Month: September 2022

Source: United States Department of Justice News

LAS VEGAS – An undocumented individual residing in Las Vegas was sentenced on Friday, September 16, by U.S. District Judge James C. Mahan to three years and five months in prison followed by three years of supervised release for illegally returning to the United States after deportation.

According to court documents, Salamon Ruiz-Lopez (48) had previously been deported five times between 2010 – 2011. In June 2017, Ruiz-Lopez was convicted of Attempted Murder in Clark County District Court, and he was sentenced to 48 – 120 months of custody. Following the completion of his state sentence, Ruiz-Lopez came into ICE custody and was indicted by a federal grand jury.

U.S. Attorney Jason M. Frierson for the District of Nevada made the announcement.

The investigation was conducted by U.S. Immigration and Customs Enforcement (ICE). Assistant U.S. Attorney Jared Grimmer prosecuted the case. 

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Source: United States Department of Justice News

NEW ALBANY – Tracy E. Leonard, 53, of Clarksville, Indiana, was sentenced to nine months in federal prison after pleading guilty to subscribing to a false federal income tax return.

According to court documents, Leonard operated a private investigation business in Clarksville. From 2015 to 2019, Leonard hid his income from the IRS by cashing 186 business income related checks, at a Clarksville check cashing business, rather than depositing the checks into a bank account. The check cashing business charged Leonard a fee of up to 10% to cash each check. During 2018 and 2019, Leonard cashed checks weekly that were typically over $25,000 and often over $50,000.

There was a significant discrepancy between the amount of the checks received and cashed by Leonard and what he reported as income on his federal income tax returns for 2015 through 2019. Leonard’s unreported income for the 5 years exceeded $1.1 million. Leonard also owes the IRS $300,339 for taxes lost due to his filing of false tax returns.

Zachary A. Myers, U.S. Attorney for the Southern District of Indiana, and Justin Campbell, Special Agent in Charge, Chicago Field Office, IRS-Criminal Investigation, made the announcement.

U.S. Attorney Myers thanked Assistant United States Attorney James M. Warden, who is prosecuting this case.

IRS-Criminal Investigation investigated the case. The sentence was imposed by U.S. District Judge Tanya Walton Pratt. As part of the sentence, Judge Pratt ordered that Leonard be supervised by the U.S. Probation Office for two years following his release from federal prison. Restitution will be set in a future court order.

Source: United States Department of Justice News

Remarks as Prepared for Delivery

Thank you for that kind introduction. It’s always a pleasant change to get outside the beltway, and I’m particularly pleased to be back in my hometown, where New Yorkers tell it like it is.

It’s a timely moment for this conversation. On Thursday, the Deputy Attorney General announced significant advancements in the Justice Department’s corporate crime policy. Today, I will focus on the ways those policy changes incentivize corporate responsibility and promote individual accountability – by clarifying, rethinking and standardizing policies on voluntary self-disclosure and corporate cooperation. 

I’ll also address how Department prosecutors are assessing some of the most challenging corporate compliance issues of the day, such as how incentive compensation systems can promote — rather than inhibit — compliance and how companies should be managing data given the proliferation of personal devices and messaging platforms that can take key communications off-system in the blink of an eye.

Then I’m looking forward to engaging in dialogue with this group of subject matter experts.

I. Background/Process

I first want to take a moment to discuss our process in crafting these changes.  Last October, the Deputy Attorney General commissioned a top-to-bottom review of the Department’s corporate crime enforcement program — to see what was working, what wasn’t and where there were gaps. 

As a leader who has advised executives from the Oval Office to the corporate boardroom, she knows first-hand that the most effective policies flow from the best ideas — whether they come from industry, academia, the public interest world or government. So, the Department engaged in an unprecedented effort to garner insight from practitioners and leaders outside of the Justice Department, as well as from within.

Gathering and pressure-testing these varied viewpoints has resulted in an approach to corporate crime enforcement that is more fit for purpose. The process helped us identify important changes to ensure individual accountability — the Department’s top enforcement priority. 

