Tag: DOJ

The Race to Report: DOJ Announces Pilot Whistleblower Program

In recent years, the Department of Justice (DOJ) has rolled out a significant and increasing number of carrots and sticks aimed at deterring and punishing white collar crime. Speaking at the American Bar Association White Collar Conference in San Francisco on March 7, Deputy Attorney General Lisa Monaco announced the latest: a pilot program to provide financial incentives for whistleblowers.

While the program is not yet fully developed, the premise is simple: if an individual helps DOJ discover significant corporate or financial misconduct, she could qualify to receive a portion of the resulting forfeiture, consistent with the following predicates:

  • The information must be truthful and not already known to the government.
  • The whistleblower must not have been involved in the criminal activity itself.
  • Payments are available only in cases where there is not an existing financial disclosure incentive.
  • Payments will be made only after all victims have been properly compensated.

Money Motivates 

Harkening back to the “Wanted” posters of the Old West, Monaco observed that law enforcement has long offered rewards to incentivize tipsters. Since the passage of Dodd Frank almost 15 years ago, the SEC and CFTC have relied on whistleblower programs that have been incredibly successful. In 2023, the SEC received more than 18,000 whistleblower tips (almost 50 percent more than the previous record set in FY2022), and awarded nearly $600 million — the highest annual total by dollar value in the program’s history. Over the course of 2022 and 2023, the CFTC received more than 3,000 whistleblower tips and paid nearly $350 million in awards — including a record-breaking $200 million award to a single whistleblower. Programs at IRS and FinCEN have been similarly fruitful, as are qui tam actions for fraud against the government. But, Monaco acknowledged, those programs are by their very nature limited. Accordingly, DOJ’s program will fill in the gaps and address the full range of corporate and financial misconduct that the Department prosecutes. And though only time will tell, it seems likely that this program will generate a similarly large number of tips.

The Attorney General already has authority to pay awards for “information or assistance leading to civil or criminal forfeitures,” but it has never used that power in any systematic way. Now, DOJ plans to leverage that authority to offer financial incentives to those who (1) disclose truthful and new information regarding misconduct (2) in which they were not involved (3) where there is no existing financial disclosure incentive and (4) after all victims have been compensated. The Department has begun a 90-day policy sprint to develop and implement the program, with a formal start date later this year. Acting Assistant Attorney General Nicole Argentieri explained that, because the statutory authority is tied to the department’s forfeiture program, the Department’s Money Laundering and Asset Recovery Section will play a leading role in designing the program’s nuts and bolts, in close coordination with US Attorneys, the FBI and other DOJ offices.

Monaco spoke directly to potential whistleblowers, saying that while the Department will accept information about violations of any federal law, it is especially interested in information regarding

  • Criminal abuses of the US financial system;
  • Foreign corruption cases outside the jurisdiction of the SEC, including FCPA violations by non-issuers and violations of the recently enacted Foreign Extortion Prevention Act; and
  • Domestic corruption cases, especially involving illegal corporate payments to government officials.

Like the SEC and CFTC whistleblower programs, DOJ’s program will allow whistleblower awards only in cases involving penalties above a certain monetary threshold, but that threshold has yet to be determined.

Prior to Monaco’s announcement, the United States Attorney’s Office for the Southern District of New York launched its own pilot “whistleblower” program, which became effective February 13, 2024. Both the Department-wide pilot and the SDNY policy require that the government have been previously unaware of the misconduct, but they are different in a critical way: the Department-wide policy under development will explicitly apply only to reports by individuals who did not participate in the misconduct, while SDNY’s program offers incentives to “individual participants in certain non-violent offenses.” Thus, it appears that SDNY’s program is actually more akin to a VSD program, while DOJ’s Department-wide pilot program will target a new audience of potential whistleblowers.

Companies with an international footprint should also pay attention to non-US prosecutors. The new Director of the UK Serious Fraud Office recently announced that he would like to set up a similar program, no doubt noticing the effectiveness of current US programs.

Corporate Considerations

Though directed at whistleblowers, the pilot program is equally about incentivizing companies to voluntarily self-disclose misconduct in a timely manner. Absent aggravating factors, a qualifying VSD will result in a much more favorable resolution, including possibly avoiding a guilty plea and receiving a reduced financial penalty. But because the benefits under both programs only go to those who provide DOJ with new information, every day that a company sits on knowledge about misconduct is another day that a whistleblower might beat them to reporting that misconduct, and reaping the reward for doing so.

