GE Funding Capital Market Services Inc. Admits to Anticompetitive Conduct by Former Traders in the Municipal Bond Investments Market and Agrees to Pay $70 Million to Federal and State Agencies

WASHINGTON – GE Funding Capital Market Services Inc. entered into an agreement with the Department of Justice to resolve the company’s role in anticompetitive activity in the municipal bond investments market and agreed to pay a total of $70 million in restitution, penalties and disgorgement to federal and state agencies, the Department of Justice announced today.

 

 As part of its agreement with the department, GE Funding admits, acknowledges and accepts responsibility for illegal, anticompetitive conduct by its former traders.  According to the non-prosecution agreement, from 1999 through 2004, certain former GE Funding traders entered into unlawful agreements to manipulate the bidding process on municipal investment and related contracts, and caused GE Funding to make payments and engage in other related activities in connection with those agreements through at least 2006.  These contracts were used to invest the proceeds of, or manage the risks associated with, bond issuances by municipalities and other public entities.

 

 “GE Funding’s former traders entered into illegal agreements to manipulate the bidding process on municipal investment contracts,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Justice Department’s Antitrust Division.  “This anticompetitive conduct harmed municipalities, as well as taxpayers.  Today’s resolution requires GE Funding to pay penalties, disgorgement and restitution to the victims of its illegal activity.  We will continue to use all the tools at our disposal to uphold our nation’s antitrust laws and ensure competition in the financial markets.”

 

Under the terms of the agreement, GE Funding agreed to pay restitution to victims of the anticompetitive conduct and to cooperate fully with the Justice Department’s Antitrust Division in its ongoing investigation into anticompetitive conduct in the municipal bond derivatives industry.  To date, the ongoing investigation has resulted in criminal charges against 18 former executives of various financial services companies and one corporation.  Nine of the 18 executives charged have pleaded guilty.   

 

The Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS) and 25 state attorneys general also entered into agreements with GE Funding requiring the payment of penalties, disgorgement of profits from the illegal conduct and payment of restitution to the victims harmed by the bid manipulation by GE Funding employees, as well as other remedial measures.

 

 As a result of GE Funding’s admission of conduct; its cooperation with the Department of Justice and other enforcement and regulatory agencies; its monetary and non-monetary commitments to the SEC, IRS and state attorneys general; and its remedial efforts to address the anticompetitive conduct, the department agreed not to prosecute GE Funding for the manipulation of bidding for municipal investment and related contracts, provided that GE Funding satisfies its ongoing obligations under the agreement.

 

 JPMorgan Chase & Co., UBS AG and Wachovia Bank N.A. also reached agreements with the Department of Justice and other federal and state agencies to resolve anticompetitive conduct in the municipal bond derivatives market.  On May 4, 2011, UBS AG agreed to pay a total of $160 million in restitution, penalties and disgorgement to federal and state agencies for its participation in the anticompetitive conduct.  On July 7, 2011, JPMorgan agreed to pay a total of $228 million in restitution, penalties and disgorgement to federal and state agencies for its role in the conduct.  On Dec. 8, 2011, Wachovia Bank agreed to pay a total of $148 million in restitution, penalties and disgorgement to federal and state agencies for its participation in the anticompetitive conduct.

 

 The department’s ongoing investigation into the municipal bonds industry is being conducted by the Antitrust Division, the FBI and the IRS-Criminal Investigation.  The department is coordinating its investigation with the SEC, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.  The department thanks the SEC, IRS and state attorneys general for their cooperation and assistance in this matter.

 

The Antitrust Division, SEC, IRS, FBI and state attorneys general are members of the Financial Fraud Enforcement Task Force.  President Obama established the interagency task force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information about the task force, visit Stopfraud.gov.

Department of Justice and Federal Trade Commission Meet with Chinese Ministry of Commerce on Merger Enforcement Matters

WASHINGTON – Acting Assistant Attorney General Sharis Pozen of the Department of Justice’s Antitrust Division and Federal Trade Commission (FTC) Chairman Jon Leibowitz today met with a delegation from China’s Ministry of Commerce (MOFCOM) to discuss antitrust merger enforcement.  The delegation was led by China International Trade Representative and MOFCOM Vice Minister Gao Hucheng.  MOFCOM is responsible for handling reviews of mergers and acquisitions under China’s Antimonopoly Law.

 

 This is the first high-level MOFCOM visit to the U.S. antitrust agencies since the department and the FTC signed an antitrust memorandum of understanding (MOU) with China’s three antimonopoly agencies in July 2011, to promote communication and cooperation among the antitrust enforcement agencies in both countries.

 

 The discussion topics in today’s meeting included recent antitrust enforcement and policy developments, the role of antitrust enforcement in times of economic downturn and cooperation among the three agencies on merger enforcement issues.  The three agencies developed further guidance for cooperation on investigations when one of the U.S. antitrust agencies and MOFCOM are reviewing the same merger.

 

Department and FTC officials said that the discussions with the delegation from MOFCOM were productive, and that they look forward to continuing their cooperative relationship.

SIX JAPANESE FREIGHT FORWARDING COMPANIES AGREE TO PLEAD GUILTY TO CRIMINAL PRICE-FIXING CHARGES

Companies Agree to Pay a Total of $46.8 Million in Criminal Fines

WASHINGTON — Six Japanese freight forwarders have agreed to plead guilty and to pay criminal fines totaling $46.8 million for their roles in a conspiracy to fix certain fees in connection with the provision of freight forwarding services for air cargo shipments from Japan to the United States, the Department of Justice announced today. These are the second round of charges filed as a result of the department's antitrust investigation of the freight forwarding industry.