And it clarified the need for policy transparency and predictability to provide a clearer picture of how companies benefit from investing in and acting upon good corporate citizenship.

Today, more than ever, companies are competing in an environment that forces corporate leaders to make tough choices about where to direct resources and how to set priorities. 

The policy changes announced by Deputy Attorney General Monaco are intended to assist General Counsels, Chief Compliance Officers and outside counsel in making the boardroom business case for investing in compliance and an ethical corporate culture.

II. Incentivizing Corporate Responsibility

Accountability and Responsibility

So let’s dive in. I took the subway here from my home in Prospect Heights, and I’m going to be Brooklyn-blunt. The Department will not hesitate to seek criminal indictments or require guilty pleas where facts and circumstances require, including for serious and recalcitrant corporate criminal offenders. 

Nor will the Department hesitate to breach companies that do not honor their obligations under Deferred Prosecution Agreements (DPAs) and Non Prosecution Agreements (NPAs), or the terms of corporate probation following guilty pleas.

Over the past year, the Department has obtained guilty pleas from some of the world’s most powerful companies — NatWest, Allianz Global Investors, Fiat Chrysler Automobiles, Balfour Beatty Communities and a double guilty plea from two Glencore entities, to name just a few.  

Criminal charges and guilty pleas are no longer a “special” for certain customers — they’re now on the main, everyday menu.

But let me also be clear: while this Department will disfavor successive probationary agreements for the same company, we are not foreclosing their use. 

To the contrary, there remain available pathways to obtain DPAs, NPAs, and even declinations.  And we are working to clarify how to access those pathways, and to increase predictability as to the benefits of doing so. 

Voluntary Self-Disclosure (VSD)

That brings me to voluntary self-disclosure. If you heard or read the Deputy Attorney General’s speech last week, I trust one thing came through loud and clear: the Department is placing a new and enhanced premium on voluntary self-disclosure. 

We want companies to step up and own up when misconduct occurs. When companies do, they should expect to fare better in a clear and predictable way. After all, a complete and timely voluntary self-disclosure is an indicator that a company has a working compliance program and responsible corporate leadership. 

To date, a few Justice Department components have implemented effective VSD programs in specialized areas of enforcement: the Antitrust Division’s leniency program, the Criminal Division’s Corporate Enforcement Policy, and the National Security Division’s policy on export control and sanctions, to name the most prominent examples.

Now, the Department is doubling down and scaling up. As the Deputy Attorney General directed, every Justice Department component that prosecutes corporate crime cases, including the U.S. Attorney community, will now have a voluntary self-disclosure policy that defines its terms and identifies its rewards. 

Those policies will be clear. They will be public. And they will feature the same core tenets: any company that self-discloses promptly will not be required to enter a guilty plea — absent aggravating factors — and will not be assessed a monitor, if it has remediated, implemented and tested an effective compliance program.  

You don’t have to just take my word for it. Let me walk you through a few examples where this has already taken place:

• For many years, the Antitrust Division’s voluntary self-disclosure policy has granted leniency to the first company to self-report, cooperate fully and meet the policy’s requirements. In a prototypical investigation into criminal price-fixing involving the canned tuna market, one company voluntarily self-disclosed, received leniency, was not prosecuted, and paid no fine.

  Meanwhile, Bumble Bee Foods pleaded guilty and paid a $25 million fine, while StarKist pleaded guilty and paid the statutory maximum: $100 million.

• Last year, the National Security Division concluded its first resolution under its more recently adopted voluntary self-disclosure program. In that case, SAP voluntarily self-disclosed misconduct, cooperated substantially, and as a result, was required only to disgorge the relevant revenue, but it did not face criminal charges or a fine.
• And under its Corporate Enforcement Policy, the Criminal Division has approved declinations for 15 self-disclosing companies since 2016. Just this past March, the FCPA Unit announced a declination for Jardine Lloyd Thompson Group Holdings in a case that involved over $10 million in bribes and corrupt payments and the prosecution of five individuals. 

