Friday, May 22, 2015

COMPANY RESOLVES CRIMINAL INVESTIGATION INVOLVING VIRTUAL CURRENCY BUSINESS

FROM:  U.S. JUSTICE DEPARTMENT 
Tuesday, May 5, 2015
Ripple Labs Inc. Resolves Criminal Investigation

Ripple Labs Inc. and its wholly-owned subsidiary, XRP II LLC, formerly XRP Fund II LLC, have agreed to resolve a criminal investigation in exchange for a settlement agreement calling for a series of substantial remedial measures, including a migration of a portion of Ripple’s virtual currency business to a separate entity, the company’s ongoing cooperation in other investigations, an extensive remedial framework to ensure future compliance with federal laws and forfeiture and penalties totaling $700,000, announced U.S. Attorney Melinda Haag of the Northern District of California, Director Jennifer Shasky Calvery of the U.S. Treasury Department Financial Crimes Enforcement Network (FinCEN) and Chief Richard Weber of the Internal Revenue Service (IRS) Criminal Investigation Division.  The agreement will resolve allegations that Ripple and its subsidiary failed to follow the law while engaging in the exchange of virtual currency and that the entities failed to establish and maintain an appropriate anti-money laundering program.

Ripple Labs Inc. is headquartered in San Francisco, California, and developed and sold virtual currency known as “XRP.”  As of 2015, the currency of the Ripple network, XRP, is the second-largest digital currency by market capitalization.

The agreement formalizes the steps Ripple and its subsidiary must take to bring its virtual currency operation within the existing regulatory framework for money services businesses.  The agreement consists of a settlement agreement, an agreed statement of facts, and a remedial framework for the company going forward.  Aside from monetary penalties in the form of forfeiture, the remedial framework requires the migration of any component of Ripple’s business that is engaged in the exchange of virtual currency into an entity registered with FinCEN.  In addition, the agreement calls for continued enhancements to the company’s anti-money laundering (AML) controls and training program.  Further, the remedial framework calls for external audits through the year 2020, enhancements to the ripple protocol, increased transaction monitoring and an extensive review of historical activity.

“By these agreements, we demonstrate again that we will remain vigilant to ensure the security of and prevent the misuse of the financial markets,” said U.S. Attorney Haag.  “Ripple Labs Inc. and its wholly-owned subsidiary both have acknowledged that digital currency providers have an obligation not only to refrain from illegal activity, but also to ensure they are not profiting by creating products that allow would-be criminals to avoid detection.  We hope that this sets an industry standard in the important new space of digital currency.”

The agreement is the culmination of a criminal investigation conducted by U.S. Attorney’s Office and the Internal Revenue Service’s Criminal Investigation Division.  FinCEN joined the investigation with a parallel civil enforcement action.  In that action, Ripple Labs and XRP II have agreed to pay a $700,000 civil penalty, $450,000 of which will be designated a forfeiture to settle issues raised in the U.S. Attorney’s investigation.

“Virtual currency exchangers must bring products to market that comply with our anti-money laundering laws,” said Director Calvery for FinCEN.  “Innovation is laudable but only as long as it does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products.”

“Federal laws that regulate the reporting of financial transactions are in place to detect and stop illegal activities, including those in the virtual currency arena,” said Chief Weber of the IRS Criminal Investigation Division.  “Unregulated, virtual currency opens the door for criminals to anonymously conduct illegal activities online, eroding our financial systems and creating a Wild West environment where following the law is a choice rather than a requirement.”

Ripple described itself as an exchanger of virtual currency in a December 2013 filing made in San Francisco, California, federal court in an unrelated case.  As an exchanger, Ripple was required to register with FinCEN and to comply with applicable federal laws and regulations.  Yet Ripple sold XRP even though it had not registered with FinCEN, effectuating sales of over approximately $1.3 million in April 2013 alone.  Ripple also failed to establish and maintain an appropriate AML program and failed to have policies, procedures and internal controls to ensure compliance with the Bank Secrecy Act and anti-money laundering laws.  In July 2013, Ripple incorporated a subsidiary, now known as XRP II, that replaced Ripple as the seller of XRP.  Although XRP II registered with FinCEN, it failed to have an effective AML program or to file appropriate suspicious activity reports.  In late 2013, for example, it negotiated a $250,000 transaction with an individual who had prior felony convictions for dealing in explosive devices and had been sentenced to prison, failing to follow its own internal “know your customer” requirements.

Assistant U.S. Attorneys Kathryn R. Haun and Arvon J. Perteet handled the matter on behalf of the U.S. Attorney’s Office with the assistance of Daniel Charlier-Smith and Leslie Cook.  The settlement agreement with Ripple Labs was the result of a coordinated effort by the U.S. Attorney’s Office and IRS Criminal Investigation, working in tandem with FinCEN.

Thursday, May 21, 2015

ASSISTANT AG CRUDEN'S CONGRESSIONAL TESTIMONY ON ENVIRONMENT AND NATURAL RESOURCES DIVISION OF DOJ

FROM:  U.S. JUSTICE DEPARTMENT
Assistant Attorney General John C. Cruden Delivers Testimony Before the U.S. House of Representatives Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Washington, DCUnited States ~ Tuesday, May 19, 2015

Chairman Marino, Representative Johnson and members of the Subcommittee, thank you for the opportunity to appear before you today to discuss the important work of the Environment and Natural Resources Division (ENRD or the Division) of the U.S. Department of Justice.

In January, I returned to the division as the Assistant Attorney General following my senate confirmation.  I have had the honor and privilege of spending over two decades at the Department of Justice, first as Chief of the Environmental Enforcement section and then as a career Deputy Assistant Attorney General.  I am grateful for the opportunity to represent the interests of the United States in my current capacity.

The division functions as the nation’s environmental and natural resources lawyer.  Our work protects the country’s air, land and water, and promotes responsible stewardship of

America’s wildlife, natural resources and public lands.  About half of ENRD’s lawyers bring enforcement cases against those who violate the nation’s civil and criminal pollution-control laws.  Others defend environmental challenges to government programs and activities and represent the United States in matters concerning natural resources and public lands.  The division is responsible for the acquisition of real property by eminent domain for the federal government and for cases arising under the wildlife and marine resources protection laws.  In addition, ENRD handles a broad array of important matters affecting Indian tribes and their members, as well as protecting the lands and resources held in trust for them by the United States.

The FY 2016 budget requests $127 million to support ENRD’s important work as the nation’s environment and natural resources lawyer, representing the United States and its territories and possessions, in civil and criminal cases that arise under more than 150 federal statutes.  ENRD is made up of about 600 permanent employees, more than 400 of whom are attorneys.  Each year, division lawyers handle thousands of cases and represent virtually every federal agency in courts across the United States.  Our primary client agencies are the U.S.

Environmental Protection Agency (EPA), the U.S. Department of the Interior, the U.S. Army

Corps of Engineers, the U.S. Department of Commerce, the U.S. Department of Agriculture, the U.S. Department of Homeland Security, the U.S. Department of Energy and the U.S. Department of Defense, among others.

I am very proud of the division’s work and its outstanding litigation results.  The division’s efforts result in significant public health and other direct benefits to the American people.  In fiscal year 2014, we obtained almost $6.3 billion in corrective measures through court orders and settlements, which will go a long way toward protecting the nation’s air, water and other natural resources.  We are also committed to ensuring that American taxpayers receive a substantial return on their investment by securing significant monetary recoveries through litigation.  For example, in fiscal year 2014, we secured more than $270 million in civil and stipulated penalties, cost recoveries, natural resource damages and other civil monetary relief, including more than $162 million recovered for the Superfund.  We concluded 48 criminal cases against 77 defendants, obtaining more than 37 years in confinement and more than $63 million in criminal fines, restitution, community service funds and special assessments.  Finally, by comparing claims made with the amounts ultimately imposed, we estimate that the handling of defensive and condemnation cases closed in fiscal year 2014 saved the United States more than $2 billion.

