and other private companies. In June 2008, Charles N. Kriss, a former New York City Department of Citywide Administrative Services engineer, pled guilty to conspire to commit bribery by accepting bribes from a co-conspirator company supplying New York City with plastic marine pilings for the project. In May 2007, Robert Taylor, a former employee of a Virginia based marine products firm, pled guilty to multiple felonies, including a charge of conspiring to bribe Mr. Kriss. Mr. Taylor’s company charged an extra 10 percent to purchase orders worth approximately $400,000 and used this money to pay Mr. Kriss. In January 2008, a court sentenced Mr. Taylor to serve two years in prison and a pay a fine of $300,000.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

While working on detail at Camp Arifjan, Kuwait, he failed to properly file tax returns by not reporting overseas bank accounts in the United States and Jersey Channel Islands.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

Mr. Landgraber was involved in the conspiracy from March 2002 to June 2005. Mr. Landgraber paid $30,000 to an employee prime contractor at Federal Creosote so that employee would steer contracts to Mr. Landgraber’s landscaping company. He and his co-conspirator intentionally bid increased cover bids from fictitious companies to secure the bids for their companies. His company received $1.5 million in sub-contracts at the Superfund-site.

On February 26, 2009, Christopher Tranchina, an employee of a company temporarily responsible for electrical utilities pled guilty to defrauding the EPA at that site. He is schedule for sentencing on July 13, 2009. On December 18, 2008, Zul Tejpar, a former employee at Bennett Environmental Industries pled guilty for defrauding the EPA at Federal Creosote site and agreed to pay a criminal fine of $1 million and help in the ongoing investigation. As a part of the same investigation, on July 31, 2008, Mr. Tejpar’s former employer, BEI, pled guilty and agreed to pay $1 million criminal fine for its role in a conspiracy to defraud the EPA at designated Superfund site, Federal Creosote in Manville, NJ. On June 23, 2008, JMJ Environmental Inc., a New Jersey wastewater treatment supply company, and its executives pled guilty to defraud the EPA at two New Jersey Superfund sites, including the Federal Creosote site.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com