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The Pittsburgh Connection:LOCAL FIRM SENDS COMPETITORS TO JAILAND GETS $300+ MILLION IN FINES FOR U.S.1

(A Corplaw Commentary)by Barry J. Lipson

When earlier this year, you read the headline: DOJ Indicts Electrode Cartel MemberMitsubishi For Price Fixing; or when you saw the earlier headline Antitrust Division GetsBiggest Criminal Antitrust Fines Ever, and went on to read that SGL Carbon of Germany (SGL)and its Chief Executive Officer, Robert J. Koehler, were then paying the largest antitrust finesever against a corporation ($135,000,000) and an individual ($10,000,000), respectively, for theirparticipation in the Electrode Cartel, did you know about the Pittsburgh connection?

When you still earlier heard that UCAR International, Inc., of Danbury, Connecticut(UCAR), the largest U.S. producer of graphite electrodes, was paying a $110,000,000 criminalantitrust fine for participating in a wide-ranging international conspiracy to fix prices and allocatemarket shares worldwide for graphite electrodes, did you even think there may be a Pittsburghconnection?

What about when you thought you heard (but it couldnt be true, could it?) that the two firedUCAR top executives, Robert Krass, former President, Chief Executive Officer and Chairman ofthe Board, and Robert J. Hart, former Senior Vice President and Chief Operating Officer, weregoing to serve a total of 29 months in federal prison, and in addition pay personal fines totaling$2,250.000, for the parts they played in this international antitrust conspiracy, did you even dreamthere could be a Pittsburgh connection?

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How was the Antitrust Division of the U.S. Department of Justice (DOJ) able to obtain suchan ironclad case that SGL, UCAR, three individuals, and four other competitors, have, so quickly,agreed to pay these immense sums already totaling over $300 million, and serve time in jail,without even a trial or a fight? (Though Mitsubishi, one of the largest corporations in the world, anda third UCAR ex-executive, Georges Schwegler, who were both indicted on January 19, 2000, maystill insist on being tried.)

The answer is The Carbide/Graphite Group, Inc. (C/GG), of One Gateway Center,Pittsburgh, Pennsylvania, a fellow producer of graphite electrodes and Cartel member. As soon asC/GG was subpoenaed by the DOJ in its investigation of the graphite electrodes industry, this co-conspirator opted to turn states evidence and join the DOJs Corporate Leniency Program.According to the DOJ, the cooperation of an amnesty [leniency] applicant led to the execution ofsearch warrants and the cracking of another international cartel, this time in the graphite electrodesindustry. C/GG was formed in 1988 as a Delaware corporation, through a leveraged buyout ofassets of the carbide and graphite businesses, and a Canadian subsidiary (Speer Canada, Inc.), ofThe BOC Group plc, a British corporation.

Under the Leniency Program, a firm may be granted protection from criminal antitrustprosecution if it voluntarily reports its involvement in an antitrust conspiracy and then fully co-operates in the criminal prosecution of its co-conspirators. As explained by Deputy AssistantAttorney General Gary R. Spratling to the International Competition Policy Advisory Committee,the Antitrust Division's amnesty program is one that provides that a company which comesforward and gives us information on its involvement in an international cartel may avoid criminalexposure . . .; and all officers, employees, and directors who come forward with full cooperationcan also avoid any type of criminal liability in the matter.

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But participation in the Corporate Leniency Program is supposed to be highly confidential.How do we know of this Pittsburgh connection? Mr. Spratling explained further: In the past I havebeen completely unable to talk about any participant in this program. However, an unusual thinghas happened. C/GG issued a press release revealing the fact that it came forward in the amnestyprogram. He was, therefor, at liberty to speak, and revealed that in this case The Carbide/GraphiteGroup came forward and participated in an amnesty program, the first company to come forward,and obviously paid zero dollars in fines. The first company to be prosecuted, a cooperatingcompany [Showa Denko Carbon, Inc.], . . . agreed to pay $29 million in fines [increased to $32.5million], and so you're comparing $0 to $29 million. The company that agreed to pay $29 millionhas only 18 percent of the market, and so you can imagine what exposure the other firms have. That$29 million is a reduction from $75 million, which would have been the fine had they not beencooperating. From subsequent events, it appears that this exposure was at least $135 Million, thecriminal fine paid by SGL.

This, however, is not the first time this column has revealed the Pittsburghconnection in federal antitrust criminal prosecutions. In the March, 1996 column we reported onthe sentencing of Pittsburgh-based Elkem Metals Company for engaging "in a combination andconspiracy to fix prices of commodity ferrosilicon products sold in the United States" (CorplawCommentaries, Local Company Sentenced for Price Fixing, Pittsburgh Legal Journal, vol. 122, no.46, March 7, 1996, p.1). Interestingly, UCARs graphite electrode business and Elkemsferrosilicon business appears to have both originated at the old Union Carbide Corporation.

While Elkem was convicted, sentenced and criminally fined, it also did vastly improve itsposition by cooperating with the Antitrust Division. In exchange for its cooperation and an antitrustcriminal fine of $1,000,000, Elkem bought protection from criminal prosecutions and jail time

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for its personnel; and "immunity" from other related antitrust criminal prosecutions for itself, itsmulti-national Norwegian parent company Elkem A/S, listed affiliates of Elkem A/S, and threenamed individuals. Such cooperation and fine also obtained for Elkem a commitment from the DOJ"not to bring any other criminal charges under the federal antitrust laws or related criminal chargesunder 18 USC 1341 (mail fraud) or 1343 (wire fraud)" against Elkem, against the enumeratedindividuals, or against Elkem A/S and the enumerated related companies "for any offensecommitted before the entry of the plea . . . involving their participation in a conspiracy to fix pricesof ferrosilicon products, foundry alloys or silicon metal in the United States." Thus, under the PleaAgreement, Elkem was "immunized" for a longer period of time and a more extensive list ofproducts than those it had pled guilty of price fixing (to wit, commodity ferrosilicon products, otherferrosilicon products, foundry alloys and silicon metal); and obtained such "immunity" forindividuals and companies who never themselves had pled guilty to or had been convicted of anyprice fixing violations.