In this 21st year since the signing of Executive Order 12898, which directed each federal agency to make achieving environmental justice part of its mission, the Department of Justice and the division remain staunchly committed to the pursuit of environmental justice. Environmental justice is the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation and enforcement of environmental and natural resources laws, regulations, and policies.  We have done this in many ways, including by working closely with other federal agencies to coordinate environmental justice efforts, by engaging communities to an unprecedented degree and by achieving meaningful results for vulnerable communities in our cases.

Looking forward, I have five goals for the coming year:

• Goal 1: Enforce the nation’s bedrock environmental laws that protect air, land and water for all Americans.

• Goal 2: Vigorously represent the United States in federal trial and appellate courts, including by defending EPA’s rulemaking authority and effectively advancing other agencies’ missions and priorities.

• Goal 3: Protect the public fisc and defend the interests of the United States.

• Goal 4: Advance Environmental Justice through all of the division’s work and promote and defend tribal sovereignty, treaty obligations, and the rights of Native Americans.

• Goal 5: Provide effective stewardship of the nation’s public lands, natural resources and animals, including fighting for the survival of the world’s most protected and iconic species and marine resources and working across the government and the globe to end the illegal trade in wildlife.

RECENT DIVISION LITIGATION

For purposes of today’s hearing, I will highlight a few cases across ENRD’s work.

A. Deepwater Horizon

The division’s top civil enforcement priority remains the Deepwater Horizon–Macondo

Well oil spill.  On April 20, 2010, an explosion and fire destroyed the Deepwater Horizon offshore drilling rig in the Gulf of Mexico and trigged a massive oil spill amounting to millions of barrels.  The discharge continued for nearly 90 days.  Eleven people aboard the rig lost their lives and many others suffered injury.  The spill seriously impacted natural habitats, wildlife and human communities along coastal areas of Alabama, Florida, Louisiana, Mississippi and Texas.

In December 2010, the United States brought a civil suit against BPXP, Anadarko, MOEX and Transocean for civil penalties under the Clean Water Act and a declaration of liability under the Oil Pollution Act, as part of multidistrict litigation in the U.S. District Court for the Eastern District of Louisiana.  In February 2012, the Department announced a partial settlement agreement in which MOEX agreed to pay $70 million in civil penalties to resolve alleged violations of the Clean Water Act and to spend at least $20 million to facilitate land acquisition projects in several Gulf States that will preserve and protect in perpetuity habitat and resources important to water quality.  In January 2013, Transocean Deepwater Inc. agreed to plead guilty to violating the Clean Water Act and to pay a total of $1.4 billion in civil penalties and criminal fines for its conduct relating to the Deepwater Horizon disaster, including a then record-setting $1 billion penalty to resolve Clean Water Act civil claims.

The division is now more than four years into hard-fought litigation against BPXP and the remaining defendants.  We have continued to work closely with other departmental components, a host of federal client agencies and the five Gulf States in this action.  Federal claims involve billions of dollars, both in Clean Water Act penalties and natural resources damages under the Oil Pollution Act.

The Department tried the first phase of the U.S. case (addressing the cause of the disaster and liability) for nine weeks from February through April 2013, as part of a mass trial in which thousands of private plaintiffs also tried parts of their cases relating to liability and fault.  The district court then ruled that BPXP and Anadarko were liable under the Clean Water Act as owners of the well from which oil was discharged. BPXP and Anadarko filed an interlocutory appeal in the Fifth Circuit.  In June 2014, a Fifth Circuit panel upheld the district court’s liability ruling against BPXP and Anadarko.  On January 9, 2015, the Fifth Circuit denied rehearing en banc; and BPXP and Anadarko have petitioned the Supreme Court for review of that judgment.  We also tried the second phase of the U.S. case addressing how much oil was discharged into the

Gulf of Mexico in September and October 2013.

On September 4, 2014, the court held that the discharge of oil was the result of BPXP’s gross negligence, its willful misconduct, or both on the well as it neared completion and also in BPXP’s central and often controlling, role in a number of imprudent decisions that were part of the construction of the well.

On January 15, 2015, the district court ruled on the second phase of trial, finding that some 3.19 million barrels of oil discharged into the Gulf of Mexico.  Rulings from the first two trial phases are now on appeal to the Fifth Circuit.

During January and February 2015, we litigated the third and final phase of our penalty claim in the district court.  That trial addressed all statutory factors relevant to civil penalty under the Clean Water Act, not addressed in the first two phases of trial.  We now await the district court’s ruling on the third phase, which we expect to include assessment of a civil penalty against BPXP and Anadarko.  As the Deepwater Horizon litigation progresses, the United States will take whatever steps are necessary to hold accountable those responsible for the explosion, fire and oil spill.

B. Other Civil and Criminal Environmental Enforcement

The division’s many other civil and criminal environmental enforcement efforts have immeasurably protected human health and the environment through significant reductions in emissions and discharges of harmful pollutants.  The cases discussed below–A&E Salvage, ExxonMobil, Lehigh and Tronox–are illustrative.

In January 2015, five owners and managers of salvage operations at a former textile plant in Tennessee were sentenced to prison terms for conspiring to commit Clean Air Act offenses in connection with the illegal removal and disposal of asbestos-containing materials.  A&E Salvage had purchased the former Liberty Fibers Plant in Hamblen County, Tennessee, out of bankruptcy in order to salvage metals which remained in the plant.  The United States alleged that the defendants engaged in a multi-year scheme in which substantial amounts of regulated asbestos containing materials were illegally removed from the plant without properly removing and disposing of the asbestos or providing workers with the necessary protective equipment.  Asbestos has been determined to cause lung cancer, asbestosis and mesothelioma and EPA has determined that there is no safe level of exposure to asbestos.

After a three-day sentencing hearing that included expert testimony that the exposures of the A&E Salvage workers to asbestos resulted in a substantial likelihood they would suffer death or serious bodily injury, the district court sentenced all five defendants to prison terms.  The former manager was sentenced to five years in prison, to be followed by two years of supervised release.  Two other managers were sentenced to 37 months and 28 months, respectively.  Two other employees also received sentences of six months in prison.  The judge ordered all the defendants to pay restitution of more than $10.3 million to clean up the plant site contamination.

On April 22, 2015, we announced a consent decree with ExxonMobil Pipeline Company and Mobil Pipe Line Company (ExxonMobil) related to a pipeline oil spill in Mayflower,

Arkansas, on March 29, 2013. ExxonMobil owns and operates the Pegasus pipeline, a 20-inch diameter pipeline that transports Canadian heavy crude oil over 850 miles from Patoka, Illinois, to Nederland, Texas.  The pipeline ruptured and oil spilled directly into a residential neighborhood and then into nearby waterways, including a creek, wetlands and Lake Conway, which is a tributary of the Arkansas River.  Residents of 22 homes were forced to evacuate due to the hazardous conditions in the neighborhood and most people never moved back home.  Remediation efforts are nearing completion.  In the complaint, filed in June 2013, we sought civil penalties and injunctive relief under the Clean Water Act.  The state of Arkansas brought multiple claims for penalties under state law related to the spill and cleanup.  Under the consent decree, ExxonMobil will pay a Clean Water Act civil penalty of $3.19 million, which equates to

$1,000 per barrel discharged and will perform injunctive relief to help prevent and minimize future spills.  ExxonMobil will also pay a penalty to the State in the amount of $1 million.

