Presentation By The U.S. DEPARTMENT OF JUSTICE ANTITRUST DIVISION To National Tax Liens Association February 26, 2015
DISCLAIMER: The views expressed in this presentation are not purported to reflect those of the United States Department of Justice. 2
Mikhail Z. Vanyo Trial Attorney New York (212) 335-8009 mikhail.vanyo@usdoj.gov
Today s Agenda I. The II. Criminal Antitrust Violations III. Detecting Antitrust Violations IV. Recent Cases V. Questions 4
I. The Our mission is the promotion and maintenance of competition in the American economy. 5
NEW YORK OFFICE Location: 26 Federal Plaza 36th Floor Room 3630 New York, NY 10278 Geographic Area of Office: New York, New Jersey, and the New England States (Plus) 6
The Sherman Act: 15 U.S.C. 1 Every contract, combination in the form of trust of otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Within this broad group of conduct, certain agreements in restraint of trade are considered per se illegal. 7
II. Criminal Antitrust Violations Price Fixing Bid Rigging Allocation Agreements 8
Agreement is the Key A Sherman Act conspiracy is an agreement or understanding among competitors to restrain competition Must be horizontal to be per se illegal The Agreement is the crime - No overt act required Co-conspirator liability applies Members of the conspiracy liable for all foreseeable acts in furtherance of the conspiracy 9
Price Fixing Competitors agree to fix or otherwise collectively determine the prices at which their products or services are sold. Illegal to agree to charge the same price or specific prices Illegal to agree on any component of price, such as discounts, shipping terms, etc. 10
Bid Rigging Competitors agree in advance who will win a competitive bidding process Types of bid rigging: Bid Rotation or Allocation Competitors agree to take turns winning bids Complementary or Cover Bids Competitors agree to submit intentionally high or unacceptable bids (a.k.a., two show horses and a donkey ) Bid Suppression or Limitation Competitors agree to refrain from bidding 11
Allocation Agreements Competitors agree to divide up a market, usually by territory, customer, or type of product. May also include a bid rigging component intended to carry out the allocation scheme. 12
Consequences Criminal Penalties Applies to individuals (including supervisors and executives) and corporations Incarceration up to 10 years Virtually unlimited fines Penalties increase with the value of contracts or affected commerce Other Losses Restitution paid to identified victims The will prosecute regardless of the type of victim, whether private parties or government entities Civil lawsuits for treble (3x) the damages 13
Other Crimes We Prosecute As part of our mission to protect competition, we prosecute cases where the competitive process has been affected or circumvented, often in the procurement context. Mail and Wire Fraud Conspiracy to Defraud Major Fraud Against the US/Program Fraud Commercial Bribery Obstruction of Justice False Statements Tax Crimes Often found in schemes where kickbacks are paid to procurement officials in exchange for the award of contracts 14
Victims of Antitrust Violations Private Parties Ordinary Consumers Public and Private Corporations Government Entities Federal State Local ANTITRUST DIVISION WILL PROSECUTE REGARDLESS OF TYPE OF VICTIM 15
III. Detecting Antitrust Violations Bid Patterns Warning Signs in Pricing Suspicious Statements Suspicious Conduct Favorable Conditions For Collusion 16
Detecting Antitrust Violations Leniency Program Self Reporting Bid History / Patterns Anonymous Complaints Citizen Complaint Center You! 17
Bid Patterns Same Company Always Wins or Loses Certain Companies Only Submit Bids in Certain Geographical Areas Companies Appear to Take Turns Winning Winning Company Subcontracts to Losing Company Regular Suppliers/Vendors Fail to Bid for Work They Typically Perform, but Continue to Bid for Other Work Bids are Much Higher Than Estimates or Previous Bids Large Differences Between Price of Winning Bid and Other Bids 18
Pattern 1: Bid Rotation Bid 1: Company A wins Bid 2: Company B wins Bid 3: Company C wins Bid 4: Company A wins Bid 5: Company B wins Bid 6: Company C wins 19
Pattern 2: Bid Suppression Bid 1: Companies A, B, C, and D bid Bid 2: Companies B, C, and D bid Bid 3: Companies A, C, and D bid Bid 4: Companies A, B, and D bid Bid 5: Companies A, B, and C bid Watch for subcontracts to the company that sits out! 20
Pattern 3: Who Is Getting What? Bid 1: A wins a $3 million contract Bid 2: B wins a $5 million contract Bid 3: C wins a $1 million contract Bid 4: C wins a $4 million contract Bid 5: A wins a $2 million contract Each competitor gets $5 million 21
Detecting Patterns: Study History The same vendors submit bids and each one seems to take a turn as the winning bidder (bid rotation) A winning bidder subcontracts work to competitors that submitted unsuccessful bids or withdrew bids All bidding companies end up winning the same amount of work over a series of bids Same company always wins a particular bid Fewer than normal number of bidders 22