Then, too, in the March, 1997 column, we reported that the DOJ had obtained a $50 Millioncriminal antitrust fine from a U.S. subsidiary of Bayer AG, a German company with very strongPittsburgh ties, after having obtained a $100 Million criminal antitrust fine from Bayers co-conspirator Archer Daniels Midland Co. (ADM), which at that time was "the largest criminalantitrust fine ever. This Billion Dime fine from ADM was for its role in two internationalconspiracies to fix prices, to eliminate competition and allocate sales in the worldwide citric acidmarket, in which Bayer participated, and in the worldwide lysine market. (CorplawCommentaries, Brother Can You Spare a Billion Dimes?, Pittsburgh Legal Journal, vol. 123, no.

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47, March 11, 1997, p.1.) It should be noted that the earlier $100 Million ADM fine was for twoconspiracies, while the later $110 Million UCAR fine was for a single conspiracy.

ADM and its personnel, however, are still hurting. On September 22, 2000, two ADMexecutives, Michael D. Andreas, former Executive Vice President, and Terrance S. Wilson,former Group Vice President and President of ADM's Corn Processing Division, were re-sentenced for their leadership roles in the conspiracy to fix prices and allocate sales in the lysinemarket worldwide. The re-sentencing was mandated by an earlier Court of Appeals' ruling thatthe District Court had erred in denying a sentencing enhancement for these leadership roles.They had originally each been sentenced to serve merely 24 months jail time as run of the millconspirators, and to each pay fines of $350,000. For being conspiracy leaders, Andreas sentencewas increased to 36 months jail time and Wilsons to 33 months. The fines remained the same, at$350,000 each. Joel I. Klein, Assistant Attorney General in charge of the Department's AntitrustDivision observed that the increased sentences imposed in this case should strengthen themessage that executives who engage in price fixing will pay a heavy price [through] significantjail time.

The Carbide/Graphite Group (C/GG) and Elkem are also hurting, even though they co-operated with the antitrust enforcers. Thus, C/GC did not get off scot-free, and Elkem did not limitits monetary liability to One Million Dollars, as they have both been the subjects of intense privatetreble damage civil antitrust litigation. Neither the Corporate Leniency Program, nor PleaAgreements, could provide protection from these private civil suits, in which, incidentally, theburden of proof for plaintiff is considerably less. Nor could they protect them from foreignprosecutions.

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For example, subsequent to the initiation of the DOJ investigation, a number of privatetreble damage civil antitrust actions and class actions have been filed against C/GG in the U.S.District Courts, for its participation in the electrode antitrust conspiracy. Then, too, a group ofCanadian purchasers have filed a lawsuit in the Ontario Court (General Division), claiming aconspiracy and violations of the Canadian Competition Act; and the Canadian Competition andConsumer Law Division has initiated an inquiry. The antitrust enforcement authorities of theEuropean Union have also initiated investigations.

C/GG has advised the European Commission (EC) that it desires to invoke the Notice onthe non-imposition or reduction of fines in cartel cases (the Leniency Notice) protocol, as it hadpreviously done in the U.S. Generally, under this protocol, the EC may substantially reduce finesand other penalties if a company cooperates with the EC, and in the sole judgment of the ECprovides significant information to the EC. C/GG has additionally advised the Canadian authoritiesthat it desires to cooperate.

Accordingly, The Carbide/Graphite Group, during fiscal 1998, recorded a $38 million pre-tax charge ($25 million after expected tax benefits) for potential liabilities which may result fromcivil lawsuits, claims, legal costs and other expenses associated with the antitrust matters notedabove and the investigations initiated by the antitrust enforcement authorities of the EuropeanUnion. This reserve has subsequently been increased by an additional $7 million; and the Fiscal2000 Third-Quarter Report of C/GG still cautions: Factors that could affect actual future resultsinclude the developments relating to the antitrust investigations by the Department of Justice, theantitrust enforcement authorities of the European Union or related civil lawsuits as well as theassertion of other claims relating to such investigations or lawsuits or the subject matter thereof,and other antitrust developments or settlements.

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Oh, well, so long as there are expected tax benefits, and a Pittsburgh connection . . .But the question remains, are there still other Pittsburgh connections, such as with the later

record $500 million criminal antitrust fine, this time paid by Hoffmann-La Roche Ltd, a Swisspharmaceutical giant, for fixing prices and allocating market shares for Vitamins C and othervitamins it sold here and abroad? Do you remember that the recent $50 million criminal antitrustfine paid by the U.S. unit of Bayer, reported above, was for fixing the prices of citric acid? Wellcitric acid is chemically very closely related to Vitamin C.Please address your comments, questions and suggestions for future CorplawCommentaries Columns on marketing and business law, and other legal subjects to Barry J.Lipson, Esquire, at bjlipson@gmail.com.Copyright 2000-2011 by Barry J. Lipson.____________________________1 Corplaw Commentaries, "Local Firm Sends Competitors to Jail," by Barry J. Lipson, LawyersJournal, October 20, 2000, p.6.