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.