“When everyone needs to be first in the door, no one wants to be second,” Monaco said. “With these announcements, our message to whistleblowers is clear: the Department of Justice wants to hear from you. And to those considering a voluntary self-disclosure, our message is equally clear: knock on our door before we knock on yours.”

By providing a cash reward for whistleblowing to DOJ, this program may present challenges for companies’ efforts to operate and maintain and effective compliance program. Such rewards may encourage employees to report misconduct to DOJ instead of via internal channels, such as a compliance hotline, which can lead to compliance issues going undiagnosed or untreated — such as in circumstances where the DOJ is the only entity to receive the report but does not take any further action. Companies must therefore ensure that internal compliance and whistleblower systems are clear, easy to use, and effective — actually addressing the employee’s concerns and, to the extent possible, following up with the whistleblower to make sure they understand the company’s response.

If an employee does elect to provide information to DOJ, companies must ensure that they do not take any action that could be construed as interfering with the disclosure. Companies already face potential regulatory sanctions for restricting employees from reporting misconduct to the SEC. Though it is too early to know, it seems likely that DOJ will adopt a similar position, and a company’s interference with a whistleblower’s communications potentially could be deemed obstruction of justice.

© 2024 Bracewell LLP
For more on Whistleblowers, visit the NLR Criminal Law / Business Crimes section.

DHS and DOJ Announce Joint Guidance on Electronic Form I-9 Processing

The Department of Homeland Security (DHS) and Department of Justice (DOJ) recently issued a fact sheet to guide employers on electronically completing, modifying, or retaining Form I-9. The joint guidance applies to employers using private sector commercial or proprietary I-9 software programs to complete Form I-9 or participate in E-Verify.

Requirements for Employers Using Electronic Form I-9 Software Programs

DHS permits completing Form I-9 electronically provided that the I-9 software complies with I-9 and E-Verify requirements. The DHS/DOJ fact sheet confirms that employers, rather than the software vendor, are responsible for ensuring compliance with these requirements. It provides the following key requirements and states that an I-9 software must:

  • Provide employees with access to the current acceptable version of Form I-9, I-9 instructions, and list of acceptable documents.
  • Allow employees to leave optional fields blank and accommodate employees with only one name.
  • Meet integrity, accuracy, security, and reliability requirements designed to prevent and detect unauthorized or accidental creation, alteration, or deletion of stored I-9s.
  • Comply with standards for electronic I-9 signatures.
  • Comply with general requirements applicable to I-9 documentation, retention, and audit trail requirements.
  • Ensure the electronic generation or storage of Form I-9 is inspected and monitored periodically.
  • Ensure the I-9 forms and all information fields on electronically retained I-9s are fully and readily accessible in the event of a government audit.

Specifically related to modifying and retaining Forms I-9 electronically, the fact sheet states that I-9 software must provide employees, employers, and preparers/ translators the option to make and record corrections to a previously completed I-9 form. Further, the software must uniquely identify each person who accesses, corrects, or changes an I-9 form. Modifications to stored I-9 forms must be properly annotated to include the date of access, the identity of the person making the change, and the nature of the change. Commercial or proprietary I-9 software may lack the functionality to comply with these guidelines regarding providing an audit trail and permitting corrections to completed I-9 records, so these are specific considerations employers should be aware of when assessing potential I-9 software for compliance.

Requirements for Employers Using Electronic Form I-9 Software Programs to Create E-Verify Cases

The DHS/DOJ fact sheet notes that employers who participate in E-Verify and access E-Verify through a software must:

  • Confirm that the software’s functionality allows employers to follow the requirements detailed in the E-Verify Memorandum of Understanding and DHS’s E-Verify guidance.
  • Refrain from creating new E-Verify cases due to corrections made to the previously completed I-9 if the employee received a prior “employment authorized” result. Depending on functionality, commercial or proprietary I-9 software may require completing a new I-9 instead of allowing a correction to the previously completed form.
  • Be able to delay creating E-Verify cases as instructed by E-Verify rules. For example, E-Verify instructs employers to postpone creating E-Verify cases for employees who have not yet received their Social Security numbers and for employees who show certain acceptable receipts for the Form I-9. The software’s functionality should permit employers to delay creating the E-Verify case in these scenarios.