On April 28, 2015, the United States filed a complaint and consent decree under the

Clean Water Act against Lehigh Southwest Cement Company and Hanson Permanente Cement Inc., operator and owner of a rock and aggregate mining and cement manufacturing facility in

Cupertino, California.  The state of California, on behalf of the California Regional Water

Quality Control Board, is a co-plaintiff. Lehigh and Hanson violated two previous Clean Water Act National Pollutant Discharge Elimination System permits by routinely discharging excessive selenium and solids and occasionally discharging excessive mercury, hexavalent chromium and other pollutants.  The settlement requires Lehigh and Hanson to pay a civil penalty of $2.55 million and to reduce its selenium discharges to levels that will be protective of a seleniumim paired creek.  The facility will also be making major technology changes, spending over $5 million to build a new treatment system for selenium and other metals.  The consent decree provides a strict schedule for the facility to complete construction and come into full compliance by 2017, as well as interim limits and deadlines that will ensure the process remains on track.  Even before formal lodging of the settlement, the facility had already made approximately 50 percent reductions in its selenium discharges as a result of our enforcement efforts. The biologic treatment system that Lehigh will be putting in is an innovative new technology that may have applications to other facilities and industries.  Selenium is a difficult pollutant to remove and it is fitting that in Silicon Valley a state-of-the-art technology will help protect Permanente Creek and the San Francisco Bay.

ENRD also files claims to protect environmental obligations owed to the United States when a responsible party goes into bankruptcy. From the beginning of fiscal year 2009 through the second quarter of fiscal year 2015, we obtained agreements in 43 bankruptcy proceedings, under which debtors committed to spend an estimated $3.75 billion to clean up hazardous-waste sites, reimburse the Superfund more than $2.45 billion plus an additional $88 million in interest and pay more than $154 million in natural resource damages.

Recent developments in an adversary proceeding arising out of a bankruptcy case, Tronox Inc. v. Anadarko Petroleum Corp., are particularly noteworthy.  There, the United States and its co-plaintiff won an award against defendant “New” Kerr-McGee Corporation and certain related defendant companies, all of which are subsidiaries of the Anadarko Petroleum Corp.  In December 2013, the bankruptcy court in New York concluded that the historic Kerr-McGee Corp. fraudulently conveyed assets in 2005 to evade its debts, including its liability for environmental cleanup at toxic sites nationwide. Subsequently, the parties entered into a $5.15 billion settlement, the largest recovery for the cleanup of environmental contamination in American history, which the district court approved on November 10, 2014.  Under the settlement, approximately $4.4 billion will be paid to fund environmental cleanup and for environmental claims at numerous contaminated sites around the country, including radioactive uranium waste on the Navajo Nation’s reservation; radioactive thorium in Chicago and West Chicago, Illinois; creosote waste in the Northeast, the Midwest and the South; and perchlorate waste in Nevada.

C. Increasing Domestic Energy Supplies

One component of the continuing efforts to increase domestic energy supplies is expansion of cleaner domestic sources of energy like wind and solar power.  The division has defended challenges to permits and rights-of-way in nearly 40 cases involving solar and wind projects across the country.  Our recent successes included favorable rulings on summary judgment in cases involving the Ivanpah Solar Project, the Genesis Solar Project, the North Sky

River Wind Energy Project, the Ocotillo Wind Energy Project, the West Tennessee Solar Farm

Project, the Deerfield Wind Project, the Cape Wind Project and the Steens Mountain Wind Project.  These victories have enabled substantial development of renewable energy resources across the country.

D. Other Clean Air Act Litigation

Through a settlement approved by the district court in January 2015, the division obtained its largest Clean Air Act penalty in United States v. Hyundai Motors Co., for violations related to testing and certification of close to 1.2 million vehicles that will emit approximately

4.75 million metric tons of greenhouse gases in excess of their certification to EPA.  Automakers

Hyundai and Kia will pay a $100 million penalty, spend approximately $50 million on measures to prevent future violations, and forfeit 4.75 million greenhouse gas emissions credits estimated to be worth over $200 million.

On April 22, 2015, we announced a consent decree with Noble Energy Inc. and simultaneously filed a complaint to support the lodging of the decree.  The settlement covers

Noble’s natural gas production operation in the Denver-Julesburg Basin north of Denver, an area that fails to attain the National Ambient Air Quality Standards for ground level ozone.  At issue were emissions of vapors from hydrocarbon liquids, which contain volatile organic compounds, methane and hazardous air pollutants such as benzene. EPA and State of Colorado inspectors observed emissions from storage tanks using state-of-the-art optical imaging and thermal infrared cameras.  Under the terms of the settlement, Noble will conduct an engineering evaluation of vapor systems, undertake corrective actions as needed and verify the adequacy of the actions at over 3,400 tank batteries.  In addition, Noble will retain a third party to audit the performance of this work and install next-generation pressure monitoring on tank batteries.  The total value of the civil penalty being split between the United States and the state of Colorado, plus Supplemental Environmental Projects is $8.95 million.

Division cases frequently involve challenges to regulations promulgated to implement other aspects of the Clean Air Act. The Department recently successfully defended two sets of important rules involving power-plant emissions.  In April 2014, the department obtained a victory in the D.C. Circuit concerning EPA’s Mercury and Air Toxics Standards rule, which was the first rule limiting emissions of mercury and other hazardous air pollutants from the nation’s fossil-fuel-fired electric power plants.  One aspect of the D.C. Circuit’s decision has been briefed and argued before the Supreme Court, and we expect a decision shortly.  Also, in April 2014, the

Supreme Court upheld EPA’s Cross-State Air Pollution Rule, which limits emissions of nitrogen oxides and sulfur dioxide that contribute to the formation of ozone and particulate-matter pollution that drifts from state-to-state. The Supreme Court found that the rule reflected a “permissible, workable and equitable” approach to this complex interstate pollution problem.

E. Management of Public Lands and Resources

A substantial portion of the division’s work includes litigation under dozens of statutes and treaties related to the management of public lands and associated natural and cultural resources.  Cases involving the U.S. Department of Agriculture’s Forest Service, for example, are a significant part of the ENRD docket.  The Forest Service is responsible for forests and grasslands totaling 193 million acres.  The agency manages those lands according to the multiple-use mandate given to it by Congress.  Forest Service lands are important for timber production, watershed protection, non-motorized and motorized outdoor recreation and wildlife management.  Management of Forest Service lands may result in litigation by industry groups, timber companies, environmental organizations, tribes, states, counties and individuals.  Litigation over the management of these lands arises at all levels, ranging from challenges to nationwide rules to small, site-specific timber-harvest projects.  Currently, more than a hundred of these cases are pending in the district and appellate courts.

ENRD recently successfully defended the Forest Service’s 2012 Planning Rule, which governs the Forest Service’s development of individual land and resource management plans for 155 national forests and 20 national grasslands, covering over 180 million acres of forest and rangeland throughout the United States.  In Federal Forest Resource Coalition v. Vilsack, plaintiffs, a coalition of trade associations representing the timber industry, grazers and motorized recreational interests, brought a facial challenge to the rule.  On April 28, 2015, the district court issued a comprehensive opinion explaining that it was dismissing the case because plaintiffs lacked standing to challenge the rule.

ENRD also handles a variety of cases involving federal onshore and offshore oil and gas programs.  Typically, these cases challenge decisions by the Interior Department that make federally managed lands or discrete tracts of the Outer Continental Shelf available for lease, exploration and development by the oil and gas industry.  We also handle litigation concerning the amount of royalties that are owed to the United States for oil and gas produced from federal sources and cases involving the apportionment of oil and gas royalties between the United States and states located along the Gulf Coast.