According to charges filed separately today in U.S. District Court for the District of Columbia, six companies - Kintetsu World Express Inc.; Hankyu Hanshin Express Co. Ltd.; Nippon Express Co. Ltd.; Nissin Corporation; Nishi-Nippon Railroad Co. Ltd.; and Vantec Corporation - engaged in a conspiracy to fix and impose certain freight forwarding service fees, including fuel surcharges and various security fees, charged to customers for services provided in connection with air freight forwarding shipments of cargo shipped by air from Japan to the United States from about September 2002 until at least November 2007.

Under the plea agreements, which are subject to court approval, the six companies have agreed to pay the following criminal fines: Kintetsu World Express, $10,465,677; Hankyu Hanshin Express, $4,522,065; Nippon Express, $21,115,396; Nissin Corporation, $2,644,779; Nishi-Nippon Railroad, $4,673,114; and Vantec Corporation, $3,339,648. Each company has also agreed to cooperate with the department's ongoing antitrust investigation.

"Including today's charges, 12 companies have agreed to plead guilty and nearly $100 million in criminal fines have been obtained as a result of the Antitrust Division's ongoing freight forwarding investigation," said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice's Antitrust Division. "Prosecuting these kinds of global price fixing conspiracies, that are harmful to the economy and consumers, has been and will continue to be a top priority of the Antitrust Division."

Freight forwarders manage the domestic and international delivery of cargo for customers by receiving, packaging, preparing and warehousing cargo freight, arranging for cargo shipment through transportation providers such as air carriers, preparing shipment documentation, and providing related ancillary services.

According to the charges, the companies carried out the conspiracy by, among other things, agreeing during meetings and discussions to coordinate and impose certain freight forwarding service fees and charges on customers purchasing freight forwarding services for cargo shipped by air from Japan to the United States. The department said that the companies levied freight forwarding service fees in accordance with the agreements reached and engaged in meetings and discussions for the purpose of monitoring and enforcing adherence to the agreed-upon freight forwarding service fees.

As a result of the department's investigation into the freight forwarding industry, on Sept. 30, 2010, six international freight forwarders - EGL Inc.; Kühne + Nagel International AG; Geologistics International Management (Bermuda) Limited; Panalpina World Transport (Holding) Ltd.; Schenker AG; and BAX Global Inc. - agreed to plead guilty and to pay criminal fines totaling $50.27 million for their roles in several conspiracies to impose certain charges or fees on customers purchasing international freight forwarding services for cargo freight destined for air shipment to the United States during various periods between 2002 and 2007.

Each company is charged with price fixing in violation of the Sherman Act, which carries a maximum $100 million fine for corporations. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today's charges are the result of a joint investigation into the freight forwarding industry being conducted by the Antitrust Division's National Criminal Enforcement Section, the FBI's Washington Field Office and the Department of Commerce's Office of Inspector General. Anyone with information concerning the price fixing or other anticompetitive conduct in the freight forwarding industry is urged to call the Antitrust Division's National Criminal Enforcement Section at 202-307-6694 or visit www.justice.gov/atr/contract/newcase.htm or call the FBI's Washington Field Office at 202-278-2000.

Bridgestone Corporation Agrees to Plead Guilty to Participating in Conspiracies to Rig Bids and Bribe Foreign Government Officials

Company Agrees to Pay $28 Million Criminal Fine

WASHINGTON — Bridgestone Corporation has agreed to plead guilty and to pay a $28 million criminal fine for its role in conspiracies to rig bids and to make corrupt payments to foreign government officials in Latin America related to the sale of marine hose and other industrial products manufactured by the company and sold throughout the world, announced Acting Assistant Attorney General Sharis A. Pozen of the Department of Justice’s Antitrust Division and Assistant Attorney General Lanny A. Breuer of the Department of Justice’s Criminal Division.

A two-count criminal information was filed today in U.S. District Court in Houston against Bridgestone, a Tokyo-headquartered manufacturer of marine hose and other industrial products, charging the company with conspiring to violate the Sherman Act and the Foreign Corrupt Practices Act (FCPA).  According to the court document, Bridgestone conspired to rig bids, fix prices and allocate market shares of marine hose in the United States and elsewhere and, separately, conspired to make corrupt payments to government officials in various Latin American countries to obtain and retain business.  The department said Bridgestone participated in the conspiracies from as early as January 1999, and continuing until as late as May 2007.

Under the terms of the plea agreement, which is subject to court approval, Bridgestone has also agreed to cooperate fully in the department’s ongoing investigations.

Marine hose is a flexible rubber hose used to transfer oil between tankers and storage facilities.  During the bid rigging conspiracy, according to the court document, the cartel affected prices for hundreds of millions of dollars worth of marine hose and related products sold worldwide.

According to the antitrust charge, Bridgestone and its co-conspirators agreed to allocate shares of the marine hose market and to use a price list for marine hose in order to implement the conspiracy.  Bridgestone and its co-conspirators agreed not to compete for one another’s customers either by not submitting prices or bids, or by submitting intentionally high prices or bids to certain customers.  As part of the conspiracy, Bridgestone and its co-conspirators provided information received from customers in the United States and elsewhere about upcoming marine hose jobs to a co-conspirator who served as the coordinator of the conspiracy.  Bridgestone received marine hose prices for customers in the United States and elsewhere from the coordinator of the conspiracy and then sold the marine hose to those customers at collusive and noncompetitive prices and then concealed the conspiracy through various means, including code names, private email accounts and telephone numbers.

