DOJ Criminal Cartel Enforcement: Six-Month Summary

by Patterson Belknap Webb & Tyler LLP
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This is the first in what we expect to be a series of updates on DOJ criminal actions in the cartel area. Here, we look at highlights over the last six months in the DOJ’s investigations of the auto parts industry, LIBOR, and municipal real estate auctions.

Auto Parts

According to the DOJ, its investigation into price-fixing and bid-rigging in the auto parts industry has netted over $2 billion in fines and is the largest criminal investigation the Antitrust Division has ever pursued. In recent months, the DOJ has secured guilty pleas and sentences from Japanese and U.S.-based manufacturers for cartels relating to a wide range of automobile components.

Hitachi Metals Agrees to Plead Guilty and Pay $1.25 Million in Fines

The DOJ announced on October 31 that the Tokyo-based Hitachi Metals Ltd., a subsidiary of the Hitachi conglomerate, agreed to plead guilty to a single Sherman Act count and pay a $1.25 million fine in the Northern District of Ohio in connection with an automotive brake hose cartel. According to the information, Hitachi Metals and its coconspirators fixed prices and rigged bids in the market for automotive brake hose sold to Toyota between 2005 and 2009. United States v. Hitachi Metals, Ltd., No. 14-cr-00394-JZ, ECF No. 1 (N.D. Oh. Oct. 31, 2014).

Toyoda Gosei Agrees to Plead Guilty and Pay $26 Million in Fines

The DOJ announced on September 29 that the Tokyo-based Toyoda Gosei Company has agreed to plead guilty in the Western District of Ohio to a Sherman Act count and pay a $26 million fine in connection with a wide-ranging auto parts conspiracy. According to the information, Toyoda Gosei and its coconspirators agreed between 2004 and 2010 to fix prices in the markets for automotive hoses, airbags, and steering wheels made for use in Toyota and Subaru vehicles. United States v. Toyoda Gosei Co., Ltd., No. 14-cr-00349-JZ, ECF No. 1 (W.D. Oh. Sept. 29, 2014).

Foam Manufacturers Sentenced to Four Years’ Probation and $6.1 Million in Fines

Three U.S.-based manufacturers of polyurethane foam used in car interiors were sentenced on September 11 to four years’ probation and a total of $6.14 million in fines in the Eastern District of New York after pleading guilty last June to a single Sherman Act count. According to the information, the companies agreed to coordinate the timing and amount of price increases in 2008 and 2009. The defendants are Riverside Seat Company, based in Missouri; Woodbridge Foam Manufacturing, Inc., based in Tennessee; and SW Foam LLC, based in Texas. United States v. Riverside Seat Co., No. 1-cr-00263-WFK, ECF No. 11 (E.D.N.Y. June 27, 2014). A prior DOJ press release in the case is here.

NGK Spark Plug Agrees to Plead Guilty and Pay $52.1 Million in Fines

The DOJ announced on August 19 that NGK Spark Plug Co., based in Nagoya, Japan, agreed to plead guilty to one count of Sherman Act conspiracy in the Eastern District of Michigan in connection with a scheme that touched most major auto manufacturers. According to the information, NGK and its coconspirators agreed to rig bids and fix prices from 2000 to 2011 in markets for spark plug, oxygen sensors, and air fuel ratio sensors sold to Ford, General Motors, DaimlerChrysler, Honda, Subaru, Nissan, and Toyota. United States v. NGK Spark Plug Co., Ltd., No. 14-cr-20494-GCS-PJK, ECF No. 1 (E.D. Mich. Aug. 19, 2014).

LIBOR

The DOJ continued its prosecution into banks and bank employees who conspired to submit false rates to the British Bankers’ Association as a means of manipulating LIBOR, the London Interbank Offered Rate. In recent months, the DOJ has secured guilty pleas from two former Rabobank employees, an indictment against two more former Rabobank employees, and a deferred prosecution agreement with Lloyds Banking Group.

Two Former Rabobank Employees Plead Guilty, Two More Indicted

Takayuki Yagami, a former Rabobank derivatives trader based in Tokyo, pled guilty on June 10 before Judge Jed S. Rakoff in the Southern District of New York to one count of conspiracy to commit wire fraud in connection with his role in manipulating Japanese yen LIBOR. According to a criminal information, Yagami and a London-based coworker, Paul Robson, conspired in March 2008 to cause Rabobank to make a LIBOR submission that was calculated to benefit one of Yagami’s trading positions. On August 18, Robson pled guilty for his participation in a conspiracy to commit wire fraud.