Training for Employer Personnel Administering I-9 Software on Behalf of the Employer

The DHS/DOJ fact sheet also reminds employers to properly train personnel completing electronic Forms I-9 on the employer’s behalf. Key points include the following:

  • Employer personnel should be familiar with the employer’s procedures to complete Form I-9 or create an E-Verify case outside of the Form I-9 software program if, for example, the person completing the I-9 cannot use the I-9 software program or there is a software outage.
  • Employers should not pre-populate fields on electronic I-9 forms with employee information. An I-9 software may be part of the employer’s other HR-related systems and the system may initiate the I-9 verification process through impermissibility pre-populating the employee’s information on the electronic I-9.
  • The employer must not use auto-correct, use predictive text, or post-date an I-9 when completing an I-9 with an I-9 software.
  • The employer should not complete the I-9 on an employee’s behalf and must not change or update the employee’s citizenship or immigration status attestation. For corrections to Section 1, the process is the same as when completing a paper I-9 and changes or corrections to Section 1 must be made by the employee. The I-9 software must have the functionality to allow the employee to make corrections to a previously completed I-9 form.
  • The employer must not remove or add fields to Form I-9. An I-9 software that adds additional questions seeking information that is not requested by the I-9 form may violate this guidance.
  • Employers must permit preparers or translators to assist an employee in completing an electronic I-9.
  • Employers must permit employees to present any valid and acceptable documentation to establish identity and employment authorization, including acceptable receipts, and should not suggest specific documents for this purpose. Thus, an I-9 software should not notify the employer to, for example, request documentation to reverify an employee’s identity document or reverify a permanent resident card.
  • The fact sheet reminds employers to not impose unnecessary obstacles that make it more challenging for employees to start work or get paid, such as by requiring a Social Security number to onboard or by not paying an employee who can complete the Form I-9 but is still waiting for a Social Security number.

Given the significant penalties for non-compliance, employers should exercise thorough due diligence when evaluating I-9 software, considering compliance with DHS regulations alongside factors like cost, functionality, and interoperability with its other systems. Although government guidance has been minimal, the fact sheet provides some insight into the government’s stance on regulatory requirements for electronic I-9s and may be helpful to employers when selecting an I-9 software.

©2024 Greenberg Traurig, LLP. All rights reserved.
For more news on Electronic Form I-9 Processing, visit the NLR Labor & Employment section.

Form I-9 Software: Avoiding Unlawful Discrimination When Selecting and Using I-9 and E-Verify Software Systems

A recent employer fact sheet from the U.S. Department of Justice (DOJ) and U.S. Department of Homeland Security (DHS) provides guidance for avoiding unlawful discrimination and other violations when using private software products to complete Forms I-9 and E-Verify cases.

Quick Hits

  • Employers are responsible for selecting and using software products that avoid unlawful discrimination and comply with Form I-9 and E-Verify requirements.
  • Employers must not use software products that violate Form I-9 and E-Verify requirements or involve system limitations that unlawfully discriminate among workers.
  • DOJ and DHS advise employers to train staff on Form I-9 and E-Verify requirements, and to provide access to published government guidance on Form I-9 and E-Verify requirements.

Employer Compliance With Form I-9 Software Products

The fact sheet reminds employers to use the current Form I-9 and properly complete the Form I-9 for each new hire after November 6, 1986, with any acceptable employee documents. Form I-9 systems must comply with requirements for electronic signatures and document storage including the ability to provide Form I-9 summary files containing all information fields on electronically stored Forms I-9. The fact sheet confirms required software capabilities and employer practices to properly complete the Form I-9 and avoid unlawful discrimination.

Employers must ensure that any software:

  • allows employees to leave form fields blank, if they’re not required fields (such as Social Security numbers, if not required on E-Verify cases);
  • allows workers with only one name to record “Unknown” in the first name field and to enter their names in the last name field on the Form I-9;
  • uniquely identifies “each person accessing, correcting, or changing a Form I-9”;
  • permits Form I-9 corrections in Section 1 and does not complete Section 1 corrections for workers, unless completing preparer/translator certifications in Supplement A;
  • retains all employee information and documents presented for form completion; and
  • permits Form I-9 corrections in Section 2 and allows completion of Supplement B reverifications with any acceptable employee documents.

