What's the difference between a white-collar investigation and a blue-collar investigation?
In a blue-collar case, the government knows what the person has done, they just don't know who done it.
In a white-collar case, the government knows who done it, they just don't know what they've done.
[insert the sound of a rim shot]
This joke shows two things. First, the bar for lawyer humor is incredibly low. Second, in a white-collar case, once the government has indentified you as a target, they are likely to keep investigating until they find something to charge you with.
United States v. Fenzl makes the same point (the second one, about the tenacity of the Department of Justice - not the one about how bad legal jokes are).
Steven Fenzl's Case
The government targeted Steven Fenzl, and his colleague Douglass Ritter. The two men ran Urban Services of America, Inc. The company bid on a contract to refurbish the garbage cans of the City of Chicago, Illinois. The company's bid was the lowest bid.
Unfortunately, the contract that the company bid on was never awarded. The folks at Urban thought that perhaps it was because there were too few bids submitted in response to the proposal. Though they weren't sure.
A bit after the company failed to win the bid, the Chicago Tribune announced that Urban was under investigation for improprieties in checks that had been issued to other contractors. Though the investigation never yielded a finding of wrongful conduct, no one told the folks at Urban that the investigation was over until months had passed.
Eventually, the City of Chicago again sought bids on a contract to refurbish their garbage cans. Urban had yet to learn that it was no longer under investigation. It was also worried that not enough other bids would come in.
Urban Services of America Organizes Other Bids
The company then started organizing other companies to also provide bids. The arrangements were, in essence, that the other companies would subcontract the work to Urban if it won, then tack on a profit margin for itself.
Not surprisingly, this did not result in these companies underbidding Urban. Since the other companies didn't really do the kind of work they were bidding on anyway - and would have had to subcontract to Urban - this was not a surprising result.
In the end, Urban bid on the contract, as did three companies that Urban encouraged to bid. Three other companies, that had nothing to do with Urban, also submitted proposals.
Urban was the lowest bid of all seven and won the contract.
The Antitrust Division Gets Interested
The United States Department of Justice's Antitrust Division has a criminal section. The prosecutors in that office launched an investigation of Urban.
Bid rigging, generally, is illegal. As the Seventh Circuit said, "bid rigging [is] a form of price fixing in which bidders agree, usually by rotating bids, to eliminate competition among the bidders."
Yet, here, this bid rigging wasn't done to eliminate competition, rather, it was to encourage the city to take the bids seriously, again, the Seventh Circuit:
at some point [the Department of Justice] realized it didn't have an antitrust case. Urban had been the low bidder and its aim in "colluding" with other potential bidders had not been to prevent them from underbidding it but merely to buy insurance against its bid's being rejected because of false accusations against Ritter and Urban; if Urban lost the bid, at least it would be able to obtain some refurbishing work as a subcontractor of the winning bidder. The bidders invited by Urban were almost certain to submit higher bids because Urban would be doing the actual work and charging for it and the bidders would be repricing Urban's work in their bids.
This is, sort of, pro-competitive bid rigging.
The Department of Justice is Not Deterred
The Department of Justice had their man (or company), so the lack of a crime wasn't going to be an obstacle to prosecution.
So the prosecutors decided to charge fraud rather than an antitrust violation. [T]he theory behind the charge of fraud for misleading the City by inflating the number of bids was never made clear at trial. No evidence was presented that the more bidders there were, the more likely Urban's bid was to be accepted and that this would result in a higher price to the City for getting its garbage carts spruced up. Had there been four bidders rather than seven, Urban would still have been the low bidder, and there is no indication that the City would have cancelled the auction on the ground that there were too few bidders.
The Seventh Circuit's later skepticism notwithstanding, the government charged the Urban principals with fraud. Mr. Ritter pled guilty. Mr. Fenzl went to trial and was convicted. He was sentenced to 16 months in prison, a fine of $40,000, and restitution of $35,302.18.
The Seventh Circuit
Judge Posner, who knows a thing or two about antitrust law, wrote for the Seventh Circuit. He was not a fan of this prosecution (Judge Posner is not getting invited to any Department of Justice parties after this opinion, or this one).
As the learned jurist wrote,
It's difficult to see what's wrongful about such a "scheme." Suppose in despair of ever doing work for the City again Urban had sold its assets to another company and told it, "You go bid on the refurbishing contract." Would anyone think such conduct improper? How different is that from what Urban planned to do in case it was denied the contract even if it was the low bidder? Misconduct in bidding involves trying to reduce rather than increase the competition among bidders.
In addition to criticizing the theory undergirding the prosecution, Judge Posner noted that the government proved it's case using the wrong witness.
A government investigator testified - not as an expert witness - that the City would have disqualified Urban's bid if it knew that it had put the other bidders up to their bids. The basis for this knowledge was opaque to Judge Posner.
Without the testimony of City employees,
it is a matter of conjecture whether the relevant employees in the Department would have awarded the contract--at a loss to the City--to a higher bidder, in order to punish Urban (for what exactly?). But instead of asking them what they would have done had they known what Urban was up to, the prosecutors asked an investigator what he thought they would have done. What the government dignifies by the term "personal knowledge"--for a lay witness is permitted to base his testimony on his personal knowledge (and on nothing else)--is the investigator's conjectures based on seven years of "training and experience," an impermissible basis for lay opinion testimony.
Mr. Fenzl was charged under two separate fraud theories in separate fraud charges. On one he was acquitted. On the other, the court of appeals remanded for a new trial.
One wonders what Mr. Ritter - who pled guilty early - thinks of this opinion.