The department also charged that, in order to secure sales of marine hose in Latin America, Bridgestone authorized and approved corrupt payments to foreign government officials employed at state-owned entities.  Bridgestone’s local sales agents agreed to pay employees of state-owned customers a percentage of the total value of proposed sales.  When Bridgestone secured a sale, it would pay the local sales agent a “commission” consisting of not only the local sales agent’s actual commission but also the corrupt payments to be made to employees of the state-owned customer.  The local sales agent then was responsible for passing the agreed-upon corrupt payment to the employees of the customer.

Bridgestone is the fifth company to be charged in the Antitrust Division’s bid rigging investigation.  To date, nine individuals have been convicted and sentenced to a total of 4,557 days in prison for their involvement in the marine hose conspiracy, including Misao Hioki, the former general manager of Bridgestone’s international engineered products department, who was sentenced to two years in prison on Dec. 10, 2008.  Hioki also pleaded guilty and was sentenced for his role in the FCPA conspiracy.

Bridgestone is charged with conspiring to violate the Sherman Act, which carries a maximum $100 million criminal fine for corporations.  Bridgestone is also charged with conspiring to violate the FCPA, which carries a maximum $500,000 fine for corporations.  The maximum fine for each count may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Under t he plea agreement, the department recognized Bridgestone’s cooperation with the investigations, including conducting a worldwide internal investigation, voluntarily making employees available for interviews, and collecting, analyzing and providing to the department voluminous evidence and information.  In addition, the plea agreement acknowledges Bridgestone’s extensive remediation, including restructuring the relevant part of its business, terminating many of its third-party agents and taking remedial actions with respect to employees responsible for many of the corrupt payments.  Under the terms of the plea agreement, Bridgestone has committed to continuing to enhance its compliance program and internal controls.  As a result of these mitigating factors, the department agreed to recommend a substantially reduced fine.

This case is being prosecuted by the Antitrust Division’s National Criminal Enforcement Section and the Criminal Division’s Fraud Section.  In addition to the Antitrust and Criminal Divisions, the ongoing investigation is being conducted by the Defense Criminal Investigative Service (DCIS) of the Department of Defense’s Office of Inspector General, the U.S. Navy Criminal Investigative Service and the FBI.  Law enforcement agencies from multiple foreign jurisdictions are also investigating or assisting in the ongoing matter.

Anyone with information concerning bid rigging or other anticompetitive conduct in the marine products industry is urged to call the Antitrust Division’s National Criminal Enforcement Section at 202-307-6694, visit www.justice.gov/atr/contact/newcase.htm or the Long Beach, Calif., Resident Agency of the DCIS at 562-256-2501.  Anyone with information concerning corrupt payments to foreign officials is urged to e-mail the Criminal Division’s Fraud Section at FCPA.Fraud@usdoj.gov or to call 202-514-7023.  To learn more about the department’s ongoing FCPA enforcement efforts, go to www.justice.gov/criminal/fraud/fcpa.

CSK Auto Corporation Agrees to Pay $20.9 Million to Resolve Violations of Securities Laws Related to Scheme to Manipulate Corporate Earnings

WASHINGTON – CSK Auto Corporation, a specialty retailer of automotive parts and accessories and formerly a publicly-traded company, has agreed to pay a $20.9 million penalty to resolve securities law violations stemming from a corporate earnings manipulation and double-billing scheme, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division.

As part of an agreement with the Department of Justice, CSK has accepted responsibility for the illegal conduct of its former employees.  According to the non-prosecution agreement, from 2001 through 2006, certain former CSK employees, including senior executives, conspired to willfully manipulate CSK’s earnings.   To date, the criminal investigation has resulted in charges against three former CSK executives, all of whom have pleaded guilty.  Don W. Watson, CSK’s former chief financial officer, pleaded guilty to conspiracy to commit securities and mail fraud in connection with the scheme.  Edward W. O’Brien III, the former controller of CSK, and Gary M. Opper, the former director of credits and receivables at CSK, each pleaded guilty to obstruction of justice for making material false statements during an internal investigation of CSK’s accounting practices.  

As part of an agreement with the Department of Justice, CSK has accepted responsibility for the illegal conduct of its former employees.  According to the non-prosecution agreement, from 2001 through 2006, certain former CSK employees, including senior executives, conspired to willfully manipulate CSK’s earnings. 

According to the agreement, CSK purchased hundreds of millions of dollars in automotive parts and accessories every year from vendors.  CSK received vendor allowances, or discounts, on its purchases in return for marketing vendors’ products for sale in CSK’s stores.  These allowances reduced CSK’s expenses and thereby increased its pre-tax income.  CSK recognized vendor allowances based on anticipated purchases from vendors.  According to the agreement, certain employees manipulated CSK’s largest and most lucrative vendor allowance program by concealing amounts it had recognized based on anticipated purchases that ultimately did not take place, thus making the allowances uncollectible.  The employees concealed these uncollectible amounts by applying collections for allowances from subsequent years to cover shortfalls in collections from prior years and by moving uncollectible balances to subsequent years.  In so doing, the employees gave the false appearance that CSK had collected or was going to collect vendor allowances that it had already recognized as earnings.  As a result of these manipulations, the employees caused CSK to conceal approximately $52 million in uncollectable receivables for fiscal years 2002 through 2004.  By failing to write off uncollectible balances in these fiscal years, CSK overstated its pre-tax income in its public filings. 

According to the agreement, in July 2005, CSK employees attempted to conceal their scheme by billing CSK’s vendors for approximately $30 million in vendor allowances, approximately $15 million of which they knew the vendors did not owe CSK.  Additionally, throughout the duration of the scheme, they provided false information to CSK’s independent auditor to further conceal the accounting improprieties. 