On October 16, a grand jury in the Southern District of New York returned a 15-count indictment charging four other former Rabobank employees, Anthony Allen, Anthony Conti, Tetsuya Motomura, and Paul Thompson, with conspiring to manipulate yen and U.S. Dollar LIBOR from 2006 to 2012. The indictment alleges that the four conspired to commit wire fraud and defraud a financial institution and also includes substantive wire fraud counts against each defendant. Allen and Conti are newly indicted; Motomora and Thompson were indicted along with Robson in January. United States v. Allen, No. 14-cr-00272-JSR, ECF No. 24 (S.D.N.Y. Oct. 16, 2014). Here are the DOJ’s press releases for Yagami, Robson, and Allen and Conti.

Lloyds Banking Group Admits Wrongdoing and Agrees to $86 Million Fine

DOJ and Lloyds Banking Group entered into a deferred prosecution agreement on July 28 in the District of Connecticut in connection with rate submitters’ manipulation of the U.S. dollar, pound sterling and Japanese yen LIBOR between 2006 and 2009 in order to benefit trading positions. Lloyds agreed to pay the Government an $86 million penalty and consented to the filing of a one-count information for wire fraud based on the manipulation. In the appendix to the deferred prosecution agreement, Lloyds acknowledged that it is responsible for its employees’ acts and admitted liability for their conduct. In one example, a derivatives trader emailed a LIBOR rate submitter asking, “3mth higher today pls.” The submitter agreed, and the trader asked that the same rate be “lower tomorrow if convenient.” The deferred prosecution agreement is in effect until February 2017 and requires Lloyds to take remedial measures, including training and internal monitoring and audits. United States v. Lloyds Banking Group PLC, No. 14-cr-00165-AWT, ECF No. 6 (D. Conn. July 28, 2014). The DOJ’s press release is available here.

Real Estate Auctions

The DOJ has prosecuted defendants in a number of states in connection with alleged bid-rigging at municipal foreclosure and tax lien auctions. In each case, the DOJ alleges that conspirators agreed in advance who would bid on which properties (and who would not) in order to purchase properties at artificially low prices.

Five Real Estate Investors Indicted in California

A grand jury in the Northern District of California indicted five real estate investors on October 22, 2014 for bid-rigging in foreclosure auctions in San Francisco and San Mateo counties. The indictment charges five defendants (Joseph J. Giraudo, Raymond A. Grinsell, Kevin B. Cullinane, James F. Appenrodt, and Abraham S. Farag)—with eight counts: two Sherman Act claims in violation of 15 U.S.C. § 1 and six claims for mail fraud. United States v. Giraudo, No. 14-cr-00534-WHO, ECF No. 1 (N.D. Cal. Oct. 22, 2014). The DOJ’s press release is here.

Real Estate Investor Sentenced to Four Months in Jail

Real estate investor Mohamed Hanif Omar was sentenced in the Northern District of Georgia on October 20 to four months’ imprisonment and a $5,000 fine in connection with a scheme to rig bids in foreclosure auctions in Gwinnett County, Georgia. Omar pled guilty last April to an information charging him with one Sherman Act count and one count of conspiracy to commit mail fraud. United States v. Omar, No. 14-cv-00099-TWT, ECF No. 1 (N.D. Ga. Mar. 25, 2014). A prior DOJ press release in the case is here.

Tax Lien Company Executive Pleads Guilty in New Jersey

Vinaya K. Jessani, a former senior vice president of a tax lien company, pled guilty in the District of New Jersey on May 12 to a single Sherman Act count in connection with a scheme to rig auctions of municipal tax liens in New Jersey from 1994 to 2009. In such auctions, bidders set competitive interest rates by starting with an 18% rate and bidding down toward a rate of zero. According to the information, Jessani and his coconspirators rigged the auctions by, among other things, drawing straws to allocate purchases and agreeing not to compete for certain liens so that conspirators could buy properties at non-competitive interest rates. United States v. Jessani, No. 14-cr-00264-FSH, ECF No. 2 (D.N.J. May 12, 2014). The DOJ’s press release is here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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