F. Indian Tribal Work

The Division handles a broad range of matters affecting Indian tribes and their members.  We have been actively engaged with the Interior Department and tribes to protect tribal interests such as tribal water rights; tribal hunting, fishing and gathering rights; reservation boundaries; and tribal jurisdiction and sovereignty.  The United States has a government-to-government relationship with each of the 566 federally recognized Indian tribes, and we seek to work collaboratively with them in carrying out this work wherever possible.

We assert water-rights claims for the benefit of tribes to secure safe and reliable drinking water for tribes, as well as water for sanitation, economic development, and other purposes. For example, during this Administration, ENRD contributed to six landmark Indian water-rights settlements and corresponding statutes which, when fully implemented, will resolve complex and contentious water-rights issues in Arizona, Montana, Nevada, and New Mexico.

ENRD is also charged with representing the United States in civil litigation brought by tribes and their members against the United States, including claims that the United States has breached its trust responsibility.  Over the past several years, the division has sought to resolve, without protracted litigation, dozens of Indian tribal “breach of trust” lawsuits.  In these cases, numerous federally recognized Indian tribes allege that the United States, principally the Departments of the Interior and the Treasury, violated the federal government’s trust duties and responsibilities to the tribes by failing to provide full and complete historical trust accountings and failing to properly manage the tribes’ trust funds and non-monetary trust assets or resources.  The tribes seek declaratory and injunctive relief, as well as monetary compensation for their financial injuries. From 2002 until today, some 128 Indian tribes and tribal entities filed over 100 such “breach of trust” lawsuits in federal district courts and in the Court of Federal Claims.  To date, the United States has settled the trust-accounting and trust-management claims of 87 tribes in 64 cases.  The United States will continue settlement discussions in other pending cases and is committed to resolving these matters in a manner that is fair and reasonable to the tribes and the United States.

Among other things, all of these settlements set forth a framework for promoting tribal sovereignty and improving aspects of the tribes’ relationship with the United States, while reducing or minimizing the possibility of future disputes and avoiding unnecessary litigation.  Under the settlements, the tribes and the United States will implement measures that will lead to strengthened management of trust assets and improved communications between the Department of the Interior and the tribes.  Also, the tribes and the United States will use an alternative dispute-resolution process to address concerns regarding the future management of the tribes’ trust funds and non-monetary trust resources.

To accomplish these objectives, the President’s 2016 budget request includes a $3 million increase to hire attorneys and procure contract litigation support and expert consultant services.  We expect to hire hydrologic experts to assess the impact of water depletion and water quality degradation.  These expert consultants will also assist in collecting and/or interpreting air emission and water-quality data to develop civil and criminal cases for potential violations of the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, and the Resource Conservation and Recovery Act in Indian Country.

G. Wildlife Trafficking

The department, principally through ENRD, has long been a leader in the fight against illegal wildlife trafficking. In the past decade, wildlife trafficking has escalated into an international crisis.  Beyond decimating the world’s iconic species, this illegal trade threatens international security.  Reports from the State Department and elsewhere indicate that transnational criminal organizations, including some terrorist networks, armed insurgent groups and narcotics trafficking organizations, are increasingly drawn to wildlife trafficking due to the exorbitant proceeds from this illicit trade.  These criminal groups breed corruption, disrupt the peace and security of fragile regions and destabilize communities and their economies, thus undermining not just wildlife laws and international agreements, but the rule of law itself.

Over the last several years, the department has engaged fully in the administration’s redoubled effort to combat wildlife trafficking through the Presidential Task Force on Wildlife Trafficking, established by the July 2013 Executive Order on Combating Wildlife Trafficking.  The division serves as a Task Force co-chair (as the Attorney General’s delegate) and worked with the other co-chairs from the Departments of State and the Interior, and the numerous other

Task Force agencies, to craft the National Strategy for Combating Wildlife Trafficking, which the

President signed and issued on February 11, 2014.  The National Strategy emphasizes the need for a “whole of government” approach to combating this problem and identifies three priorities: (1) strengthening domestic and global enforcement; (2) reducing demand for illegally traded wildlife at home and abroad; and (3) strengthening partnerships with foreign governments, international organizations, nongovernmental organizations, local communities, private industry and others to combat illegal wildlife poaching and trade.  The National Strategy provides a set of overarching principles to guide the U.S. response to the increasing global wildlife-trafficking crisis.

The task force agencies have been working in coordination to implement the strategy since its issuance and in February of this year, the task force released an implementation plan that builds upon the strategy.  The implementation plan provides a robust, focused reaffirmation of the nation’s commitment to stopping wildlife trafficking and sets out specific steps to achieve each strategic priority.

The division works with U.S. Attorneys’ Offices around the country and federal agency partners, such as the U.S. Fish and Wildlife Service, U.S. Immigration and Customs

Enforcement and the National Oceanic and Atmospheric Administration, to combat wildlife trafficking under the Endangered Species Act and the Lacey Act, as well as statutes prohibiting smuggling, criminal conspiracy and related crimes.  The department has successfully prosecuted numerous cases of illicit wildlife smuggling involving trafficking of rhinoceros horns, elephant ivory, South African leopard, Asian and African tortoises and reptiles and many other forms of protected wildlife and protected plant species.  Through enforcement efforts like “Operation Crash”–which is focused on the lucrative and often brutal trade in rhinoceros horns–we work to bring traffickers to justice.  This operation has resulted in 20 successful prosecutions thus far and we are continuing to unravel the sophisticated international criminal networks that engage in these crimes.

Last March, I had the honor of leading the U.S. delegation to the Kasane Conference on the illegal wildlife trade in Kasane, Botswana, where representatives from more than 30 nations gathered to follow up on the commitments made at last year’s London Conference.

To support these efforts, the President’s 2016 budget includes a $2 million increase and serves three purposes.  First, ENRD seeks two attorney positions to support the additional case and capacity building work that is developing.  Second, the division will retain consulting experts to assist in analysis of a variety of issues important to the development of our cases, including plant and animal identification.  In particular, such expert assistance will help us in conducting complex investigations into the operations of multinational corporations involved in the global trade in illegal wildlife and timber and the tracking of proceeds from this trafficking.  Third, we will consult with experts to develop a detailed analysis of the domestic ivory markets and supply chain that will help identify targets in this area and prioritize enforcement resources.

H. Land Acquisition

Another portion of the division’s caseload consists of eminent domain litigation.  This important work, undertaken with congressional direction or authority, involves the acquisition of land for projects such as national parks or the construction of federal buildings and for national security-related purposes.  Consistent with the mandate of the Fifth Amendment to the U.S.

Constitution to pay just compensation when the United States must acquire private property,

ENRD works to ensure that all landowners receive fair-market value, while taxpayers are not required to pay in excess of fair-market value.  Great efforts are made to resolve disputes without litigation where feasible.  As an example of our litigation in this area, we exercised the federal government’s power of eminent domain to condemn nearly 276 acres of land in Somerset County, Pennsylvania, where United Airlines Flight 93 crashed on September 11, 2001.  The land was acquired to construct the Flight 93 National Memorial.  In December 2013, following a week-long trial, the land commission issued a report finding that the fair-market value of the property was $1.535 million, which was $21.765 million less than the amount sought in the litigation.  The federal district court in Pennsylvania adopted the land commission’s report in March 2014.   Through this litigation, American taxpayers saved tens of millions of dollars in obtaining the land necessary to develop a national memorial to the passengers on United Airlines Flight 93, who tragically lost their lives on September 11, 2001.

CONCLUSION

At this time, Mr. Chairman, I would be happy to address any questions you or Members

of the Subcommittee may have.