O’Reilly Automotive Inc., which acquired CSK after the accounting improprieties were uncovered and disclosed to the government, is also a party to the non-prosecution agreement because of its acquisition of CSK.  The agreement and monetary penalty recognizes CSK’s timely, voluntary and complete disclosure of the illegal conduct; CSK’s and O’Reilly’s thorough cooperation with the government’s investigation; O’Reilly’s extensive remedial efforts pertaining to CSK’s internal training, compliance and reporting; and O’Reilly’s acquisition of CSK after the illegal conduct was discovered and disclosed to the government.  As a result of these mitigating factors, the department agreed not to prosecute CSK or O’Reilly for the manipulation of CSK’s earnings, provided that CSK and O’Reilly satisfy their ongoing obligations under the agreement for a period of two years. 

The sentencings for the CSK executives are scheduled to take place in Phoenix in September and November before U.S. District Judge Susan Bolton. 

The U.S. Securities and Exchange Commission (SEC) conducted its own investigation, which resulted in a filed action against CSK and pending actions against Watson, O’Brien and Opper.  The SEC also referred the conduct to the department.

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Andrew H. Warren of the Criminal Division’s Fraud Section.  The case is being investigated by the FBI, the IRS-Criminal Investigation and the U.S. Postal Inspection Service.  The department thanks those agencies as well as the SEC for their substantial assistance in this matter.

Former Citigroup Vice President Pleads Guilty to Bank Fraud for Embezzling More Than $22 Million

Gary Foster, a former vice president in Citigroup, Inc.’s treasury finance department, pleaded guilty today to bank fraud arising from his embezzlement of more than $22 million from Citigroup. Foster entered his plea before the Hon. Eric N. Vitaliano, United States District Judge, at the United States Courthouse in Brooklyn.

The guilty plea was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and Janice K. Fedarcyk, Assistant Director in Charge, Federal Bureau of Investigation, New York Field Office.

According to the charging documents, between September 2003 and June 2011, Foster first transferred money from various Citigroup accounts to Citigroup’s cash account, then wired the money to his personal bank account at another bank. Foster concealed his thefts by making various false accounting entries to create the appearance that the cash account was in balance and by placing a fraudulent contract or deal number in the reference line of the wire transfer instructions to give the appearance that the wire transfers were actually in support of an existing Citigroup contract. Foster used the money to buy real estate and luxury automobiles, including a Ferrari and a Maserati. The government has restrained real estate purchased by Foster in Brooklyn, Manhattan, and New Jersey and seized numerous luxury automobiles and bank accounts that Foster controlled. In total, the value of the seized and restrained property is estimated to be approximately $16 million. Foster will forfeit the property pursuant to his plea agreement.

“The defendant violated his employer’s trust and stole a stunning amount of money over an extended period of time to finance his personal lifestyle,” stated United States Attorney Lynch. “We will vigorously investigate and prosecute such conduct and seek to recover as much of the proceeds as possible.”

“Foster exploited his position as a trusted insider to embezzle tens of millions of dollars and to conceal the theft for as long as possible. The FBI is determined to uncover bank larceny in any form,” said FBI Assistant Director in Charge Fedarcyk.

The defendant faces a maximum sentence of 30 years’ imprisonment on the bank fraud charges.

The government’s case is being prosecuted by Assistant United States Attorneys Michael L. Yaeger and Karen R. Hennigan.

The Defendant:

GARY FOSTER Age: 35

Brookline Man Pleads Guilty to Foreign Economic Espionage

BOSTON—A Brookline man pleaded guilty today to foreign economic espionage. This is the first prosecution in Massachusetts for foreign economic espionage and only the eighth in the nation.

ELLIOT DOXER, 43, pleaded guilty before U.S. District Judge Denise J. Casper to one count of foreign economic espionage for providing trade secrets over an 18-month period to an undercover federal agent posing as an Israeli intelligence officer.

The parties stipulated in an agreed statement of facts that on June 22, 2006, DOXER sent an e-mail to the Israeli consulate in Boston stating that he worked in the finance department of Akamai Technologies, Inc., and was willing to provide any information that might help Israel. In later communications, DOXER said that his chief desire “was to help our homeland and our war against our enemies.” He also asked for payment in light of the risks he was taking.

In September 2007, a federal agent posing as an undercover Israeli intelligence officer spoke to DOXER and established a “dead drop” where the agent and DOXER could exchange written communications. From October 2007 through March 2009, DOXER visited the dead drop at least 62 times to leave information, retrieve communications, and check for new communications.

Included in the trade secret information that DOXER provided the undercover agent were an extensive list of Akamai’s customers; contracts between the company and various customers revealing contact, services, pricing, and termination date information; and a comprehensive list of the company’s employees that revealed their positions and full contact information. DOXER also broadly described the company’s physical and computer security systems and stated that he could travel to the foreign country and could support special and sensitive operations in his local area if needed. Because Akamai’s information was disclosed only to an undercover agent from the beginning, the information was never in danger of actual exposure outside the company.

We acknowledge the government of Israel for their cooperation in this investigation, and underscore that the information does not allege that the government of Israel or anyone acting on its behalf committed any offense under U.S. laws in this case. We would also like to acknowledge and thank Akamai Technologies, Inc., for its assistance throughout all stages of the investigation and prosecution.

DOXER was arrested on October 6, 2010, on a complaint charging him with wire fraud.

That charge will be dismissed at the end of this case as part of the plea agreement. The charge of foreign economic espionage carries a maximum penalty of 15 years in prison, a three-year term of supervised release and a $500,000 fine. Judge Casper scheduled sentencing for November 30, 2011.