Employer Compliance With E-Verify Software Products

The fact sheet reminds employers to comply with E-Verify program requirements when using software interfaces for E-Verify case completion. The fact sheet confirms required software capabilities and employer practices for completing E-Verify cases. Employers must still:

  • provide employees with current versions of Further Action Notices and Referral Date Confirmation letters in resolving Tentative Nonconfirmations (mismatches) in the E-Verify system;
  • provide English and non-English Further Action Notices and Referral Date Confirmation letters to employees with limited English proficiency;
  • display E-Verify notices confirming employer use of E-Verify;
  • “promptly notify employees in private” of E-Verify mismatches and provide Further Action Notices. If an employee who has been notified of a mismatch takes action to resolve the mismatch, provide the Referral Date Confirmation letter with case-specific information;
  • delay E-Verify case creation, when required. For example, when workers are awaiting Social Security numbers or have presented acceptable receipts for Form I-9 completion, employers must be able to delay E-Verify case creation; and
  • allow employees to resolve E-Verify mismatches prior to taking any adverse action, including suspensions or withholding pay.

Prohibited Employer Activity When Using Form I-9 Software

The fact sheet notes that an employer that uses private software products for Form I-9 or E-Verify compliance is prohibited from:

  • completing the Form I-9 on an employee’s behalf unless the employer is helping an employee complete Section 1 as a preparer or translator;
  • prepopulating employee information from other sources, providing auto-correct on employee inputs, or using predictive language for form completion;
  • requiring more or less information from employees for Form I-9 completion or preventing workers from using preparers/translators for form completion;
  • improperly correcting the Form I-9, improperly creating E-Verify cases, or failing to report corrections in the Form I-9 audit trail;
  • requesting more or different documentation than needed for Form I-9 completion, or failing to complete reverification in Supplement B of the Form I-9; and
  • imposing “unnecessary obstacles” in starting work or receiving pay, “such as by requiring a Social Security number to onboard or by not paying an employee who can complete the Form I-9 and is waiting for a Social Security number.” (Emphasis in the original.)

Staff Training and Technical Support

The fact sheet warns employers against using software products that do not provide technical support to workers, and it notes that employers are required to provide training to staff on Form I-9 and E-Verify compliance. Resources for staff members using software products for Form I-9 and E-Verify case completion include I-9 Central, the Handbook for Employers M-274, the M-775, E-Verify User Manual, and DOJ publications.

© 2024, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more on Form I-9, visit the NLR Immigration section.

Year in Review: Criminal Enforcement by the DOJ Antitrust Division in 2023

Introduction

When it comes to antitrust criminal enforcement, 2023 will be remembered as the year when the US Department of Justice’s (DOJ) Antitrust Division redefined and tested the outer boundaries of its authority. Here is a look back at the key events that defined the DOJ’s year in criminal antitrust enforcement.

Losses in Labor Markets

The DOJ continued its focus on labor markets in 2023 by pursuing per se no-poach and wage-fixing prosecutions despite resounding resistance by fact finders. In these cases, the DOJ alleged that companies and executives restrained trade in labor markets in violation of Section 1 of the Sherman Act through agreements that restricted movement and suppressed the wages of workers.

Courts have allowed these per se no-poach and wage-fixing cases to survive the motion to dismiss stage of litigation, but the DOJ’s success has routinely ended there. In 2022, the DOJ tried its first criminal no-poach case in US v. DaVita, which was successfully defended by McDermott and resulted in a complete acquittal of both corporate and individual defendants. In 2023, the DOJ fared no better:

  • In US v. Manahe (D. Maine), the DOJ charged four business managers in an alleged conspiracy to fix the wages and restrict the hiring of personal support specialist workers for two months during the pandemic. The government presented evidence such as text messages discussing hourly wages and recordings of meetings between the defendants, while the defendants countered by showing that the discussed prices were not implemented, and a draft agreement went unsigned. The jury acquitted all four defendants following a two-week trial in March 2023.
  • As we previously reported, the DOJ suffered a blow in US v. Patel (D. Connecticut) in April 2023. During a four-week trial, the government alleged that defendants conspired to restrict the hiring and recruiting of skilled workers and engineers in the aerospace industry. The defense moved for a judgment of acquittal under Rule 29 of the Federal Rules of Criminal Procedure, an extreme lever that judges rarely pull to end a trial before it reaches the jury. Judge Victor A. Bolden granted the motion and acquitted all the defendants. He found that the engineers’ freedom to switch companies and the number of exceptions to the agreements could not support finding market allocation as a matter of law.
  • In November 2023, the DOJ stunningly moved to dismiss its own case alleging a conspiracy by outpatient medical care competitors not to solicit senior-level employees. The case was three years into litigation; in its motion, the DOJ simply stated that dismissal would conserve court time and resources. This was the DOJ’s last pending no-poach case against a corporation.