After detecting and voluntarily disclosing the misconduct, the company fully cooperated, paid disgorgement, and made compliance enhancements to mitigate the risk of recurrence of the misconduct.

Contrast these resolutions with the series of guilty pleas I referenced earlier. The Allianz guilty plea involved criminal penalties of over $2.3 billion; the two Glencore guilty pleas carried collective criminal penalties of over $1 billion; and the FCA plea involved approximately $300 million in criminal fines and forfeiture.

The math is simple: voluntary self-disclosure, cooperation and remediation can save a company hundreds of millions of dollars, and it can make or break a company’s chances to avoid indictment or a guilty plea. 

Voluntary self-disclosure is often only possible when a company has a well-functioning compliance program that can serve as an early warning system and detect the misconduct early. 

So, investment in a world-class compliance program should be a win-win proposition for every company — helping it deter and prevent criminal conduct in the first place, and positioning it to self-disclose if misconduct occurs nonetheless. 

Of course, we understand that sometimes misconduct occurs, even at companies with well-resourced and fully tested compliance programs and strong ethical cultures. As the Principal Associate Deputy Attorney General, I can certainly relate to the difficulties of managing a far-flung multinational organization with staff in every corner of the world and a budget akin to a Fortune 100 company.

So when misconduct happens and the compliance program discovers it, we say: pick up the phone and call us. Do not wait for us to call you. Unless aggravating factors are present, even a company with a significant history of misconduct has a powerful incentive to make a timely self-disclosure: it is likely to make all the difference between a DPA and a guilty plea resolution.

Acquisitions

Another way we want to encourage corporate responsibility is by taking care not to deter companies with good compliance programs from acquiring companies with histories of misconduct.    

Acquiring companies should be rewarded — rather than penalized — when they engage in careful pre-acquisition diligence and post-acquisition integration to detect and remediate misconduct at the acquired company’s business.  

As I’m sure this audience is well aware, the Criminal Division has declined to take enforcement action against companies that have promptly and voluntarily self-disclosed misconduct uncovered in the mergers and acquisitions context and then remediated and cooperated with the Justice Department in prosecuting culpable individuals. We will be looking to apply that same approach Department-wide.

And to further that approach, we will not treat as a recidivist any company with a proven track record of compliance that acquires a company with a history of compliance problems, so long as those problems are promptly and properly addressed in the context of the acquisition. 

Corporate Cooperation

The DAG also provided important guidance on corporate cooperation. The key point I want to highlight relates to timeliness. 

In building cases against culpable individuals, we have heard one consistent message from our line attorneys: delay is the prosecutor’s enemy — it can lead to a lapse of statutes of limitation, dissipation of evidence, and fading of memories. 

The Department will expect cooperating companies to produce hot documents or evidence in real time. And your clients can expect that their cooperation will be evaluated with timeliness as a principal factor. Undue or intentional delay in production of documents relating to individual culpability will result in reduction or denial of cooperation credit.

Where misconduct has occurred, everyone involved — from prosecutors to outside counsel to corporate leadership — should be “on the clock,” operating with a true sense of urgency. 

III. Clawbacks & Incentive Compensation

Now let me turn to something from the DAG’s speech that received significant attention: clawbacks.  

Companies are made up of individual executives and employees who should each feel personally invested in ensuring and promoting compliance. And nothing grabs attention and demands personal investment like having skin in the game, through a direct and tangible financial incentive.

So when Department prosecutors evaluate the strength of a compliance program, a key consideration will be whether a corporation’s compensation system effectively incentivizes good behavior and deters wrongdoing.  

• Has the company clawed back incentives paid out to employees and supervisors who engaged in or did not stop wrongdoing?
• Is the company targeting bonuses to employees and supervisors who set the right tone, make compliance a priority, and build an ethical culture?

Linking financial incentives to compliance is not a new idea, but it has yet to even approach its potential. Twenty years ago, the Sarbanes-Oxley Act provided for the clawback of executive compensation for top executives of public companies — but that provision’s force and scope are limited to the context of financial restatements.  

