Collar Crime

The difficulty with the Sherman Act is that unlike most criminal statutes, it does not specify exactly what conduct is prohibited or what mental states are required. Civil and criminal remedies can attach to identical conduct further complicating the analysis. Bid rigging investigations have become one of the hot topics in financial crimes as a result of the economic downturn and the foreclosure crisis. People who buy foreclosed properties at public auction have been under great scrutiny during the past couple of years due to a series of state and federal investigations. The Act separately requires the conduct actually have an anticompetitive effect on trade.The Court defined the requisite criminal intent as engaging in conduct when the parties know it will likely have an anticompetitive effect on trade. United States v. United States Gypsum Co.

The investigations started in response to allegations that purchasers of foreclosed properties were bribing auctioneers not to release properties until certain purchasers had completed their due diligence. There were also allegations that prospective purchasers were agreeing not to bid against each other during the public auction only to have a private, secondary auction hours or days later. This process artificially deflated auction prices. Bribery and round robins are clear violations of any number of laws including the prohibitions on price fixing contained in the Sherman Anti-Trust Act. Prosecutions based on bribery and secondary auctions are currently underway in both the Eastern and Northern Districts.

The more problematic areas are those in which the law is unclear. Consider the following scenario: two parties are at a public foreclosure auction. They are both interested in purchasing the same piece of property. Instead of bidding against each other they decide to partner the deal. One party holds title but both parties contribute to the purchase price, rehabilitation costs and other expenses. When the property is sold they split the proceeds. Is this illegal? In 1978 the United States Supreme Court ruled that in order to prove a Sherman Act violation the government had to establish criminal intent. That conclusion was later criticized in an unpublished case involving joint bidding where the parties individually could have purchased the subject property without pooling their resources.

However, there is a category of undefined per se violations which probably do not require proof of a mental state. Per se violations include “… action fall[ing] into the category of ‘agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.'” Northwest Wholesale Stationers Inc. v. Pacific Stationary and Printing Co. (1985) 472 U.S. 284. Bid rigging in its most traditional form is a per se violation. Whether ‘joint bidding’ is ‘bid rigging’ for the purposes of the per se analysis remains unanswered.

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