If the DOJ’s labor markets cases have a theme, it is this: If at first you don’t succeed, try, try again. Despite four straight losses and a voluntary dismissal, the DOJ remains undeterred in bringing additional criminal wage-fixing and no-poach suits. The Biden administration’s “whole of government” approach to enforcement means that shared resources and collaboration among agencies, including the DOJ and the National Labor Relations Board, will continue into 2024. Assistant Attorney General Jonathan Kanter left no doubt that the DOJ is doubling down on its executive authority despite a losing track record in court: “Let me confirm: We are just as committed as ever to, when appropriate, using our congressionally given authority to prosecute criminal violations of the Sherman Act in labor markets.” Addressing the Women’s White Collar Defense Association in December 2023, Deputy Assistant Attorney General Doha Mekki echoed, “We look forward to charging more no-poach and wage-fixing cases.”

Per Se Problems

The DOJ stumbled in a different per se setting in December 2023, when a three-judge panel on the US Court of Appeals for the Fourth Circuit affirmed fraud charges but reversed the per se bid-rigging conviction of a steel and aluminum manufacturing sales manager turned executive. In US v. Brewbaker, the appellate panel found that “caselaw and economics show that the indictment failed to state a per se antitrust offense as it purported to do.”

In its 2020 indictment, the DOJ alleged that Brent Brewbaker of Contech Engineered Solutions conspired with a North Carolina distributor and exclusive dealer, Pomona Pipe Products, to share total bid pricing information on North Carolina Department of Transportation (NCDOT) aluminum projects and use that information to purposefully submit losing bids. This allegedly appeased Pomona and maintained Contech’s status on NCDOT’s “emergency bid list.” Contech pled guilty, but Brewbaker continued to trial. A jury found him guilty of bid rigging and other fraud charges; he appealed.

The Fourth Circuit held that the DOJ’s indictment implicated Contech and Pomona as horizontal competitors in NCDOT aluminum projects and as vertical competitors through their manufacturer-dealer relationship, resulting in a “hybrid” restraint. The DOJ sought to isolate Contech’s role as a manufacturer and competing bidder for NCDOT aluminum projects, focusing solely on the horizontal nature of the restraint and subsequently arguing for per se treatment.

The panel did not accept the DOJ’s argument that the conspiracy itself involved only horizontal conduct and instead considered the parties’ competitive relationship, which involved both horizontal and vertical aspects. The panel found that “agreements that look otherwise identical in form produce different economic effects based on how the parties relate to one another,” and stated that the DOJ’s theory would “force . . . arbitrary and likely impossible line-drawing” to determine which “part” of the entity to consider. The court continued, “The Sherman Act doesn’t ignore reality; it treats the entire business entity as the single party it is. . . . Antitrust law does not turn on such artificial mental gymnastics.”

Under this premise, the court moved through an analysis of case law and economic rationale to determine appropriate scrutiny. Although there is no direct guidance on hybrid restraints in the bid rigging context, the panel contrasted the present case with Leegin Creative Leather Products, 551 U.S. 877 (2007), where the Supreme Court of the United States applied per se scrutiny to a price fixing case despite both horizontal and vertical elements. In Brewbaker, the court found instead that the restraint in the indictment should not have been subject to the per se standard based on precedent, nor would it invariably lead to anticompetitive effects upon economic analysis—all making per se scrutiny inappropriate. As a result, and in a blow to the DOJ, the court reversed Brewbaker’s Sherman Act conviction.

In Full (Strike) Force

The DOJ’s Procurement Collusion Strike Force (PCSF) succeeded in securing several guilty pleas and stiff penalties in 2023. The PCSF is tasked with training government personnel and enforcing antitrust and fraud laws related to government contract bidding, grants and program funding.