And the Dodd-Frank Act included broader clawback provisions for public companies, as to which the SEC remains engaged in rulemaking.

We’ve seen companies claw back pay from executives who were engaged in criminal conduct and from executive leadership in high-profile cases. So we know it can be done — and in the Department’s view it should be done.

What we expect now, in 2022, is that companies will have robust and regularly deployed clawback programs. All too often we see companies scramble to dust off and implement dormant policies once they are in the crosshairs of an investigation. 

Companies should take note: compensation clawback policies matter, and those policies should be deployed regularly. A paper policy not acted upon will not move the needle — it is really no better than having no policy at all.  

To up the ante, the Deputy Attorney General has instructed the Criminal Division to examine how to provide incentives for companies to claw back compensation, with particular attention to shifting the burden of corporate financial penalties away from shareholders — who frequently play no role in misconduct — onto those who bear responsibility.

But using compensation systems to promote compliance isn’t just about clawbacks. It’s also about rewarding compliance-promoting behavior. For years, companies have designed and fine-tuned sophisticated incentive compensation systems that reward behavior that enhances profits.  

We’ll be evaluating whether corporations are making the same types of investments in adopting and calibrating compensation systems that reward employees who promote an ethical corporate culture and mitigate compliance risk.

As a former terrorism prosecutor, I’ll put this in national security terms: our goal is not just to hold people accountable after crime has been committed, but to disrupt and deter the threat before crime takes place.  

We expect companies to find innovative, effective, and targeted ways to use compensation to incentivize good corporate behavior and deter misconduct, using their own mix of carrots and sticks. 

IV. Monitors

Next, let’s discuss another issue that triggered robust conversation in the advisory group meetings. We heard loud and clear about the need for greater transparency and sharper guidance when it comes to monitors.  

As this crowd well knows, monitors are less effective when they operate as blunt instruments. Last week’s policy revisions are meant to replace the bludgeon with the scalpel. The scope of every monitorship should be carefully tailored to the particular misconduct and compliance program deficiencies identified. 

There are, of course, different ways to structure monitorships. To give one example, where a company has instituted new management and embarked on a compliance program overhaul, but the controls are new and untested at the time of the resolution, a monitorship may be appropriate — but should be narrowly drawn. 

The Foreign Corrupt Practices Act Unit’s recent resolution with Stericycle is a good example of this situation, and it resulted in a carefully tailored monitorship of two years, with an opportunity for early termination if warranted.

On the other side of the spectrum, where a company has not demonstrated a reliable compliance culture or addressed compliance deficiencies, the Department will not shy away from imposing a broader monitorship to prevent the recurrence of misconduct — here, the Glencore case springs to mind, where the Department and the company agreed to separate monitors for each of the two corporate resolutions with the company.

Regardless of the length and scope of the monitorship, Department prosecutors will stay engaged throughout the lifespan of the monitorship. 

As the DAG put it, our prosecutors will monitor the monitors, to keep them on task and on budget. Companies that invest in their compliance programs to get ahead of the curve will be rewarded with shorter monitorships, with the opportunity for early termination.

V. Meeting the Compliance Challenges of Communications Technology

Now let me turn to an area that we recognize is a big challenge for all organizations — employees’ use of personal devices and third-party messaging platforms for work-related communications. 

The ubiquity of personal smartphones, tablets, laptops and other devices and the rising use of third-party messaging platforms pose significant corporate compliance risks, particularly as to detecting their use for misconduct and recovering relevant data during a subsequent investigation. 

Many companies require all work to be conducted on corporate devices; others permit the use of personal devices but limit their use for business purposes to authorized applications and platforms. 

However a company chooses to address the use of personal devices or messaging platforms for business communications, the end result must be the same: companies need to prevent circumvention of compliance protocols through off-system activity, preserve all key data and communications and have the capability to promptly produce that information for government investigations. 

Company policies and procedures addressing the use of personal devices and third-party messaging systems for business purposes will be reviewed as part of evaluating the effectiveness of a corporation’s compliance program. 