Wednesday, May 20, 2015

FORMER AUTO PARTS EXECUTIVE INDICTED FOR ROLE IN FIXING PRICES

FROM:   U.S. JUSTICE DEPARTMENT 
Thursday, May 14, 2015
Former Automotive Parts Manufacturer Executive Indicted for Role in Conspiracy to Fix Prices

A Detroit federal grand jury returned a one-count indictment against the former Executive Managing Director of a Japanese automotive parts manufacturer for his participation in a conspiracy to fix prices and rig bids of automotive parts, the Department of Justice announced today.

The indictment, filed today in the U.S. District Court of the Eastern District of Michigan, charges Michitaka Sakuma, a former director and member of the board of directors of T.RAD Co. Ltd., with conspiring to fix the prices of radiators sold to Honda Motor Co. Ltd., Toyota Motor Corp., and certain of their subsidiaries in the United States and elsewhere.

“Today’s charge demonstrates that the Antitrust Division will continue to hold senior executives accountable for directing and authorizing subordinate employees to engage in criminal conduct,” said Deputy Assistant Attorney General Brent Snyder of the Antitrust Division’s Criminal Enforcement Program.  “Senior executives should expect that they will be pursued and prosecuted when they knowingly permit and direct collusive conduct to occur under their management.”

Sakuma participated in the conspiracy first as a general manager in charge of Toyota sales and then as the executive managing director in charge of all sales at T.RAD.  Sakuma was also a member of the board of directors at T.RAD.

The indictment alleges, among other things, that beginning at least as early as October 2003 and continuing until at least February 2010, Sakuma and his co-conspirators participated in meetings with co-conspirators and reached collusive agreements to rig bids, allocate supply and fix the price of radiators sold to Honda and Toyota.

T.RAD is a corporation organized and existing under the laws of Japan with its principal place of business in Tokyo, Japan.  On Nov. 12, 2013, T.RAD pleaded guilty and agreed to pay a $13.75 million criminal fine for its role in the conspiracy.  On Dec. 9, 2014, Kosei Tamura, the general manager in charge of Honda sales at T.RAD, pleaded guilty of participating in the same conspiracy and was sentenced to serve one year and one day in a U.S. prison.

Including Sakuma, 53 individuals have been charged in the government’s ongoing investigation into market allocation, price fixing and bid rigging in the automotive parts industry.  Additionally, 35 companies have pleaded guilty or agreed to plead guilty and have agreed to pay a total of more than $2.5 billion in criminal fines.

Sakuma is charged with price fixing and bid rigging in violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.  The maximum fine for an individual may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.

Today’s indictment is the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by the Antitrust Division’s criminal enforcement sections and the FBI.  Today’s charge was brought by the Antitrust Division’s Washington Criminal I Section and the FBI’s Detroit Field Office, with the assistance of the FBI headquarters’ International Corruption Unit.

Monday, May 18, 2015

CFTC ORDERS COMPANY AND OWNER TO PAY OVER $700,000

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 
May 14, 2015
CFTC Orders Double Eagle Enterprises, LLC and Eric Arlt to Pay More than $700,000 in Restitution and a Civil Monetary Penalty in Precious Metals Enforcement Action
Order also Permanently Bars Respondents from Trading on CFTC-Regulated Markets

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Double Eagle Enterprises, LLC, Double Eagle Metals (collectively Double Eagle), and its owner Eric Arlt, all of Charlevoix, Michigan (together Respondents). The Order charged the Respondents with illegally offering off-exchange financed transactions in precious metals with retail customers, and failure to register as a Futures Commission Merchant (FCM) with the CFTC, as required.

The CFTC Order requires the Respondents jointly to pay restitution of $611,154 to their customers and a $100,000 civil monetary penalty. The Order also requires the Respondents to cease and desist from further violations of the Commodity Exchange Act, as charged, and prohibits them from trading on or pursuant to the rules of any registered entity.

The Illegal Transactions

Specifically, the CFTC Order finds that, from July 2011 through May 2013, the Respondents solicited retail customers, generally by telephone, to buy and sell physical precious metals, such as gold and silver, in off-exchange, leveraged transactions and failing to properly be registered. According to the Order, customers paid a percentage of the purchase price for the metals, and Respondents purportedly financed the remainder of the purchase price, while charging customers interest on the amount borrowed.

The CFTC Order states that financed, off-exchange transactions with retail customers have been illegal since July 16, 2011, when certain amendments of the Dodd-Frank Wall Street and Consumer Protection Act of 2010 became effective. As explained in the Order, financed transactions in commodities with retail customers like those engaged in by Respondents must be executed on, or subject to, the rules of a board of trade that has been approved by the CFTC. Since Respondents’ transactions were done off-exchange, with customers who were not eligible contract participants, they were illegal, the Order finds.

Failure to Register

The Order also states that it unlawful for any person to engage as a FCM, unless such person is registered with the CFTC as an FCM and such registration has not expired or been suspended or revoked. Double Eagle acted as an FCM by soliciting and accepting customers’ orders for financed precious metals transactions and, in connection with those transactions, accepting at least $1 million from those customers, including customers who were not eligible contract participants. As such, Double Eagle acted as an unregistered FCM.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

CFTC Division of Enforcement staff members responsible for this matter are Michelle Bougas, James H. Holl, III, and Rick Glaser.

CFTC’s Precious Metals Fraud Advisory

In January 2012, the CFTC issued a the Precious Metals Consumer Fraud Advisory regarding precious metals fraud, saying that it had seen an increase in the number of companies offering customers the opportunity to buy or invest in precious metals. The CFTC’s Precious Metals Fraud Advisory specifically warns that frequently companies do not purchase any physical metals for the customer, instead simply keeping the customer’s funds. The Advisory further cautions consumers that leveraged commodity transactions are unlawful unless executed on a regulated exchange.

In addition, the CFTC has issued several other customer protection

Sunday, May 17, 2015

SEC CHARGES COMPANIES, IDIVIDUALS IN HOME BUILDING INDUSTRY SCAM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23262 / May 14, 2015
Securities and Exchange Commission v. North Star Finance LLC, Thomas G. Ellis, Yasuo Oda, Thomas H. Vetter, Michael K. Martin, Sharon L. Salinas, Capital Source Funding LLC, Capital Source Lending LLC, Civil Action No. 15-cv-1339 (D. Md.)

SEC Halts Advance Fee Loan Scam Targeting Home Building Industry

The Securities and Exchange Commission today announced charges and an emergency asset freeze against Maryland, Virginia, and California residents and their companies for defrauding dozens of investors, many of whom they solicited from the National Association of Home Builders ("NAHB"), in an alleged advance fee loan scam involving bogus prime bank instruments. The SEC filed its complaint under seal on May 11, 2015, in the U.S. District Court for the District of Maryland.

Advance fee frauds solicit investors to make upfront payments before purported deals can go through, and perpetrators fool investors with official-sounding terminology to add an air of legitimacy to the investment programs.

According to the SEC's complaint, which the Court unsealed yesterday at the SEC's request, Thomas G. Ellis and Yasuo Oda, through their company, North Star Finance LLC, and Michael K. Martin and Sharon L. Salinas, through their companies, Capital Source Lending LLC and Capital Source Funding LLC, have collected approximately $5 million from defrauded investors since at least January 2013. The SEC alleges that North Star and the Capital Source entities promised investors that, for an advance fee that would be safely held in escrow accounts and used only for transactional expenses, they could "monetize" bank guarantees to generate millions of dollars. North Star and Capital Source promised that this windfall could then be made available to investors in the form of project funding on highly favorable terms. The SEC alleges that the bank guarantees that served as the backbone of North Star's and Capital Source's programs were a fiction, and underscores that several government agencies have warned investors away from transactions involving such instruments. Even if these bank guarantees did exist, the SEC alleges, they could never be "monetized" as there is no formal or informal market on which they might be bought or sold.

