Antitrust Law Daily Wrap Up, ANTITRUST—2d Cir.: Convictions of GE employees for fixing interest rates reversed, (Dec 10, 2013)

By Matthew Garza, J.D.

The convictions of three General Electric (GE) employees who conspired to fix interest rates paid by GE and other related companies to municipal securities issuers were reversed by the Second Circuit Court of Appeals. The court found that the U.S. did not allege overt acts in furtherance of the conspiracy within the statute of limitations period (U.S. v. Grimm, December 9, 2013, Jacobs, D.).

The conspiracy between the three defendants and brokers artificially suppressed the interest rate GE paid on guaranteed investment contracts it entered into with municipal securities issuers. The employees were convicted after a three-week trial and three days of deliberations.

Statute of limitations. The court said that to satisfy the five-year statute of limitations for general conspiracy, the U.S. must establish that at least one overt act in furtherance of the conspiracy took place after July 27, 2005. Of the 55 overt acts alleged in the indictment, only serial periodic interest payments made by the companies to municipal issuers took place after July 27, 2004.

The U.S. argued that each payment of artificially suppressed interest by unindicted co-conspirators, including General Electric, was an overt act that restarted the limitations period. The defendants argued that the interest payments could not serve as “overt acts” in furtherance of the conspiracy because they were routine payments that were scheduled to continue for years, if not decades. The court agreed with the defendants, ruling that the interest payments did not constitute overt acts.

Conspiracy. The critical question for statute of limitations purposes was the scope of the conspiratorial agreement, the court said, because that would determine the duration of the conspiracy and whether the overt act may be regarded as being in furtherance of the conspiracy. The court said the purpose of the conspiracy was to deprive municipal issuers of money by causing them to award investment agreements and other municipal finance contracts at artificial rates, and then to deprive the municipal issuers of the property-right to control their assets by causing them to make economic decisions based on false information. Another purpose was to defraud the U.S. Treasury and the IRS by impeding the collection of revenues due from the municipalities.

The court said, “Overt acts have ended when the conspiracy has completed its influence on an otherwise legitimate course of common dealing that remains ongoing for a prolonged time, without measures of concealment, adjustment or any other corrupt intervention by any conspirator.”

The court found that the payments of interest were ordinary commercial obligations, made pursuant to a common form of commercial arrangement, noncriminal in themselves, were made unilaterally by a single person or entity, and were made indefinitely over a long period. Because the only overt acts after July 27, 2004, were the interest payments, the court concluded that there was “no evidence that any concerted activity posing the special societal dangers of conspiracy is still taking place.”

Dissent. A dissent said the majority failed to acknowledge that the jury was instructed that the corporations that won the investment contracts at issue were themselves co-conspirators, even though they were unindicted. Because the companies would enjoy the benefits of the suppressed interest rates over the life of the contract, the conspiracy does not end until the contract ends.

The goal of the conspiracy was to increase the profitability of the companies involved, the dissent wrote, and to “the extent that the providers sought to enjoy the difference between a fairly arrived-at market rate of interest and the fraudulently arrived-at rate of interest to which the municipalities agreed as a result of the bid rigging, the providers would realize economic gains each time they made an interest payment to the municipal entity at the lower rate.”

The question of whether the acts were considered overt acts in furtherance of a conspiracy was also a question of fact, said the dissent. In this case, the jury was instructed that an act was in furtherance of the conspiracy of it was “undertaken in order to advance an objective of the conspiracy.” The continuity of action after the rigged contracts were awarded was integral to the success of the conspiracy, the dissent wrote.

The cases are Nos. 12-4310-cr, 12-4365-cr, 12-4371-cr.

Attorneys: James J. Fredricks with the U.S. Department of Justice for the United States. Howard E. Heiss, Esq., (O’Melveny & Myers LLP) for Peter S. Grimm. James R. Smart (McElroy, Deutsch, Mulvaney & Carpenter LLP), Morristown, New Jersey, for Dominick P. Carollo. David C. Frederick (Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C.), Washington, DC, for Steven E. Goldberg

Companies: General Electric

Cases: Antitrust ConnecticutNews NewYorkNews VermontNews