United States Attorney Carmen M. Ortiz and Richard DesLauriers, Special Agent in Charge of the Federal Bureau of Investigation - Boston Field Office made the announcement today. The case is being prosecuted by Assistant U.S. Attorneys William D. Weinreb and Scott L. Garland, respectively in Ortiz’s Antiterrorism and National Security Unit and Cybercrimes Unit, and by Trial Attorneys Kathleen Kedian and David Recker of the Department of Justices’s Counterespionage Section.

JUSTICE DEPARTMENT FILES ANTITRUST LAWSUIT TO BLOCK AT&T’S ACQUISITION OF T-MOBILE

Transaction Would Reduce Competition in Mobile Wireless Telecommunications Services, Resulting in Higher Prices, Poorer Quality Services, Fewer Choices and Fewer Innovative Products for Millions of American Consumers

WASHINGTON — The Department of Justice today filed a civil antitrust lawsuit to block AT&T Inc.’s proposed acquisition of T-Mobile USA Inc.  The department said that the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives.

The department’s lawsuit, filed in U.S. District Court for the District of Columbia, seeks to prevent AT&T from acquiring T-Mobile from Deutsche Telekom AG.

“The combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services,” said Deputy Attorney General James M. Cole.  “Consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers, particularly the four remaining national carriers.  This lawsuit seeks to ensure that everyone can continue to receive the benefits of that competition.”

“T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.  “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.” 

Mobile wireless telecommunications services play a critical role in the way Americans live and work, with more than 300 million feature phones, smart phones, data cards, tablets and other mobile wireless devices in service today.  Four nationwide providers of these services – AT&T, T-Mobile, Sprint and Verizon – account for more than 90 percent of mobile wireless connections.  The proposed acquisition would combine two of those four, eliminating from the market T-Mobile, a firm that historically has been a value provider, offering particularly aggressive pricing. 

According to the complaint, AT&T and T-Mobile compete head to head nationwide, including in 97 of the nation’s largest 100 cellular marketing areas.  They also compete nationwide to attract business and government customers.  AT&T’s acquisition of T-Mobile would eliminate a company that has been a disruptive force through low pricing and innovation by competing aggressively in the mobile wireless telecommunications services marketplace. 

The complaint cites a T-Mobile document in which T-Mobile explains that it has been responsible for a number of significant “firsts” in the U.S. mobile wireless industry, including the first handset using the Android operating system, Blackberry wireless email, the Sidekick, national Wi-Fi “hotspot” access, and a variety of unlimited service plans.  T-Mobile was also the first company to roll out a nationwide high-speed data network based on advanced HSPA+ (High-Speed Packet Access) technology.  The complaint states that by January 2011, an AT&T employee was observing that “[T-Mobile] was first to have HSPA+ devices in their portfolio…we added them in reaction to potential loss of speed claims.”

The complaint details other ways that AT&T felt competitive pressure from T-Mobile.  The complaint quotes T-Mobile documents describing the company’s important role in the market:

T-Mobile sees itself as “the No. 1 value challenger of the established big guys in the market and as well positioned in a consolidated 4-player national market”; and

T-Mobile’s strategy is to “attack incumbents and find innovative ways to overcome scale disadvantages.  [T-Mobile] will be faster, more agile, and scrappy, with diligence on decisions and costs both big and small.  Our approach to market will not be conventional, and we will push to the boundaries where possible. . . . [T-Mobile] will champion the customer and break down industry barriers with innovations. . . .”

The complaint also states that regional providers face significant competitive limitations, largely stemming from their lack of national networks, and are therefore limited in their ability to compete with the four national carriers.  And, the department said that any potential entry from a new mobile wireless telecommunications services provider would be unable to offset the transaction’s anticompetitive effects because it would be difficult, time-consuming and expensive, requiring spectrum licenses and the construction of a network.

The department said that it gave serious consideration to the efficiencies that the merging parties claim would result from the transaction.  The department concluded AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction’s substantial adverse impact on competition and consumers.  Moreover, the department said that AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor.

AT&T is a Delaware corporation headquartered in Dallas.  AT&T is one of the world’s largest providers of communications services, and is the second largest mobile wireless telecommunications services provider in the United States as measured by subscribers.  It serves approximately 98.6 million connections to wireless devices.  In 2010, AT&T earned mobile wireless telecommunications services revenues of $53.5 billion, and its total revenues were in excess of $124 billion.

T-Mobile, is a Delaware corporation headquartered in Bellevue, Wash.  T-Mobile is the fourth-largest mobile wireless telecommunications services provider in the United States as measured by subscribers, and serves approximately 33.6 million wireless connections to wireless devices.  In 2010, T-Mobile earned mobile wireless telecommunications services revenues of $18.7 billion.  T-Mobile is a wholly-owned subsidiary of Deutsche Telekom AG.

Deutsche Telekom AG is a German corporation headquartered in Bonn, Germany.  It is the largest telecommunications operator in Europe with wireline and wireless interests in numerous countries and total annual revenues in 2010 of €62.4 billion.

California Aftermarket Auto Lights Distributor Agrees to Plead Guilty in Price-Fixing Conspiracy

WASHINGTON – A California aftermarket auto lights distributor has agreed to plead guilty today for its participation in a global conspiracy to fix the prices of aftermarket auto lights, the Department of Justice announced.  Aftermarket auto lights are incorporated into an automobile after its original sale, often as repairs following a collision or as accessories and upgrades.