PCSF Director Daniel Glad spoke to the National Association of State Procurement Officials in November 2023, highlighting the state and agency partnerships that comprise the PCSF. He pushed for even greater collaboration with state officials in 2024 and coming years, noting the recent influx of funds from the Infrastructure Investment and Jobs Act, which authorized billions of dollars in transportation and infrastructure programs. Later that month, the PCSF held its first summit to discuss strategies, priorities and resources. As reported by the DOJ, attendees included 11 “law enforcement partners” from across the country and 22 US Attorneys’ Offices.

These partnerships have surely strengthened the PCSF, and it has an extensive track record of successful convictions and guilty pleas. Among them are the following:

  • In January 2023, military contractor Aaron Stephens pleaded guilty to rigging bids related to the maintenance and repair of military tactical vehicles, following his alleged co-conspirator Mark Leveritt’s guilty plea July 2022. In August 2023, Stephens received an 18-month prison sentence and a $50,000 criminal fine. Leveritt received a six-month sentence and a $300,000 fine.
  • Also in January 2023, a construction company owner received a 27-month sentence and was ordered to pay a $1.75 million fine for fraudulently securing government contracts meant for service-disabled veteran-owned small businesses.
  • A Metropolitan Transportation Authority (MTA) employee out of New York pleaded guilty to engaging in wire fraud related to MTA excess vehicle auctions. Assistant Attorney General Jonathan Kanter described the conduct as “stealing from the public” and promised that the DOJ would continue to “detect and punish” those who abuse the public trust. Two additional guilty pleas by fellow MTA employees followed.
  • An insulation contractor out of Connecticut was the seventh person sentenced in a bid rigging and contract fraud investigation, resulting in a 15-month prison sentence and a restitution fine of more than $1 million. The alleged scheme related to insulation contracting at both public and private institutions, including universities and hospitals.
  • In March 2023, a Georgia jury found three military contractors guilty of conspiring to defraud the United States and two counts of major fraud related to two years of conduct.
  • A construction company owner faced a 78-month prison sentence and an almost $1 million restitution fine for bid rigging and bribery involving the California Department of Transportation (Caltrans). Defendant Bill Miller previously pled guilty to recruiting others to submit sham bids and to paying almost $1 million in cash bribes to a Caltrans contract manager. The manager himself received a 49-month prison sentence and a similar restitution fine, and a co-conspirator who submitted false bids received 45 months in jail and a $797,940 restitution fine.
  • A Texas judge ordered corporate defendant J&J Korea to pay almost $9 million for wire fraud and conspiracy to restrain trade related to subcontract work for US military hospitals in South Korea. A grand jury indicted two corporate officers for the same conduct in 2022.
  • Three military contractors received their sentences in December 2023 following a jury trial related to their alleged procurement fraud scheme. The defendants’ sentences included prison, supervised release and fines ranging from $50,000 to $250,000.

In December 2023, the PCSF also secured a seven-count indictment using wiretap evidence to charge two forest firefighting services executives with bid rigging, allocating markets and fraud. Wiretap evidence is rarely used in cartel investigations and marks a meaningful step in PCSF’s investigative approach. PCSF likely has already begun obtaining wiretap evidence in other cases and, based on its success in 2023, will continue pursuing aggressive investigative and litigation strategies moving forward.

Partnerships and Collaboration

Taking the PCSF to the global stage, the DOJ announced a joint initiative with Mexico’s Federal Economic Competition Commission and the Canadian Competition Bureau to collaborate on “outreach to the public and business community about anti-competitive conduct, as well as on investigations, using intelligence sharing and existing international cooperation tools” in the run-up to the 2026 FIFA World Cup to be hosted across the three countries.

In addition to its international partnerships for the World Cup, the DOJ is tackling technology with global efforts. In November 2023, DOJ leaders met with G7 competition authorities in Tokyo to discuss competition in digital markets and enforcement priorities. This was one in a series of meetings among authorities that have taken place since 2019 with a goal of setting and issuing guidance on shared priorities for regulating competition in tech. Following the summit, the group published a “communique” grounded in concern around emerging technologies, including risks in the criminal realm. The leaders noted, “As firms increasingly rely on AI to set prices to consumers, there is risk that such tools could facilitate collusion or unfairly raise prices.”

This sentiment is consistent with statements made earlier in the year by DOJ leadership. For example, Principal Deputy Assistant Attorney General Doha Mekki highlighted the role of technology in information exchanges. She described the current “inflection point” of algorithms, data and cloud computing as creating new market realties. Assistant Attorney General Jonathan Kanter stated that artificial intelligence’s “boundless potential” comes with “risks [that] transcend borders.” The consistency of rhetoric and global dedication to tackling the risks of emerging technology signals a potentially busy 2024 in this space.

