Month: August 2024

Attacking Price Manipulation

Throughout Joe Biden’s time in office, critics have complained he has not done enough to address high grocery prices. Now that his replacement as the Democratic presidential nominee has come forth with a plan to deal with the problem, many of those same critics are accusing Kamala Harris of going too far.

A wide range of pundits are particularly scandalized at Harris’s critique of price-gouging. It is perfectly valid to question whether her policies would be effective, but many commentators are trotting out simplistic and outdated economic principles to claim that corporate price manipulation is non-existent.

These believers in the supremacy of market forces are apparently unaware that the food sector is a hotbed of anti-competitive practices. This is especially true in the meat industry, where a small number of dominant corporations have had to pay out hundreds of millions of dollars in fines and settlements to resolve allegations that they collude to keep prices high.

Take the case of JBS, the giant Brazilian corporation that owns U.S. companies such as the poultry producer Pilgrim’s Pride and the beef producer Swift. As shown in Violation Tracker, JBS and its subsidiaries have paid out over $200 million in class action antitrust lawsuits since 2021. Pilgrim’s Pride was also sentenced to pay $107 million in criminal penalties after pleading guilty to federal charges of participating in a conspiracy to fix prices and rig bids for broiler chicken products.

Tyson Foods, another poultry goliath, has paid out over $120 million in class action settlements over the past three years, including one case in which it had to hand over $99 million. In the pork industry, Smithfield Foods, owned by the Chinese corporation WH Group, has paid around $200 million in price-fixing settlements.

Price-fixing conspiracies have also been alleged in the tuna industry, in which StarKist paid a criminal penalty of $100 million, as well as in milk processing, peanut processing and other food sectors. In 2020 the National Milk Producers Federation agreed to pay $220 million to settle litigation alleging it sought to boost prices through a program to reduce the number of dairy cows. There was even a $28 million settlement involving a mushroom marketing cooperative.

Aside from their illegal collusion on prices, food companies have been accused of entering into illegal agreements designed to suppress wages. A federal court in Oklahoma recently gave preliminary approval to a settlement in which Pilgrim’s Pride will pay $100 million. Other poultry processors such as Tyson and Perdue previously agreed to pay a total of tens of millions of dollars more.

Price-fixing is not exactly the same thing as price-gouging. The first involves illegal agreements among purported competitors, while the other may be committed by a powerful company acting on its own. Price-gouging can be illegal in certain circumstances under state law, especially if it happens during an emergency. Yet it is not, alas, illegal for companies to jack up prices in most circumstances.

That’s why all chief executives of food companies are not being led away in handcuffs. Yet it is all the more reason for the federal government to devise innovative ways to get corporations to bring down prices that escalated through market manipulation of one form or another.

A New DOJ Payday for Whistleblowers

Over the past decade, the Securities and Exchange Commission has paid out around $2 billion to individuals who provided information that led to successful enforcement actions against rule-breaking corporations. The awards can amount to tens of millions of dollars and sometimes reach the nine-figure level. More than a dozen other federal agencies such as the Commodity Futures Trading Commission have similar incentive programs.

The Justice Department recently announced that it will jump on the whistleblower bandwagon with a pilot program designed to assist in the prosecution of corporate crimes. DOJ’s initiative will cover certain crimes involving financial institutions, from traditional banks to cryptocurrency businesses; foreign corruption involving misconduct by companies; domestic corruption involving misconduct by companies; and healthcare fraud schemes involving private insurance plans.

To be eligible for an award, someone must provide DOJ with original non-public information that leads to a successful prosecution with a corporate penalty of at least $1 million. The whistleblower, who must not have participated in the illegal activity, could receive up to 30 percent of the first $100 million in net proceeds and 5 percent of proceeds between $100 million and $500 million. That means that a whistleblower could receive as much as $55 million.

Whistleblowing is not entirely new to DOJ. The department has long employed the False Claims Act qui tam program to investigate fraud against the federal government by contractors and Medicare healthcare providers. Many of the nearly 4,000 False Claims Act cases in Violation Tracker were made possible by whistleblowers. These cases are handled as civil matters, whereas the new pilot program will cover criminal charges.

DOJ sees the whistleblower program as part of its broader effort to encourage corporations to self-report when they detect illegal behavior within their ranks. The department took the unusual step of structuring the program so that whistleblowers remain eligible for an award if they first report the misconduct to corporate superiors and the company in turn discloses it to DOJ.

It would be ill-advised for the department to offer leniency deals to companies that engage in self-reporting only after learning that a whistleblower is ready to go public. Such deals are meant to incentivize companies to come forward of their own volition, not when the boom is about to be lowered.

Some critics complain that the DOJ pilot is deficient in that it does not adequately protect whistleblowers from retaliation. The program description deals with the issue by saying that the department could respond to retaliation by declining to award the company cooperation credit and/or “institute appropriate enforcement action.” DOJ would do well to adopt procedures like those in the Sarbanes-Oxley Act providing specific remedies for whistleblowers who experience retaliation.

Despite these limitations, it is encouraging that DOJ is adopting a practice for its criminal cases that has a long track record of success in bringing to light corporate wrongdoing of a civil nature. Let’s hope that this approach will put more pressure on rogue companies to clean up their act.

The World Against Google

The decision by a federal judge declaring Google’s search business to be an illegal monopoly came just in time. Several chief executives and Silicon Valley billionaires had begun to openly pressure Kamala Harris to commit to ousting Lina Khan as chair of the Federal Trade Commission because of her aggressive antitrust policies. That arrogant and clumsy lobbying effort was effectively torpedoed by the blockbuster court ruling.