According to a one-count felony charge filed today in U.S. District Court in San Francisco, Sabry Lee (U.S.A.) Inc. conspired with others to suppress and eliminate competition by fixing the prices of aftermarket auto lights.  The department said that Sabry Lee, a U.S. distributor for a Taiwan producer of aftermarket auto lights, participated in the conspiracy from about September 2003 until about September 2005.  Under Sabry Lee’s plea agreement, which is subject to court approval, the company has agreed to pay a $200,000 criminal fine and to assist the department in its ongoing investigation into the aftermarket auto lights industry.

According to the charge, Sabry Lee and co-conspirators participated in a conspiracy in which the participants met and agreed to charge prices of aftermarket auto lights at certain predetermined levels.  According to the court documents, the participants in the conspiracy issued price announcements and price lists in accordance with the agreements reached, and collected and exchanged information on prices and sales of aftermarket auto lights for the purpose of monitoring and enforcing adherence to the agreed-upon prices.  The department said that the conspirators met in Taiwan, the United States and elsewhere for their discussions.

Sabry Lee is the first corporation to be charged in connection with the department’s ongoing investigation into the aftermarket auto lights industry.  Three individuals have also been charged.  Polo Shu-Sheng Hsu, the former president and chief executive officer of a U.S. distributor of aftermarket auto lights, entered his guilty plea on March 29, 2011, and was sentenced to serve 180 days in prison and to pay a $25,000 criminal fine.  Chien Chung Chen, aka Andrew Chen, the former executive vice president of Sabry Lee, pleaded guilty to his participation in the conspiracy on June 7, 2011.  He is currently scheduled to be sentenced on Dec. 13, 2011.  Homy Hong-Ming Hsu was arrested at Los Angeles International Airport on July 12, 2011, and indicted on July 19, 2011.  Homy Hong-Ming Hsu is the vice chairman and second highest-ranking officer of a Taiwan manufacturer of aftermarket auto lights.

Sabry Lee is charged with violating the Sherman Act, which carries a maximum penalty of a $100 million criminal fine.  The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims, if either of those amounts is greater than the statutory maximum fine.

This case is part of an ongoing joint investigation of the Department of Justice Antitrust Division’s San Francisco Office and the FBI in San Francisco.  Anyone with information concerning illegal or anticompetitive conduct in the aftermarket auto lights industry is urged to call the Antitrust Division’s San Francisco Field Office at 415-436-6660 or visit www.justice.gov/atr/contact/newcase.htm.

Leader of International Conspiracy Convicted of Defrauding the Military and Smuggling Gold

WASHINGTON – Roger Charles Day Jr. was found guilty late yesterday of leading an international conspiracy to sell more than $4.4 million in nonconforming and defective parts to the Department of Defense (DOD).

The guilty verdict was announced today by U.S. Attorney Neil H. MacBride of the Eastern District of Virginia; Assistant Attorney General Lanny A. Breuer of the Criminal Division; Special Agent in Charge Robert E. Craig of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office; and Special Agent in Charge Edward T. Bradley of the DCIS Northeast Field Office.

After a nine-day trial, Day, 47, formerly of Long Valley, N.J., was found guilty by the jury on all counts.   Day was charged in July 2008 with conspiracy to commit wire fraud, wire fraud, conspiracy to engage in international money laundering, and conspiracy to smuggle gold out of the United States.   Day was extradited from Mexico in December 2010. Day’s sentencing is scheduled for Dec. 15, 2011.

“The evidence showed that Mr. Day, a serial criminal, used other people like commodities to aid and assist his criminal enterprise,” said U.S. Attorney MacBride. “He sent the military bogus parts to critical application items, which were essential to ensuring the performance of our warfighters and the safety of our military personnel.   The verdict shows that criminals such as Mr. Day will be brought to justice even when they orchestrate complex crimes.”

“Mr. Day masterminded a sophisticated and dangerous conspiracy to profit from the sale of defective parts to the U.S. military,” said Assistant Attorney General Breuer.   “He foolishly put our nation’s security at risk for the sake of personal riches.   Yesterday, a Richmond jury convicted Day for his cowardly crimes, and now he faces the prospect of significant prison time.”   

“Over the past two decades, Roger Day has perpetrated a number of schemes in attempts to defraud the Department of Defense,” said DCIS Special Agents in Charge Craig and Bradley in a joint statement.   “Yesterday’s guilty verdict on all counts brings justice to bear on his criminal activity once again.   It is regrettable that even at a time when this country continues to fight terrorism in a hostile environment overseas, individuals such as Day are willing to attempt to enrich themselves through corrupt activity, at the expense of our brave men and women in the Armed Forces.   The Defense Criminal Investigative Service stands committed to aggressively investigate these crimes and to support their prosecution to the fullest.”

According to the evidence at trial and court documents, over a four-year period Day led a conspiracy to bid on and win contracts to provide parts to the U.S. military through the Defense Logistics Agency (DLA), including through the DLA’s Defense Supply Center in Richmond, Va.   The parts included “critical application items,” which are essential to weapons system performance or operation or to the preservation of life or safety of operation personnel.   Under DOD’s procurement procedures, contractors were permitted to submit electronic invoices upon shipment of the needed parts, and were paid electronically by the Defense Finance and Accounting Service.

In the course of the scheme, Day and other conspirators, operating in the United States, Canada, Mexico and Belize, formed at least 18 separate companies that posed as legitimate contractors and collectively used a computer program to win nearly 1,000 lucrative contract awards for the various companies.  Day and his conspirators then shipped defective parts to the DOD on more than 300 of those contracts, receiving more than $4.4 million in payment on parts that Day purchased for less than $200,000.  In all known cases, the parts sent by Day and his conspirators could not be used for their intended purpose.