The DOJ also continued its practice of partnering with fellow domestic law enforcement agencies. For example, the DOJ secured three guilty pleas in August 2023 for bid rigging asphalt paving services contracts in Michigan from 2013 to 2021. The DOJ worked with the Offices of Inspector General for the US Department of Transportation and the US Postal Service, and highlighted the partnership in public statements on the pleas. Deputy Assistant Attorney General Manish Kumar said, “Along with our law enforcement partners, the division will continue to seek justice when corporations and their leaders deprive customers of fair and open competition.” Cross-agency collaboration is a hallmark of the DOJ’s criminal enforcement and there is no reason to believe this practice will change in 2024.

Anything but Generic Remedies

In August 2023, the DOJ announced that it had entered into two unprecedented deferred prosecution agreements (DPAs) to resolve price fixing charges in the generic drug industry against Teva Pharmaceuticals USA, Inc., and Glenmark Pharmaceuticals, Inc. Teva and Glenmark agreed to pay $250 million and $30 million, respectively, in criminal penalties and compliance monitoring, with Teva also obligated to donate $50 million worth of drugs to aid organizations. These agreements included divestitures of the companies’ product lines for the cholesterol drug pravastatin, alleged as central to the alleged price fixing conspiracy underlying the agreements. These arrangements are unusual for two reasons.

DPAs

First, DPAs are typically unfavored by the government and used as incentives for cooperation early in investigations. It is striking that the DOJ entered into these agreements in such an advanced stage of litigation, where five other corporations and three individuals had already admitted to the implicated conspiracy. DPAs are agreements between the government and defendants in which the defendants accept certain penalties in exchange for prosecutors stopping their pursuit of the underlying charges. Prosecutions are “deferred” indefinitely while defendants fulfill their end of the bargain. Although both DPAs and plea agreements involve admitting wrongdoing, DPAs allow defendants resolution without admission of legal guilt. In the event defendants fail to meet the terms of the agreement, the government resumes its prosecution and seeks convictions.

“Extraordinary” Remedial Measures

Second, both DPAs involved unheard of divestitures of product interests in the cholesterol drug pravastatin, with Teva’s DPA requiring an additional measure of $50 million in donated clotrimazole and tobramycin to humanitarian organizations. All three generic drugs were impacted by the charged conspiracy. This remedy is first of its kind—criminal antitrust enforcers historically have sought monetary and prison sentences only. However, DOJ criminal enforcers driving outside of their historic lane is not necessarily inconsistent or surprising. The current administration has repeatedly committed to “using the whole legislative toolbox” in litigation.

Deputy Assistant Attorney General Manish Kumar stated in October 2023 that these divestitures were appropriate in the “heavily regulated” context of generic pharmaceuticals, where a corporate conviction could have precluded Teva and Glenmark’s participation in federal drug programs to such an extent that the companies would have gone out of business. Of course, these are not the first defendants to face corporate convictions in heavily regulated industries, and they are not even the first to do so in this specific alleged conspiracy.

Whether this specific tool will build or break down competition, whether criminal enforcers are equipped to evaluate the impact of divestiture, and whether it is appropriate to test this novel approach in an industry with an alleged prolific conspiracy among major players and thus among potential buyers remains to be seen. For better or worse there will be more data points to answer these and other uncertainties: Kumar noted that the DOJ hopes to implement divestitures as criminal remedies “in other contexts” moving forward.

Investigation Nearing Its End

On November 16, 2023, in a surprising turn of events shortly after the DOJ announced the resolutions with Teva and Glenmark, the DOJ moved to dismiss a February 2020 indictment against Ara Aprahamian, a former senior executive of Taro Pharmaceutical Industries charged with fixing prices, rigging bids and allocating markets for generic drugs. The district court granted the motion to dismiss the indictment with prejudice. Prior to filing the motion, the DOJ had been preparing for a February 2024 criminal trial against Aprahamian. As a result of these recent actions, the DOJ has no remaining public proceedings in connection with its investigation of pricing in the generic drug industry. And, in December 2023, a district court overseeing the multidistrict civil litigation against generic drug manufacturers for the same alleged conduct terminated the DOJ’s intervenor status in the case. Thus, the DOJ’s nearly decade-long investigation of the generic drug industry appears to be ending.

