Conspiracies to raise prices are not new.
More than 200 years ago, economist
Adam Smith wrote of conversations between “people of the same trade” possibly
ending in “conspiracy against the public, or in
some contrivance to raise prices.”
“When cartel cases arise, the stakes are
high,” says Edmund W. “Ned” Searby, chair
of the White Collar Crime, Antitrust, and
Securities Litigation Practice, McDonald
Hopkins LLC. “For purchasers, the issue is
recovering an overcharge that may be substantial; for sellers, the issue is potential
criminal exposure and civil liability.”
Smart Business spoke to Searby about
antitrust conspiracies, and what they mean.
How do you know if you have been the victim
of a bid-rigging or a price-fixing conspiracy?
It’s not easily done. Most cartels operate
secretly. In the context of bid-rigging, you can
look at whether any companies decline to
bid, whether the same group of companies
generally bid, and whether the winner seems
to rotate through the group. It may be suspicious if a new entrant or a company that has
not bid frequently causes the usual bidders’
prices to drop. In the context of pricing, look
at whether there have been price increases
that are not justified by a rise in costs. Are
prices higher in one region than another
without economic justification? Have prices
for all market participants been the same for
a long period of time? Most purchasers first
learn of a potential conspiracy from the disclosure of a criminal investigation.
If a conspiracy is suspected, what happens?
The U.S. Department of Justice Antitrust
Division and, typically, the FBI conduct a
criminal investigation. If convicted, defendants face potential fines and prison terms
for their executives. Typically, civil damages
actions follow the criminal cases. The alleged
victims may recover up to three times the
amount they were overcharged as a result of
the conspiracy. This creates significant civil
exposure for the alleged participants.
How can a company recover damages?
Most companies will recover through an
antitrust class action lawsuit; those with significant losses may choose to pursue their
own cases. For many, the first consideration
comes when they receive a notice of a class
settlement in the mail.
What are the options at the point a class settlement is announced?
First of all, don’t just throw the notice away.
A company that receives notice of a class settlement can accept the result and file its
claim at the appropriate time; object to the
proposed settlement, either to the amount of
the settlement and/or to the amount of the
attorney fees for class counsel; or opt out of
the class action and file its own lawsuit.
How can a class-action member file a claim?
Document your purchases so the claims
administrator can calculate your share of
the class action settlement. Anecdotally,
however, a surprising number of companies never get their claim form in and leave
big money lying on the ground. There are
companies that will assist in filing your
claim for a percentage of your recovery,
but watch that you are not paying excessive fees. If you need help, you may give up
far less engaging a company or a lawyer who understands the process and will file
your claim on an hourly basis.
What are the considerations if a company
wants to opt out and pursue its own case?
The benefits are the potential to increase
your recovery from what you could obtain as
a class member, you manage your own case,
and you may be able to recover your losses
sooner. A disadvantage is that, unlike a passive class member, you subject yourself to
the obligations of discovery. But before you
commit to filing your own suit, you should
assess how strong the case is and whether it
makes economic sense to pursue it alone.
Publicly traded corporations and large private companies often choose to pursue their
own cases where the losses are large and the
indicia of guilt strong. If caught, suppliers
may be under particular pressure to pay back
their largest customers.
What if a company finds out it may be liable
for its own activities?
Retain knowledgeable counsel that can
quickly investigate potential exposure. For
antitrust crimes, the U.S. Department of
Justice has an amnesty program. If you’re
first in with new information, you can potentially receive amnesty from prosecution, zero
fines and immunity from criminal sanctions
for executives. A relatively new statute also
limits — but does not foreclose — civil liability for the amnesty applicant. Once you learn
you are the subject of an investigation, don’t
attempt to destroy evidence, provide false
information, or convince others to do so.
These acts will be interpreted as ‘consciousness of guilt,’ potentially tipping the balance
towards indictment, and also potentially
leading to additional obstruction of justice or
perjury charges. If the FBI comes to your
home at night, which they do, and you
choose to be interviewed, be careful that any
facts you relate are correct; even innocent
errors of factual information can be interpreted as trying to mislead the investigation.
Finally, your response should be coordinated
with an understanding of how it may impact
potential civil liability.
EDMUND W. “NED” SEARBY is a member of McDonald Hopkins LLC, Cleveland office, and is chair of its White Collar Crime,
Antitrust and Securities Litigation Practice. Reach him at (216) 348-5400 or (800) 847-6424.