The Not-So-Clever Crook Similar applications handwriting; typeface; stationery; typos; mathematical errors Last-minute changes white-outs or physical alterations to prices Vendor picks up an extra bid package for another vendor OR submits a competing vendor s bid 23
Division Antitrust 24
Warning Signs in Pricing Sudden and identical increases in price or price ranges that cannot be explained by cost increases Anticipated discounts or rebates disappear unexpectedly Similar transportation costs specified by local and non-local companies (or other similarities that do not make sense) Trust Your Instincts! 25
Suspicious Behavior Have vendors demonstrated behavior that suggests they worked together? No Chance Bidder Bids submitted by a vendor known to lack the ability to perform the contract. Betting Bidder Vendor brings multiple bids to a procurement, submits multiple bids, or submits bid once other bidders are determined. Loud Mouth Bidder Suspicious statements indicating advance knowledge of a competitor s prices or its likelihood of winning the award. 26
Suspicious Statements A Customer or Territory Belongs to a Supplier References to Industry or Association Price Schedules, or List Prices References to Respecting the Customers or Territories of Competitors References to Courtesy Bids or Throwing In a Number Use of Same Terminology by Companies When Explaining Price Increases Statements Indicating Advance Knowledge of Competitor s Pricing 27
Suspicious Conduct Companies Meet Privately Before Bids Company Submits Bid for Work it Cannot Perform Similar Irregularities, Mistakes or Miscalculations on Bid Forms Bids Contain Last Minute Changes Procurement Official Regularly Exempts Competitive Bidding Because of Emergency Work Invoicing For Work Awarded Contains Charges For Consulting Work, When Consulting Not Reasonably Within Scope of Work Procurement Officials Associated With Consulting Vendors Unusual or Frequent Change Orders 28
Typical Conditions For Collusion Few Sellers Few Substitute Products Standardized Products Repetitive or Regularly Scheduled Purchases Rush or Emergency Work 29
IV. Recent Cases Prosecuted By The New York Office 1. Municipal Bonds 2. Hospitals 3. Tax Lien Auctions 30
Municipal Bonds (ongoing) - Who was convicted? 17 Individuals and 1 Company - What were they charged with? Numerous violations including Antitrust, Wire Fraud, and Conspiracy to Defraud the United States - What penalties were imposed? These cases have resulted in jail sentences, the longest of which has been 27 months, and approximately $745 million in restitution, penalties, fines, and disgorgement from financial institutions. 31
New York Presbyterian Hospital (2012) - Who was convicted? 15 Individuals and 6 Companies (including the former vice president of facilities operations, the former director of facilities operations, and two contractors) -What were they charged with? Bid-rigging, conspiracy to defraud NYPH, wire and mail fraud, tax offenses, and bribery -What penalties were imposed? These cases have resulted in significant jail sentences (over 220 months) including: - Contractor= 60 months - Former VP of Facilities Operations NYPH= 48 months - Contractor= 48 months - Former Director of Facilities Operations NYPH= 36 months - Contractor= 11 months This case resulted in criminal fines in excess of $4.5 million and restitution for the victims totaling over $2,300,000. 32
Tax Lien Auctions (ongoing) - The Alleged Co-conspirators. Individual and corporate tax lien investors from across the mid-atlantic United States. - The Alleged Conduct. Bid rotation and allocation: co-conspirators decided in advance who would win certain auctions, thereby purchasing tax liens at inflated interest rates and/or with lower costs. - The Charges. Bid-rigging in violation of 15 U.S.C. 1 (10 year maximum prison sentence plus fine). - The Victims. Homeowners with unpaid property taxes faced inflated interest rates due to lack of honest competition, as well as municipalities. 33
Tax Lien Auctions (ongoing) - Who has been convicted? 12 Individuals and 3 Companies have pleaded guilty to date (sentences pending). - Convicted individuals include bidders who did the actual collusive bidding and supervisors and executives who directed them. - Four more individuals and two more entities have been indicted. - What penalties so far? - Over $2 Million in corporate fines. - Only individual to be sentenced to date received 6 months home confinement, 3 years probation, and $20,000 fine. - Much more to come 34
Reporting Suspicions to the Department of Justice Call us with any suspicions we understand it may only be a suspicion Complaints are confidential No charges brought without a full investigation NY Office: (212) 335-8000 Mikhail Vanyo: (212) 335-8009 or mikhail.vanyo@usdoj.gov
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