Day and his co-conspirators compounded the fraud by concealing their identities through the use of multiple nominee companies and by assuming others’ identities to operate the companies.  When DOD requested proof that the companies had purchased and intended to supply the correct parts from approved manufacturers, Day and others submitted fabricated documents that falsely represented that the correct parts had been purchased.  When DOD debarred several of the companies from doing further business with the military, Day directed his conspirators to discontinue bidding through those companies and instead formed and used new companies. 

According to evidence presented at trial, to conceal the proceeds of the scheme and to prevent recovery, Day directed his conspirators to transfer the scheme’s proceeds to offshore bank accounts and ultimately to purchase more than 3,500 ounces (more than $2.2 million) in gold bars and coins.  Day further directed his conspirators to bring the gold bars and coins to his residence in Lo De Marcos, Mexico.   On one occasion he directed them to hide the gold bars in the modified bumper of a 1979 Toyota LandCruiser and on another occasion in the rear hatch door panel of a 1971 Austrian Pinzgauer military transport vehicle.

At sentencing, Day faces a maximum of 20 years in prison for each count of conspiracy to commit wire fraud and each count of wire fraud, 10 years in prison for each count of conspiracy to engage in international money laundering, and five years in prison for each count of conspiracy to smuggle gold out of the United States.

Prior to Day’s trial, five defendants in this conspiracy pleaded guilty.  Nathan Francis Victor Carroll was sentenced on Nov. 8, 2007, to 94 months in prison and was ordered to pay nearly $3.7 million in restitution.  Gregory Allen Stewart was sentenced on April 29, 2008, to 75 months in prison and was ordered to pay nearly $3.7 million in restitution.  Susan Crotty Neufeld was sentenced on May 14, 2008, to five years of probation and ordered to pay $47,600 in restitution for the gold coins she received.  Juerg Mehr was sentenced to five years of probation on March 27, 2009.  Glenn Teal was sentenced on Sept. 22, 2009, to 90 days in prison.

This case was investigated by DCIS, with assistance from the Defense Contract Audit Agency.   Assistant U.S. Attorneys John S. Davis and Elizabeth C. Wu of the Eastern District of Virginia and Special Assistant U.S. Attorney and Trial Attorney Ryan S. Faulconer of the Criminal Division’s Fraud Section prosecuted the case. The Criminal Division’s Office of International Affairs provided assistance.

Improving Regulations–With Your Help

After reading this blog post, you should check out yesterday's article by Kel Kelly outlining the hidden evils of government regulation.

By Tracy Russo

As part of its implementation of the Executive Order, “Improving Regulation and Regulatory Review” issued by President Obama on January 18, 2011, the Department of Justice prepared a plan for the retrospective review of its existing significant regulations to determine if any should be modified, streamlined, expanded, or repealed.

On June 1, 2011, we posted our preliminary plan on our Open Government website to solicit public input. On June 10, 2011, we published a request for comments in the Federal Register.  We reviewed the comments we received and revised the plan accordingly.

First, we refined metrics to clarify that the top priorities for retrospective review are those rules that could result in greater net benefits to the public if modified, or that could be replaced by other, less burdensome regulatory alternatives without compromising regulatory objectives.

Second, the Department established a process for members of the public to communicate with us regarding regulations or the retrospective review process throughout the year.

Third, the Department continued to place a strong emphasis on the balance between active rulemaking and retrospective review.

Finally, the Department made note of the specific regulations identified as candidates for retrospective review and will consider these suggestions as part of the review process.

Going forward, the Department will establish a working group that will help institutionalize a culture of retrospective review and collaborate with rulemaking components as necessary.  Once the working group reviews the initial candidate rules identified in the plan, we will report to the public on the outcome of our assessment.  Through this process, the Department seeks to build upon our commitment to open government, and to promote evidence‐based decision‐making with respect to regulations.

Members of the public are encouraged to suggest additional candidate rules and identify why those rules should be prioritized for review under the criteria described in the plan.  Members of the public may submit these comments to olpregs@usdoj.gov year-round, or take advantage of formal comment periods announced in the Federal Register.

Iowa Company Pleads Guilty to Participating in Ready-Mix Concrete Price-Fixing and Bid-Rigging Conspiracy

WASHINGTON—An Iowa ready-mix concrete company pleaded guilty today to participating in a price-fixing and bid-rigging conspiracy for the sales of ready-mix concrete, the Department of Justice announced.

According to a one-count felony charge filed on Aug. 15, 2011, in U.S. District Court in Sioux City, Iowa, Great Lakes Concrete Inc., a producer of ready-mix concrete with headquarters in Spencer, Iowa, participated in a conspiracy with another ready-mix concrete company to fix prices and rig bids for ready-mix concrete sold in the northern district of Iowa. The department said the company participated in the conspiracy beginning at least as early as January 2008 and continuing until as late as August 2009.

Ready-mix concrete is a product comprised of cement, aggregate (sand and gravel), water, and other additives. The concrete generally is produced in a concrete plant and is transported by concrete-mixer trucks to work sites, where it is used in various types of construction projects, including buildings and roads.

According to court documents, Kent Robert Stewart, the president of Great Lakes Concrete, participated in the conspiracy by engaging in conversations and reaching agreements regarding the conspirators’ price lists and project bids for ready-mix concrete sold in the Northern District of Iowa. Great Lakes Concrete then accepted payment for those sales at collusive and noncompetitive prices, the department said. On May 24, 2010, Stewart pleaded guilty in U.S. District Court in Sioux City to participating in a conspiracy to fix prices and rig bids of the sale of ready-mix concrete, and, on Feb. 8, 2011, was sentenced to serve a year and a day in prison and to pay a $83,427.09 criminal fine.