It should come as no surprise to have Google found guilty of anti-competitive practices. Earlier this year, another federal court gave final approval to a settlement in which Google agreed to pay $90 million to resolve allegations that its Play Store practices violated antitrust law.

Google and its parent Alphabet Inc. have been facing legal challenges to their practices around the world. Most notable have been the conflicts with the European Union, which has imposed penalties of nearly $10 billion. These include a $5 billion fine in 2018 for putting illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search.

The French Competition Authority has fined Google several times, including a $593 million penalty in 2021 for having disregarded previous injunctions protecting the rights of newspaper publishers. That same year, the agency fined Google $267 million for abusing its dominant position in the online advertising market.

The Italian Competition Authority fined Google $121 million for preventing Enel X Italia from developing an Android version of an app for users of electric vehicles. The agency is conducting a broader investigation of the company.

The Competition Commission of India has fined Google a total of nearly $300 million for abusing its dominant position in online general web search and web search advertising services and for anti-competitive practices in relation to its Play Store policies and in the market for Android devices.

The Korea Fair Trade Commission has fined Google a total of about $200 million for blocking competing mobile operating systems from entering the market and for undermining fair competition in the market for mobile games.

Even the Russian Anti-Monopoly Service has gotten in on the act. In 2022 it fined the company $21 million for abusing its dominant position in the video hosting market. When Google failed to pay that fine, the agency increased the penalty by $47 million.

Unless it gets overturned on appeal, the U.S. decision against Google is likely to have more significant consequences–both monetary and structural–than the foreign cases. It is also being regarded as an indicator of how things may go in the antitrust lawsuits pending against other tech giants such as Amazon, Apple and Meta as well as another case against Google concerning online advertising.

Google has come a long way since it presented itself as an upstart company with a Don’t Be Evil motto. It and the rest of Big Tech accumulated tremendous wealth and power. Maybe now they will be cut down to size.

The U.S. and foreign cases discussed above and much more will be contained in the forthcoming Violation Tracker Global.

Greenpeace Slaps Back

Asked to define the phrase Energy Transfer, most people would say it sounds like something they dimly recall from high school physics. Actually, it is the name of a giant corporation that owns the country’s largest petroleum transportation system, including the Dakota Access Pipeline (DAPL), which was the focus of intense protests in 2016.

Energy Transfer and DAPL are back in the news because a trial is set to begin in the latest phase of the company’s legal assault against opponents of the pipeline. Despite the protests led by the Standing Rock Sioux Tribe and other indigenous groups, the pipeline was completed and went into operation in 2017. That was in large part due to the intervention of the Trump Administration in one of its first acts. Energy Transfer CEO Kelcy Warren was a big contributor to Trump during the 2016 presidential race. This year he gave $5 million to a pro-Trump Super PAC.

Although it won the battle to build DAPL, Energy Transfer has been on a crusade against its adversaries. Initially, it targeted Standing Rock Sioux chairman Dave Archambault and other tribal leaders at the center of the protests. When that failed, it went after Greenpeace and has not relented. In doing so, it has mounted one of the most aggressive examples of what are known as SLAPP suits (strategic lawsuits against public participation)—legal actions meant to intimidate anti-corporate protests.

In 2017 Energy Transfer filed a federal racketeering suit against Greenpeace that made extravagant allegations that tried to depict the group’s legitimate criticisms of the company and DAPL as a violent criminal conspiracy. The complaint accused Greenpeace of “manufacturing a media spectacle based upon phony but emotionally charged hot-button issues, sensational lies, and intentionally incited physical violence, property destruction, and other criminal conduct.”

Greenpeace vehemently denied advocating or engaging in any violent acts, while also insisting it did not organize the protests but was simply supporting a campaign led by tribal groups. A federal judge threw out the racketeering case, but Energy Transfer has continued to pursue the matter at the state level and is seeking $300 million in damages.

The North Dakota complaint filed in 2019 employs much of the same overheated rhetoric as the unsuccessful federal action. It accuses Greenpeace and several co-defendants of pursuing an “extremist agenda — to attack and disrupt Energy Transfer’s business and its construction of DAPL — through means far outside the bounds of democratic political action, protest, and peaceful, legally protected expression of dissent.”

Yet the company focuses a great deal on such expressions of dissent, alleging that the defendants “engaged in large-scale, intentional dissemination of misinformation and outright falsehoods regarding Energy Transfer, DAPL’s environmental impact, and Energy Transfer’s extensive efforts to address the concerns of local North Dakota communities.”

It is language such as this that prompts Greenpeace to argue that the case represents a serious threat to First Amendment rights. If Energy Transfer is successful in pushing the idea that those criticizing its actions are guilty of defamation, that would indeed have a chilling effect on corporate accountability activism.

As Greenpeace points out, there is a lot to criticize about Energy Transfer even apart from DAPL. In Violation Tracker we document 383 instances since 2000 in which the company and its subsidiaries were fined or reached settlements in cases involving environmental, safety or other infractions. The associated penalties amount to $611 million.

Five of these cases were brought as criminal matters. These include a 2022 case brought by then-Pennsylvania Attorney General Josh Shapiro in which two Energy Transfer subsidiaries pleaded no contest to criminal water pollution charges relating to the release of large quantities of drilling fluids containing potentially hazardous substances in places where it could contaminate drinking water supplies. AG Shapiro stated that in bringing the case his office was “holding Energy Transfer accountable for their crimes against our natural resources.”

It is unclear whether Energy Transfer really believes the lawsuit will silence its critics. For its part, Greenpeace shows no sign of being intimidated and is defending itself forcefully, which is in keeping with its long track record of standing up to the powerful. Energy Transfer may have SLAPPed, but Greenpeace is slapping back.

For more details on the lawsuit, see this website just launched by Greenpeace.