Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Justice Department obtains 37th guilty plea in Northern California foreclosure auction bid rigging investigation, (Nov 5, 2013)

By Tobias J. Gillett, J.D., LL.M.

A Northern California real estate investor pleaded guilty today to Justice Department charges that he conspired to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Justice Department has announced. Two-count felony charges were filed against Kuo Hsuan “Chuck” Chang in the federal district court in San Francisco on October 9 (U.S. v. Chang, Criminal No. 13-cr-670).

Chang was charged with agreeing with co-conspirators to refrain from bidding on selected properties at public real estate foreclosure auctions in San Francisco County, California, and instead designating which conspirator would win the selected properties. Chang allegedly engaged in this conduct from as early as October 2009 until about November 2010. Chang also was charged with conspiring to use the mail to carry out schemes to fraudulently acquire title to selected properties sold at public auctions in San Francisco County, to make and receive payoffs, and to divert to conspirators money that would have otherwise gone to beneficiaries. Chang is the 37th individual to plead guilty or agree to plead guilty in the Justice Department’s ongoing investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.

When California homeowners default on their mortgages, the mortgage holders, some of whom are financial institutions, can institute foreclosure proceedings through a non-judicial public real estate foreclosure auction. These public auctions typically take place at the county courthouse. At the auction, an auctioneer sells the property to the bidder offering the highest purchase price. Proceeds from the sale are then used to pay off the mortgage and other debt attached to the property. Any remaining proceeds are paid to the homeowner.

“The Antitrust Division will continue to vigorously prosecute anticompetitive schemes that compromise local markets and cause financial harm to consumers,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “Collusion at foreclosure auctions harmed both lenders and distressed homeowners in an already struggling real estate market, and the conspirators must be held accountable.”

“We urge anyone with information regarding fraudulent anticompetitive practices at foreclosure auctions to contact the FBI or our partners at the Antitrust Division,” said FBI San Francisco Special Agent in Charge David J. Johnson. “The FBI will continue to work with our law enforcement partners and the community to root out and bring to justice those individuals who undermine the real estate market and victimize legitimate consumers.”

A charge of violating the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals, with the fine increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than $1 million. A charge of conspiracy to commit mail fraud carries with it a maximum sentence of 30 years in prison and a $1 million fine.

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