The SEC alleges that, with the assistance of Thomas H. Vetter, a trusted member of the NAHB community, Ellis first pitched North Star's scheme at an annual meeting of the NAHB in February 2014, managing to convince multiple building concerns to sign up. Thereafter, Ellis, Vetter, and Martin allegedly repeatedly lied to investors about the existence of the supposed bank instrument investments and the use of investor funds. Ellis and Oda sent several emails in which they pressured investors to sign phony documents, on the false pretenses that the investment program was both legitimate and available for only a limited time. Martin falsely told one of these investors that he had personally been involved in seven other transactions in 2014 in which he had "secured" and "monetized" bank guarantees. Salinas participated in and aided and abetted the scheme by establishing bank accounts for Capital Source Funding, by falsely representing herself to be an escrow officer, and by signing at least one document that fraudulently purported to be an escrow agreement for the safekeeping of investor funds.

The SEC further alleges that, more than a year after signing up their first investors from the NAHB, the defendants have yet to produce any funding. During this time, Martin, Ellis, Oda, and Vetter have lulled investors by giving them a string of phony updates promising funding was just around the corner; blaming delays on fictitious bank processes; and admonishing those investors who asked detailed questions about the status of their investments. Instead of using investor funds to secure the promised bank instruments and subsequent funding, the defendants converted the funds for their own personal use or unlawfully transferred the funds to third parties.

The Honorable George J. Hazel for the U.S. District Court for the District of Maryland granted the SEC's request for a temporary restraining order to prevent the defendants from engaging in their bank instrument investment programs. The Court also granted the SEC's request for an order freezing the assets of all the defendants, requiring accountings, prohibiting the destruction or alteration of documents, and allowing for expedited discovery. A court hearing has been scheduled for May 26, 2015, on the SEC's motion for a preliminary injunction.

Separately, the Federal Bureau of Investigation arrested Martin on May 11, 2015, on wire fraud charges.

The Commission's complaint alleges violations of the antifraud, and securities and broker-dealer registration provisions of the federal securities laws. Specifically, it alleges that North Star, Ellis, Oda, Martin, Capital Source Funding and Capital Source Lending violated Sections 5(a), 5(c), and, except as to Salinas, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint further alleges that North Star, Ellis, Oda, Vetter, Martin, and Salinas aided and abetted violations of Securities Act Section 17(a), Exchange Act Section 10(b), and Rule 10b-5 thereunder; and Ellis, Oda, Martin, and Salinas aided and abetted violations of Securities Act Sections 5(a) and 5(c). Finally, the complaint alleges that Ellis, Oda, Vetter, and Martin violated Exchange Act 15(a). The Commission seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties against each defendant.

The SEC's investigation was conducted by Stephen W. Simpson and supervised by Timothy N. England. The SEC's litigation is being led by Matthew P. Cohen and Mr. Simpson. The SEC appreciates the assistance of the Federal Bureau of Investigation's Buffalo Field Office

Saturday, May 16, 2015

ASSISTANT AG BAER TESTIMONY ON ANTITRUST DIVISION OF DOJ

FROM:  U.S. JUSTICE DEPARTMENT 
Assistant Attorney General Bill Baer Delivers Testimony Before U.S. House of Representatives Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Washington, DCUnited States ~ Friday, May 15, 2015

Chairman [Tom] Marino, Vice-Chairman [Blake] Farenthold, Ranking Member [Hank] Johnson and distinguished members of the subcommittee, thank you for inviting me to appear before you today to discuss the work of the Antitrust Division of the Department of Justice.  It is a privilege, as always, to appear with my friend, Federal Trade Commission (FTC) Chairwoman [Edith] Ramirez.  Together we work to ensure that consumers benefit from competitive markets.

When Attorney General Robert F. Kennedy appeared before this very subcommittee in 1961, he said, “The principles of free enterprise which the antitrust laws are designed to protect and vindicate are economic ideals that underlie the whole structure of a free society.”  He got that right.  When competitive markets function properly, consumers see lower prices and higher-quality goods and services.  The antitrust laws ensure the integrity of those markets by preventing behavior, consolidation or barriers that limit competition.  Sound antitrust enforcement encourages innovators to innovate and disrupters to disrupt, and provides American consumers with the benefits of dynamic competition.

The Antitrust Division remains committed to carrying out its law enforcement mission in a vigorous, transparent, even-handed and fact-based fashion.  I continue to believe that antitrust is a law enforcement function that transcends both party and politics.

Since my last appearance before this subcommittee, the Antitrust Division has pursued behavior and transactions that threaten to injure competition and the American consumer.  In just the last couple of weeks, Deutsche Bank agreed to own up to its involvement in a criminal conspiracy to rig the London Interbank Offered Rate (LIBOR), a key benchmark interest rate.  Comcast and Time Warner Cable abandoned a merger that risked making Comcast an unavoidable gatekeeper for internet-based services that rely on a broadband connection to reach consumers.  Beyond these headline-making cases, the division continues to focus on antitrust enforcement in markets that matter to consumers on a daily basis – goods purchased online and at the grocery store, media and entertainment, communications, consumer electronics, health care, transportation, agriculture, energy and financial services.

The Antitrust Division appreciates that fiscal resources are limited.  The division uses the resources entrusted to us by Congress to provide a real return on investment for American consumers, businesses and taxpayers.  For Fiscal Year 2016, the president requested that the Antitrust Division receive an appropriation of $165 million, a 1.7 percent inflationary increase over 2015.  It is a good value proposition.  Roughly 50 percent of our funding is offset by Hart-Scott-Rodino (HSR) premerger filing fees paid by companies planning to merge.  In addition, the criminal fines we obtain, which are deposited in the Crime Victims Fund, are routinely more than 10 times our annual direct appropriation.

Cartel Enforcement

Let me begin with our efforts to uncover and prosecute cartel behavior, which the Supreme Court has described as “the supreme evil of antitrust.”  Price fixing and bid rigging stop competition in its tracks and lead to higher prices for consumers.  To give you an idea of the volume of commerce involved in cartel misdeeds, last year we obtained nearly $1.3 billion in criminal fines and penalties, the largest amount ever in a single fiscal year.

Criminal misconduct in financial markets remains a major focus.  Since 2009, the division has obtained 122 convictions and more than $2 billion in fines and penalties from prosecution of collusion and fraud affecting municipal bond investment instruments, benchmark interest rates, and real estate and tax lien auctions.  As I mentioned earlier, Deutsche Bank and its London subsidiary recently agreed to pay $775 million in criminal penalties for its participation in a conspiracy to rig the LIBOR, a leading benchmark interest rate used in financial products and transactions around the world.  This illegal conduct undermined the integrity and the competitiveness of financial markets everywhere.  As a result of the department’s LIBOR investigation, conducted jointly by the Criminal and Antitrust Divisions, thus far banks have paid more than $1.3 billion in fines and penalties and 12 individuals have been charged, three of whom have pleaded guilty.

Using technology to manipulate pricing is a growing concern.  We recently secured a guilty plea in a case involving two companies using complex algorithms to fix prices for poster art online.  American consumers have the right to a free and fair marketplace online, as well as in brick and mortar businesses.

Our investigation into the auto parts industry continues.  There, pervasive price fixing, bid rigging and market allocation have done serious harm to U.S. automakers and consumers.  This is the largest criminal investigation in the Antitrust Division’s history and to date has resulted in charges against 35 companies and 52 individuals.  Thus far, 30 executives and 35 corporations have pleaded guilty or agreed to do so and to pay more than $2.5 billion in criminal fines.