And a company’s ability to produce relevant work-related communications — whether on-system or off — will be an important factor in assessing a corporation’s cooperation during a criminal investigation. 

VI. Concluding Points

In conclusion, let me emphasize that we do not view the recent policy announcements as the culmination of our work. Far from it. 

We are reviewing and updating policies regarding voluntary self-disclosure and monitor selection, across the entire Department. The Criminal Division is assessing how to shift some of the burden of corporate financial penalties onto individual wrongdoers.

And we are looking at additional ways to improve corporate enforcement, including through analysis of the debarment process.

I can assure you that effective corporate criminal enforcement will remain a top priority for the Department — and the subject of continued and careful attention and analysis.

It has been a privilege to speak with you today, and I look forward to taking questions.

Source: United States Department of Justice News

Antitrust Merger Enforcement: The Role of M&A Lawyers and Select Enforcement Priorities

Remarks as Prepared for Delivery 

Thank you very much for that kind introduction, Michael O’Bryan.

I am delighted to be here today with a group of M&A lawyers.

I know from my time in private practice what an important role you play in the transaction process. You are the ones who often work directly with Boards of Directors and senior business executives to strategize, evaluate and shape potential transactions at their inception, long before they arrive at the Division for review. Based on my experience, for many deals, it often seemed as if the lead M&A lawyers become honorary members of the senior executive team for the duration of the project.  

Implicit in all that is that you are relied upon to provide both the “big picture” legal and strategic perspectives on potential transactions to the most senior executives, while also being responsible for the nitty-gritty negotiation of transaction agreements across various legal disciplines to ensure your client’s interests are advanced and protected.

Regardless of whether you are representing a buyer or a seller, clients depend on your advice on the range of risks associated with potential transactions and negotiating the best agreement you can in light of your client’s objectives and instructions. Depending on the potential transaction, of course, part of that risk profile can involve antitrust, which leads to why I suspect I was invited to speak here today.

As you know, a transaction that potentially runs afoul of the antitrust laws can lead to months of lengthy investigation and potential litigation. That can lead to additional cost, uncertainty, and other potential impacts for your clients and, of course, requires substantial resources on our end.

Most fundamentally of course, we only investigate transactions that your clients – with your guidance and that of antitrust counsel – decide to enter into. So your role and how you help your clients weigh the risks of various transaction options and strategies is critical in what ultimately makes its way to us.

With that lens in mind, I would like to share some thoughts on a few issues that are top-of-mind at the Antitrust Division when we are reviewing the many transactions that come before us. Because the scope of this topic is broad and time is short, I will focus on just a few topics and would also refer you to previous speeches by Assistant Attorney General Kanter and other Division management to get a better understanding of our priorities in merger, as well as other types of, antitrust enforcement.

The hope is that you all will have a better sense of the types of transactions and transaction-related conduct likely to warrant further antitrust scrutiny so that you can better advise your clients on the antitrust risk associated with a deal before any decision is made about whether it should get out of the boardroom.

First, as a general matter, I want to emphasize our antitrust merger enforcement has been very active, and you should continue to expect aggressive enforcement.

I have been fortunate to serve as a Deputy Assistant Attorney General of the Antitrust Division for a little over 4 months now. And due to the efforts of our tremendous Staff, the Division is running on all cylinders.

• Right now, we have seven civil lawsuits pending against transactions—by our count, a record high over the last 20 years. Those lawsuits are aimed at protecting competition in a number of important industries, including sugar, authors of top-selling books, health care, air travel, signals intelligence, and just this week, residential door locks.
• Other companies recently abandoned deals on the cusp of litigation or before trial.
  • For example, Cargotec and Konecranes, leaders in global container handling equipment, abandoned their proposed $5 billion merger in the face of litigation.
  • Additionally, Verzatec and Crane, leading producers of pebbled fiberglass reinforced plastic wall panels, abandoned their $360 million transaction after we filed suit.
  • CIMC and Maersk, leading suppliers of refrigerated shipping containers, abandoned their $1 billion transaction in the face of litigation.
• Yet more transactions have been abandoned during the course of our investigations after Staff raised competitive concerns with the parties.

