When you think about a government antitrust investigation, you probably picture monopoly accusations against large companies like Microsoft in the 90’s and early 2000’s or AT&T in the 70’s and 80’s. Or perhaps you imagine a global price-fixing cartel like that depicted in the movie The Informant.
In any event, the target in your mind is a big company, along with their officers and executives, and perhaps some sales people.
The Department of Justice actions against individual real-estate investors in Northern California should shatter those preconceptions. Over the last few weeks, the Antitrust Division of the DOJ has announced a series of plea agreements arising out of its antitrust investigations into bid rigging at real-estate-foreclosure auctions for certain Northern California counties.
These actions are particularly interesting to my wife and me, as we ourselves are real-estate investors. My wife focuses on the real estate while I do the law thing, but we are familiar with the competition among investors to purchase foreclosed properties, either directly at auction or from the banks themselves.
According to the Antitrust Division of the Department of Justice—which has obtained 43 plea agreements from its investigation—Northern California real-estate investors conspired to designate a winning bidder for certain properties at public real-estate-foreclosure auctions. After the official court-house auction—which distributes the proceeds to the mortgage and debt holders (and, in rare instances, the homeowner)—the investors would often hold a separate private auction for the properties limited to the conspirators.
If true, the conspirators would receive money—or property value—that would have gone to the debt holders.
This is classic bid-rigging, which is a per se violation of Section One of the Sherman Act, just like price-fixing and market-allocation. It is the among the most serious of antitrust breaches and is criminally punishable, with possible jail time.
The Justice Department has vigorously prosecuted these real estate investors, explaining that “[t]he FBI and our partners have an obligation to investigate and pursue those who disrupt a free and fair marketplace,” and that they want to “educate the public on the criminality of bid rigging at real estate foreclosure auctions.” So please consider this part of that education.
As of now, three alleged conspirators appear ready to fight the charges at trial later this month in Sacramento, California before Judge William Shubb. A trial date, of course, does not always yield a trial, but we will have to wait and see.
Update: Bid rigging of foreclosed properties has resulted in prison sentences.
The lesson here is that the antitrust laws apply with equal force to individuals and small companies. You don’t have to be huge to violate them.
Indeed, for certain conduct—like price-fixing, market-allocation, and bid-rigging, for example—your conduct doesn’t even have to materially harm competition. The act itself is a per se violation, which allows the government or private plaintiff to dispense with some of the most complicated elements to prove an antitrust claim.
So be careful out there. Anticompetitive conduct can be tempting because it is so profitable. If someone presents you with a plan to eliminate competition, you should think twice (especially if they are competing with you) because the antitrust laws are designed to protect competition.
If you have any questions, I’d love to hear from you.