Great Lakes Concrete is charged with violating the Sherman Act, which carries a maximum fine of $100 million for corporations. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today’s guilty plea arose from an ongoing federal antitrust investigation of the ready-mix concrete industry in Iowa and surrounding states. As a result of the investigation, three individuals have been convicted and sentenced to serve prison time, and, including Great Lakes Concrete, four ready-mix concrete companies have pleaded guilty and are awaiting sentencing.

The investigation is being conducted by the Antitrust Division’s Chicago Field Office, the FBI’s Sioux City Resident Agency and the U.S. Department of Transportation’s Office of the Inspector General, with the assistance of the U.S. Attorney’s Office in Sioux City. Anyone with information concerning bid-rigging, price-fixing or territorial allocation related to the ready-mix concrete industry in Iowa and its surrounding states should contact the Antitrust Division’s Chicago Field Office at 312-353-7530 or visit justice.gov/atr/contact/newcase.htm.

JUSTICE DEPARTMENT REQUIRES DIVESTITURES IN ORDER FOR REGAL BELOIT CORPORATION TO PROCEED WITH ITS ACQUISITION OF A.O. SMITH CORPORATION'S ELECTRIC MOTOR BUSINESS

Divestitures Will Preserve Competition for Electric Motors for Pool and Spa Pumps and Draft Inducers for High-Efficiency Furnaces

WASHINGTON — The Department of Justice announced today that it has reached a settlement that will require Regal Beloit Corporation (RBC) to divest its U.S. business for electric motors for pool and spa pumps to SNTech Inc. and to divest A.O. Smith Corporation's (AOS) development work and related assets for draft inducers for high-efficiency furnaces to Revcor Inc., in order to proceed with RBC's acquisition of AOS's electric motor business. The department said that without the divestitures the acquisition would lead to higher prices, lower quality products, less customer service and less innovation in each of these markets.

The department said that the acquisition, as originally proposed, would combine two of the three leading suppliers of electric motors for pool and spa pumps in the United States. The acquisition also would have eliminated the most likely entrant into the market for draft inducers for furnaces with a thermal efficiency of 90 percent or greater (90+ draft inducers), a market in which RBC has a near monopoly.

The Department of Justice's Antitrust Division filed a civil antitrust lawsuit today in U.S. District Court for the District of Columbia to block the proposed acquisition. At the same time, the department filed a proposed settlement that, if approved by the court, would resolve the competitive concerns alleged in the lawsuit.

"The acquisition as originally proposed would have lessened the vigorous competition that currently exists among manufacturers of electric motors for pool and spa pumps resulting in higher prices and lower quality products," said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice's Antitrust Division. "The acquisition also would have eliminated the firm best positioned to challenge Regal Beloit Corporation's dominance in the market for draft inducers for high-efficiency furnaces."

The department's complaint alleges that the proposed acquisition would eliminate the significant competition between RBC and AOS in the already highly concentrated markets for electric motors for pool and spa pumps in the United States. The complaint also alleges that the proposed acquisition would eliminate the potential competition from AOS in the 90+ draft inducer market, in which RBC has a near monopoly.

The proposed settlement requires RBC to divest the assets used to design, manufacture and sell RBC motors used in pool and spa pump applications. The department has concluded that SNTech will integrate the divestiture assets into its current operations to create a viable competitor in the markets for electric motors for pool and spa pumps. The proposed settlement also requires that RBC divest the assets necessary to continue the design and development of AOS's 90+ draft inducers. The department concluded that Revcor will integrate the divestiture assets into its current operations and replace the potential competition lost by RBC's acquisition of AOS's electric motor business. The divestitures to SNTech and Revcor will remedy the competitive concerns alleged in the complaint.

Electric motors sold for use in pool and spa pumps must be uniquely engineered and assembled to meet the size and performance specifications of the individual pump. In addition to size and energy efficiency, specification variables include the capacity of the impeller, speed, current/voltage, whether the motor is operated continually or sporadically, and whether the pump has more than one speed of operation.

Furnace draft inducers are specialized blowers for the movement of air and the expulsion of hot combustion gases produced by gas-fired furnaces. They perform an important safety function by extracting harmful combustion gases and venting those gases outside. Furnaces are classified according to their thermal efficiency, which is the percentage of energy used to heat the air and that is not lost with the vented combustion gases. Draft inducers are designed for the specific thermal efficiency of each furnace. More modern furnaces with higher thermal efficiency, typically referred to as 90 percent thermal efficiency or 90+, use draft inducers based on more advanced technology.

RBC, headquartered in Beloit, Wis., manufactures mechanical and electrical motion control and power generation products. RBC had revenues of approximately $2.2 billion in 2010.

AOS, headquartered in Milwaukee, is made up of two operating units: the water products business and the electric motor business. AOS is one of North America's largest manufacturers of electric motors for residential and commercial applications. In 2010, AOS had revenues of approximately $1.5 billion, with approximately $700 million of that amount from electric motors and related products.

SNTech, headquartered in Phoenix, manufactures low-cost smart electric motors used in air moving applications.

Revcor, headquartered in Carpentersville, Ill., manufactures air moving products, including blowers and fans.

As required by the Tunney Act, the proposed settlement, along with a competitive impact statement, will be published in the Federal Register. Any person may submit written comments concerning the proposed settlement during a 60-day comment period to Maribeth Petrizzi, Chief, Litigation II Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 8700, Washington, D.C. 20530. At the conclusion of the 60-day comment period, the U.S. District Court for the District of Columbia may approve the proposed settlement upon finding it is in the public interest.