As for the future, we are planning in the Division as if we will continue to be as busy, or even more so. Last fiscal year alone we received over 3500 HSR filings; this fiscal year we have already reviewed 3000. By comparison, over the past decade, rarely did the Division receive more than 2000 filings in a year.

Although there will be ebbs and flows to HSR filings, we need to be prepared to investigate and, as necessary litigate, any and all transactions we believe violate the antitrust laws. We understand that takes resources, especially in light of our views that merger enforcement should remain aggressive. In that vein, we are in the process of enhancing the Division’s already fantastic litigation expertise to meet these challenges. Under the daily leadership of my world-class colleague, Deputy Assistant Attorney General Hetal Doshi, the Division is executing on that promise by mentoring and providing litigation experience to numerous attorneys in the Division, but also hiring additional experienced trial and litigation counsel from outside the Division.

I also wanted to spend a few minutes on remedies in the antitrust merger context. A lot has been said by the Division leadership on this topic already in speeches and panels, including earlier this week. But it is an important one, especially for this audience as you evaluate the risk of transactions and negotiate agreements.

In recent years, it has become somewhat common for merging parties to come to the Division with a transaction that presents obvious antitrust concerns: for example, leading companies buying one of their leading competitors in a concentrated industry. To do so, parties will march into the Division with a presumptively anticompetitive deal and then at some point in the process suggest being open to a potential “fix.” These “fixes” often take the form of suggesting to carve-out assets and divest them. The pitch is normally something like: if we sell these assets to another firm, then the status quo will be restored.

As an aside, these kinds of pitches were not the norm for most of the 100-plus year history of the Clayton Act. In fact, they were not even common when the Hart-Scott-Rodino Act first introduced the current premerger notification and review process. But over the past 40 years or so, the practice of proposing these types of remedies has become more common. And in past years, some of those settlements have been accepted, requiring the United States to make a filing advocating that the settlement addresses the harm alleged and is in the public interest.

We highly respect the Division decision-makers of years past, but we also have seen evidence that multiple merger consent decrees have failed to replicate pre-merger competition. In fact, in my first two weeks in this job, a divestiture consent decree entered into just a short time ago crumbled. That’s just one example.

So you should expect that we will closely scrutinize settlement proposals and evaluate them with healthy skepticism. It will be a high bar to convince us we should be comfortable enough to make a filing in federal court that the settlement is in the public interest.

That healthy skepticism comes from a wide-range of risks, including those associated with (i) tearing out assets previously intertwined with a larger company, (ii) putting the buyer in a position to replicate important capabilities or competitive strategies, (iii) not including important assets, (iv) facilitating ongoing entanglements with the seller or other competitors, (v) changed competitive or innovation incentives, and (vi) asymmetric buyer expertise and plans.

All of these, alone or in tandem, create concerns that the proposed divestiture will not replicate the “competitive intensity”[1] of the merging parties before the deal and, thus, undermines the essence and likelihood of success of the remedy. An unsuccessful remedy causes substantial harm by failing to protect the benefits of competition. American consumers should not have to bear the risks of that harm.

In addition to these types of “structural” remedies, we also lately have seen proposals of behavioral remedies, such as firewalls or corporate promises, to resolve anticompetitive concerns. These raise even more potential issues and of course in addition require future regulation and tremendous monitoring resources.

Let me be clear. There may be situations where we get comfortable enough to accept a remedy to resolve concerns with an anticompetitive merger, so we in turn are comfortable submitting those court filings I referenced earlier supporting the remedy. But the bar has been, and will continue to be, high to get us there. If we have doubts, then you should continue to expect us to move forward with litigation seeking to block the transaction and preserve the important rivalry giving us concern.

I also want to spend a few minutes discussing another example of our enforcement thinking to help you better understand potential risks, namely a focus on halting trends toward harmful concentration.