Last year the Ninth Circuit Court of Appeals heard appeals involving our pursuit of price fixing of liquid crystal display (LCD) panels and affirmed the convictions we obtained against AU Optronics, its U.S. subsidiary, and two top executives at the company.  The court also affirmed the record-setting $500 million criminal fine imposed on the company and the executives’ substantial jail sentences.  This decision reinforced prior court rulings that price-fixing cartels that significantly affect U.S. commerce cannot escape the reach of U.S. antitrust enforcement by operating overseas.

In addition to pursuing major national and international cartels, we continue to prosecute local criminal conspiracies.  In recent years we have charged over 100 individuals in four states, Alabama, California, Georgia and North Carolina, for conspiring at local real estate foreclosure auctions.  These schemes often involved payoffs in exchange for agreements not to compete in public auctions.  The conspiracies depressed auction prices and literally stole money from distressed homeowners and their lenders.

In our investigations we focus on holding both companies and individual wrongdoers accountable and have succeeded in obtaining guilty pleas and winning convictions against high-ranking executives.  In Fiscal Year 2014 alone, 44 executives and 18 companies were charged with price-fixing, bid-rigging and fraud offenses.  These individual wrongdoers are going to jail, and for increasing periods of incarceration.  Between 2010 and 2014, the average number of individuals sentenced to prison increased 38 percent and the average sentence increased from 20 months to 25 months when compared with the previous five-year period.

Foreign nationals do not escape responsibility when they conspire to injure American consumers from afar.  We prosecute foreign companies and their executives, and seek extradition of foreign nationals who attempt to evade the jurisdiction of the U.S. courts.  Last year, working with our international partners and Department of Justice colleagues, an Italian national was extradited from Germany for participating in a conspiracy to rig bids, fix prices and allocate market shares for marine hose sold in the U.S.  We also extradited a Canadian national charged with conspiracy to defraud the Environmental Protection Agency’s cleanup of certain Superfund sites in New Jersey.

Throughout, the FBI has been a critical partner in the division’s pursuit of cartels.  We appreciate the FBI’s support and expertise in our investigations, and we will continue to work together to detect and prosecute criminal antitrust violations.

Aggressively pursuing criminal price-fixers benefits competition and consumers in multiple ways – it stops the illegal conduct, puts others engaged in similar behavior on notice that they may be our next target, and sends a strong signal to those contemplating price fixing to deter them from committing the crime in the first place.  Moreover, and this is sometimes overlooked, it reinforces the antitrust compliance culture of the vast majority of companies who work hard to get it right.

Civil Enforcement

Like the criminal program, our civil enforcement efforts protect U.S. consumers from threats to competition.  Here too, the business community benefits from vigorous antitrust enforcement against those who fail to play by the rules.  Our record sends a strong message that the antitrust division will challenge those who engage in conduct that stifles competition or pursue mergers that may substantially lessen competition.

In the past two months, three major mergers were abandoned after the division expressed serious competitive concerns.  You are all familiar with the outcome of the Comcast/Time Warner Cable merger, which would have created a market where one company provided almost 60 percent of high speed internet access.  The division’s antitrust concerns also led to the recent abandonment of a $10 billion merger between two of the largest makers of semi-conductor manufacturing equipment, Applied Materials Inc. and Tokyo Electron Ltd.  This result preserves competition and future innovation for the development of machinery used to make the memory and logic chips that power smart phones, tablets, computers and many other products.  We also blocked a merger between National Cinemedia Inc. and Screenvision LLC – the only two significant cinema advertising networks in the U.S., which provide preshow advertisements at movie theaters.  In March, on the eve of trial, the parties called off the merger.  As a result, competition between these two companies will continue to benefit advertisers, movie theaters and moviegoers.

When I last testified before this subcommittee the division was litigating three important civil antitrust actions.  We have had notable success in them all.  In the American Express case, the district court held that the company’s anti-steering rules preventing merchants from using competition to help keep credit card swipe fees down were illegal.  It recently entered an injunction ordering American Express to eliminate the rules, benefiting merchants who pay more than $50 billion in credit card “swipe fees” annually, as well as the consumers who ultimately bear these costs.  With this outcome, American Express joins Visa and MasterCard in being prevented from enforcing rules that restrict credit card competition, and retailers and consumers will benefit.

We also won our challenge to Bazaarvoice Inc.’s acquisition of PowerReviews Inc., its only significant rival in the business of providing ratings and review software to shopping websites.  The resulting remedy – which required Bazaarvoice to divest PowerReviews’ business – restored competition so that online retailers and manufacturers would continue to benefit from a competitive market.

Finally, we resolved our lawsuit against a joint venture between Coach USA and City Sights LLC that eliminated competition and raised prices for hop-on, hop-off bus tours in New York City.  In addition to remedying ongoing competitive harm, our joint settlement with the New York Attorney General required the defendants to give up $7.5 million in profits they obtained from the operation of their illegal joint venture.

The division also forced merging parties to surrender ill-gotten profits obtained through unlawful premerger coordination.  Flakeboard America Limited and SierraPine, two makers of particleboard widely used in furniture and kitchen cabinets, ultimately abandoned their merger because of the competitive concerns we raised.  We also held Flakeboard accountable for violating the antitrust laws by agreeing to close one of SierraPine’s facilities during the pendency of our merger investigation.  We insisted as a term of settlement that Flakeboard surrender its ill-gotten profit associated with its law violations.

Previously, I testified about merger challenges involving beer and airlines.  Let me report to you on how the settlements we obtained are working out for the American consumer.  In January 2013, the division filed suit to stop Anheuser-Busch InBev’s (ABI) proposed acquisition of Grupo Modelo, the largest and third-largest firms selling beer in the United States.  We reached a settlement that required the companies to divest Modelo’s entire U.S. business and create an independent, fully-integrated and economically-viable competitor.  This structural remedy is paying off for the American consumer.  Constellation – the new owner – has begun offering new products, bringing competition to segments of the market that Grupo Modelo had previously ignored.  Constellation is also increasing capacity and, according to its executives, continues to grow its U.S. sales faster than the market as a whole.

Airline competition is vital to American travelers.  Consumers are benefiting from the divestitures we required as a condition of the American Airlines-US Airways merger.  At Reagan National, the carriers who acquired slots divested by American have added capacity and introduced more than 40 additional departures each day, including service to 14 new airports.  In addition, slot and gate divestitures at LaGuardia, O’Hare and Dallas Love Field have triggered new service to more destinations.  Competition in agricultural markets remains a focus because of its importance to both farmers and consumers.  Last year the division required a divestiture in the Tyson Foods-Hillshire merger to preserve a competitive market for hog farmers to sell their products.  We also sued to block a joint venture between several flour millers.  The settlement ensured flour milling operations in California, Texas and Minnesota remained competitive in order to keep prices low for wheat flour-based products such as bread, cookies and crackers.

The division recognizes that competitive health care markets serve to keep prices in check, improve quality and spur innovation.  We challenge anticompetitive conduct by both providers and insurers.  In our case against Blue Cross Blue Shield of Michigan, the division challenged anticompetitive “most favored nation” clauses that inhibited hospitals from negotiating competitive contracts with other insurers.  We also worked closely with the Massachusetts Attorney General on the investigation into the acquisition of South Shore Hospital by Partners HealthCare.  The merger was later abandoned and, as a result, competition between these hospitals will continue to benefit consumers and other payers.  Through effective enforcement, antitrust guidance and competition advocacy, we help providers and insurers direct their creativity towards innovative ways to offer low-cost, high-quality health care that benefits patients while preserving competition.

Advocacy and Interagency Collaboration

Competition advocacy and collaboration are important elements of effective antitrust enforcement.  We regularly work with the FTC to hold public workshops to provide a forum for open discussion on the most challenging and cutting-edge competition issues of the day.  Recent workshops have focused on health care, conditional pricing practices and patent assertion entities.  In addition to the FTC, we cooperate with the Federal Communications Commission and the Departments of Transportation, Health and Human Services, Commerce and Agriculture, among others, to ensure that public policy represents sound competition principles.