As you know, the Division reviews mergers using a rigorous, fact-specific approach. Over the past few years, we have seen a number of industries where a series of transactions roll-up individual competitors into larger ones, often combined with the exit, acquisition, or marginalization of smaller firms. The result often is a more concentrated market.

Elevated concentration can lead to a whole host of potential problems for consumers. It can increase the market power of the remaining competitors, decrease incentives to innovate, reduce consumer choice, expose industries to potential supply chain and other resiliency issues, and increase the risk from oligopoly behavior.

In light of these concerns, the Division has taken, and will continue to take, an especially close look at transactions that advance a trend toward concentration in an industry to ensure the market is not near the point of tipping to a monopoly or oligopoly. This concern is heightened—but certainly not limited to—where a transaction involves a dominant firm acquiring a non-dominant firm.

This focus on taking early action to halt further market consolidation is consistent with Congress’ mandate that the Division should act to stop “tendencies toward concentration in industry . . . in their incipiency.”[2] We take that mandate seriously.

The Clayton Act – one of our principal tools for challenging mergers – does not bar only transactions that cement a clear monopolist in a market. The statute prohibits transactions where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”[3] If we fail to act early, waiting for the next deal to act when the harms are more easily predictable – it simply may be too late. By then, dominant firms in a consolidated market may leverage their existing power to push the market to monopoly or oligopoly.

To be sure, predicting the future trajectory of a market can be challenging. We often will hear arguments that the market is undergoing dramatic change with the next big competitor on the cusp of entering. Fortunately, the antitrust laws do not – and should not – require the Division to prove the future with certainty. Rather, the question before the Division is whether “there is a reasonable probability that the merger will substantially lessen competition.”[4] Where markets have already trended toward concentration, the Division is likely to consider that closely when deciding whether to challenge any further step in that direction.

Having focused on a few of the higher-level issues that play a central role in our analysis of the likely competitive effects of a transaction, I want to turn now to a few narrower, but no less important, issues. These arise from time to time and can turn a transaction that otherwise raises no anticompetitive concerns into a problem for you and your clients.

I mentioned HSR filings earlier. Our Staff do a tremendous job quickly and efficiently reviewing these filings under extremely tight timeframes. They separate the “wheat from the chaff,” performing the behind-the-scenes review of every filing to determine whether or not to open an investigation. This process is essential to the functioning of the Division. We simply cannot conduct a full investigation of every reported transaction during the short waiting period afforded by the HSR Act.

To assist Staff in deciding which transactions to investigate, as you know, HSR filings include what are known as Item 4 documents. These are certain important documents that address, among other things, competition and synergies related to the transaction. Although not the only piece of information considered by Staff in assessing a proposed transaction, these documents are often critical, as they provide a window into the transaction from the perspective of the officers and directors of the parties.

However, the reliability and usefulness of this information is greatly diminished if companies fail to provide all of the documents called for by the HSR form. Where parties do not include in the filing all responsive materials, they risk providing an incomplete or even misleading picture of the transaction to Staff, undermining the HSR process.

Deal counsel can serve an important role here, ensuring corporate clients and antitrust counsel are aware of potentially relevant documents discussing the transaction so that they can be included in the filing and otherwise ensuring compliance.

Recent experience suggests some companies may not be living up to their HSR obligations, including adopting lax methods that do not reflect the importance of this process. As a result, the Division is taking a closer look at certain filings—including those of regular filers—to ensure processes are in place to provide the antitrust agencies with all of the information necessary to assess whether an investigation should be opened.

We will take appropriate action against filers that we believe have violated HSR filing requirements and thereby deprived the Division of the information necessary to fully and effectively assess a transaction. And while we understand mistakes can occur from time to time, we expect companies to any correct errors in their filings as soon as they become aware of an inaccuracy or omission. Failure to comply with the HSR requirements can lead to both delays in the waiting period and civil penalties, which currently accrue at a rate of more than $46,000 per day.