We also have forged strong partnerships with state attorneys general.  In the last six years, we have partnered with 49 state attorneys general, the District of Columbia and Puerto Rico, including 17 states in the American Express case and 33 states in our case against Apple for conspiring to fix prices for e-books.

Consumers and businesses benefit from the division’s ongoing collaboration with foreign competition authorities.  We work with fellow enforcers from many jurisdictions – both bilaterally and in organizations like the Organisation for Economic Co-operation and Development and the International Competition Network – to share best practices, strengthen the bonds that link the international antitrust enforcement community and promote sound antitrust policy.  We are proud to export our principles of procedural fairness, transparency and nondiscriminatory enforcement.

Aiding Business Community Antitrust Compliance and Reducing Burdens

We appreciate the value that antitrust guidance can provide to industry as new business models and technologies emerge.  For example, last April, we issued a joint policy statement with the FTC to clarify that properly designed cyber threat information sharing is not likely to raise antitrust concerns.  We subsequently issued a business review letter stating that the division would not challenge a proposal by a company seeking to offer a cyber intelligence data-sharing platform that allows members to share threat and incident data about cyber attacks.

The division also issued a business review letter in response to a request from the Institute of Electrical and Electronics Engineers Inc. (IEEE), a standard setting organization, regarding a proposed update to its patent policy.  This letter continued our effort to provide guidance that facilitates the development of procompetitive patent policies by standard setting organizations.  We think this type of guidance exemplifies good government and we will continue to provide it when asked to do so.

While vigilant antitrust enforcement makes our markets more competitive and saves consumers money, we appreciate that dealing with antitrust enforcers can be expensive and time consuming.  We work hard to make enforcement as efficient as possible without compromising our mission.  Improving electronic discovery is one promising avenue for reducing the burdens our investigations can impose.  For example, our website includes a model civil electronic production letter that helps parties understand and plan for productions to the division, making the process more predictable and less burdensome.

Further, the division has been a pioneer among government agencies in using predictive coding methods in large volume document productions.  Predictive coding is a technology-assisted document review that, when used properly and with appropriate safeguards, can more quickly and accurately identify relevant documents, saving the parties time and money, while providing the division the documents it needs to effectively conduct its investigations.

Finally, last March the division announced a new streamlined procedure for parties seeking to modify or terminate old antitrust settlements and litigated judgments entered before 1980.  We are not going to object to eliminating a decree that has clearly outlived its usefulness.  In those cases, parties no longer have to offer an elaborate justification and the division does not need to invest scarce resources in getting to the obvious answer.

Conclusion

The Antitrust Division’s dedicated public servants continue to work hard to make sure that American consumers and businesses reap the benefits of our free-market economy.  We use our tools – criminal and civil enforcement, together with focused and effective competition advocacy – to do so.  We are committed to ensuring that the American consumer continues to benefit from vigorous competition for products and services.  I am honored to be part of this hard-working team.

Friday, May 15, 2015

16 HOSPITALS RESOLVE FALSE CLAIMS ACT ALLEGATIONS BY AGREEING TO PAY $15.69 MILLION

FROM:  U.S. JUSTICE DEPARTMENT 
Thursday, May 7, 2015
Sixteen Hospitals to Pay $15.69 Million to Resolve False Claims Act Allegations Involving Medically Unnecessary Psychotherapy Services

The Justice Department announced today that 16 separate hospitals and their respective corporate parents have agreed to collectively pay $15.69 million to resolve False Claims Act allegations that the providers sought and received reimbursement from Medicare for services that were not medically reasonable or necessary, the U.S. Department of Justice announced today.

“Hospitals that participate in the Medicare program must ensure that the services they provide and bill for are based on the medical needs of patients rather than the desire to maximize profits,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “The Department of Justice is committed to ensuring that those who seek to abuse the Medicare program will be held accountable for their actions.”

This case concerns claims to Medicare for Intensive Outpatient Psychotherapy (IOP) services.  IOP services represent a continuation of ambulatory psychiatric services and provide active treatment to individuals with mental disorders using a variety of treatment methods.  Medicare will pay for an appropriate course of IOP treatment provided a number of specific requirements are met including, most notably, that the services in question are reasonable and necessary for the diagnosis and treatment of the patient’s condition.

These settlements resolve allegations that, beginning as early as 2005 and in some cases continuing into 2013, the hospitals knowingly submitted claims for IOP services that did not qualify for Medicare reimbursement because: the patient’s condition did not qualify for IOP; the patient’s treatments were not provided pursuant to an individualized treatment plan designed to help the patient address specific mental health needs and reach achievable goals; the patient’s progress was not being adequately tracked or documented; the patient received an inappropriate level of treatment; and/or the therapy provided was primarily recreational or diversional in nature, and not therapeutic.  The IOP services in question were typically performed on the providers’ behalf by Allegiance Health Management (Allegiance), a post-acute healthcare management company based in Shreveport, Louisiana, but billed to Medicare by the providers.

The providers who have reached agreements to resolve these allegations with the United States include:

Health Management Associates Inc. (HMA), and the following 14 hospitals formerly owned and operated by HMA: Central Mississippi Medical Center in Mississippi, Crossgate River Oaks in Mississippi, Dallas Regional Medical Center in Texas, Davis Regional Medical Center in North Carolina, East Georgia Regional Medical Center in Georgia, Gilmore Regional Medical Center in Mississippi, Lake Norman Regional Medical Center in North Carolina, Lehigh Regional Medical Center in Florida, Medical Center of Southeastern Oklahoma in Oklahoma, Natchez Community Hospital in Mississippi, Northwest Mississippi Regional Medical Center in Mississippi, Santa Rosa Medical Center in Florida, Southwest Regional Medical Center in Arkansas, and Summit Medical Center in Arkansas, which agreed to collectively pay $15 million;

Community Health Systems and its subsidiary Wesley Medical Center in Mississippi, which agreed to pay $210,000; and

North Texas Medical Center in Texas, which agreed to pay $480,000.

In October 2013, the United States resolved similar allegations with LifePoint Hospitals Inc. and two of its subsidiaries, PHC-Minden L.P., doing business as Minden Medical Center, and PHC-Cleveland Inc., doing business as Bolivar Medical Center, which collectively paid $4,672,469.80.

“This case demonstrates that the U.S. Attorney’s Office for the Eastern District of Arkansas will aggressively pursue civil health care fraud cases, where the integrity of the Medicare system has been undermined,” said U.S. Attorney Christopher R. Thyer of the Eastern District of Arkansas.  “Medical care providers who abuse Medicare hurt all taxpayers, and today’s announcement highlights our commitment to protecting our national health care system, as well as the Arkansans who depend on it.”

“Our agency is dedicated to investigating health care fraud schemes such as this, which divert scarce taxpayer funds meant to provide for legitimate patient care, including services for the often underserved mentally ill population,” said Special Agent in Charge Mike Fields of U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG).

The allegations resolved by today’s settlements arose from a lawsuit filed under the False Claims Act.  The act allows private individuals known as “relators” to sue on behalf of the United States and to share in the proceeds of any settlement or judgment that may result.  The relator in this case will receive $2,667,300.

These settlements were the result of a coordinated effort by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Eastern District of Arkansas and HHS’ Office of Audit Statistics and OIG.

These settlements illustrate the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $24 billion through False Claims Act cases, with more than $15.3 billion of that amount recovered in cases involving fraud against federal health care programs.

The claims settled by these agreements are allegations only, and there has been no determination of liability.