Finally, and in a similar vein, the Division will continue to monitor proposed transactions for gun-jumping concerns. We know your clients are often very eager to move forward quickly with implementing deals – having possibly spent a long time and considerable expense to sign them up. But the HSR waiting period process is important to the effective operation of the antitrust laws in the merger context.

Often, gun-jumping issues arise during integration planning, but interim covenants in the deal documents themselves also can raise gun-jumping concerns. One recent example came to the Division’s attention during the course of a separate investigation. There, the deal documents contained a variation of a fairly standard “material contracts” consent clause. The seller agreed to obtain the buyer’s consent before entering into any transaction worth more than a certain amount. The concern in that situation centered around the fact that the clause implicated future competitive bids by the seller. Although the evaluation of a covenant like this is inherently fact-specific and could depend (among other things) on the size of the companies at issue, these provisions can in practice provide a buyer with substantial control over the seller’s ability to compete and other aspects of their ordinary course of business before the HSR waiting period has expired. As with similar provisions, deal counsel should be mindful of the potential antitrust implications that even standard transaction provisions can have.

Where the Division hears of potential gun-jumping or identifies evidence of it in documents, interviews, or depositions, we have and will continue to open a separate investigation and potentially pursue penalties.

In conclusion, hopefully this overview provides you all with a better sense of where some of the antitrust risks may lie with potential transactions. It is in the interest of both merging companies and the Division to account for these risks – eyes wide open – at the outset of transaction planning. Doing so conserves resources and avoids the unnecessary showdowns, headaches, and cost that come with proposed transactions that raise competitive concerns. Thank you for your time and attention.

Source: United States Department of Justice News

BRUNSWICK, GA:  A three-time convicted felon who held himself out as a pastor, mortician, restaurateur, and tax preparer has admitted lying to receive COVID-19 small business assistance.

Mack Devon Knight, 45, of Stonecrest, Ga., formerly of Kingsland, Ga., was sentenced to 29 months in prison followed by three years of supervised release after previously pleading guilty to two counts of Wire Fraud, said David H. Estes, U.S. Attorney for the Southern District of Georgia. In pleading guilty to the charges, Knight also agreed to pay $149,000 in restitution to the Small Business Administration.

“When Congress provided more than $6.5 billion through the Coronavirus Aid, Relief and Security (CARES) Act to help small businesses struggling financially during the pandemic, fraudsters like Mack Knight came out of the woodwork” said U.S. Attorney Estes. “With our law enforcement partners, we are identifying and holding accountable these scam artists attempting to steal taxpayer funds.”   

As described in court documents and testimony, in February and March 2021, Knight applied for Economic Injury Disaster Loans (EIDLs) from the Small Business Administration (SBA) on behalf of multiple Camden County, Ga., businesses. Those EIDL applications falsely claimed that Knight had a series of businesses with hundreds of thousands of dollars of gross revenue prior to the COVID-19 pandemic. Knight admitted that those applications were fraudulent, and he admitted sending fictious documents to the SBA, including a fake tax document and an altered bank record.

As a result of those fraudulent filings, Knight received $149,900 from the SBA on behalf of a claimed tax business, and he used a large portion of the funds to buy a Mercedes-Benz S-Class sedan. As part of his plea agreement, Knight is forfeiting the vehicle to the United States.

Knight has at least three prior felony convictions for other acts of fraud.

“So many businesses needed federal emergency assistance to stay afloat during the pandemic, and this defendant misdirected hundreds of thousands of dollars of that money to his own pockets,” said Keri Farley, Special Agent in Charge of FBI Atlanta. “Mack Knight’s actions affected every tax paying citizen, in particular those who needed help the most. The FBI will continue to make every effort to ensure federal funds are used as intended.”

The FBI investigated the case. Knight was prosecuted for the United States by Assistant U.S. Attorneys Jonathan A. Porter and E. Greg Gilluly Jr.

To report a COVID-19-related fraud scheme or suspicious activity, contact the National Center for Disaster Fraud (NCDF) by calling the NCDF Hotline at 1-866-720-5721 or via the NCDF Web Complaint Form at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.