Monaco on Mergers and Corporate Compliance 

In a speech at the Society of Corporate Compliance and Ethics’ Annual Compliance & Ethics Institute, Deputy Attorney General Lisa Monaco emphasized the importance of compliance programs and announced a safe harbor policy for voluntary self-disclosures of antitrust wrongdoing by companies engaged in mergers and acquisitions.

Compliance

Deputy Attorney General Monaco focused her remarks on the increased importance of, and scrutiny on, corporate compliance programs. She noted that under a new initiative, every resolution by the Criminal Division requires companies to add compliance-promoting criteria to compensation systems. She also shared that the Division is enacting “clawback credits” to incentivize tying executive compensation to compliance. Remaining focused on bottom lines, she warned: “Invest in compliance now or your company may pay the price—a significant price—later.” These sharp words are consistent with the DOJ’s increased rhetoric on and policy prioritization of compliance programs throughout 2023.

Mergers & Acquisitions Safe Harbor Policy

Deputy Attorney General Monaco also commented on the recently unveiled DOJ-wide safe harbor allowing companies to report misconduct by the companies they seek to acquire or merge with. The covered conduct must be discovered through the M&A process. Conduct that should have otherwise been disclosed or which could have been publicly known does not count. Conduct already known to the DOJ is not entitled to safe harbor protection either.

Monaco stated, “Going forward, acquiring companies that promptly and voluntarily disclose criminal misconduct within the Safe Harbor period [six months from date of closing], and that cooperate with the ensuing investigation, and engage in requisite, timely and appropriate remediation, restitution, and disgorgement [within one year of closing]—they will receive the presumption of a declination.” In line with remarks by enforcers earlier in the year, Monaco specifically highlighted cybersecurity, tech and national security as areas of heightened risk and thus heightened scrutiny. Corporations in these markets should take heed of the DOJ’s emphasis on corporate compliance in 2024.

Looking Ahead

In 2023, criminal antitrust authorities used novel approaches at every stage of enforcement—from charging decisions to partnerships, to litigation, to remedies— and they show no sign of slowing down in 2024. The emergence of new technologies and a policy promise to forego old guideposts takes the DOJ further from the familiar, and perhaps further from its expertise.

In a high-stakes election year and with an influx of federal funds in infrastructure and defense spaces, the DOJ will likely hit the accelerator sooner than it hits the breaks. Markets that impact maximum voters, including employment, tax-funded government contracts, national security and healthcare, are likely focuses. All considered, it is more important than ever for businesses and individuals to stay up to date on policy priorities, revamp and champion internal compliance programs, and seek agile counsel in the ever-changing landscape of criminal enforcement to avoid costly investigations.

© 2024 McDermott Will & Emery
For more on Antitrust Criminal Enforcement, visit the NLR Antitrust & Trade Regulation section.

FTC Announces 2024 Thresholds for Merger Control Filings under HSR Act and Interlocking Directorates under the Clayton Act

The Federal Trade Commission (“FTC”) has increased the dollar jurisdictional thresholds necessary to trigger the reporting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), and the dollar value of each of the six filing fee thresholds; the revised thresholds will become effective 30 days after the date of publication in the Federal Register. The daily maximum civil penalty for being in violation of the HSR Act has increased, and is, as of January 10, 2024, $51,744.

The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act; these revised thresholds are in effect as of January 22, 2024.

Revised HSR Thresholds

Under the HSR Act, parties involved in proposed mergers, acquisitions of voting securities, unincorporated interests or assets, or other business combinations (e.g., joint ventures, exclusive license deals) that meet certain thresholds must report the proposed transaction to the FTC and the Antitrust Division of the U.S. Department of Justice (“DOJ”) unless an exemption applies. The parties to a proposed transaction that requires notification under the HSR Act must observe a statutorily prescribed waiting period (generally 30 days) before closing. Under the revised thresholds, transactions valued at $119.5 million or less are not reportable under the HSR Act.

A transaction closing on or after the date the revised thresholds become effective may be reportable if it meets the following revised criteria:

Size-of-Transaction Test The acquiring person will hold, as a result of the transaction, an aggregate total amount of voting securities, unincorporated interests, or assets of the acquired person valued in excess of $478 million;

or

The acquiring person will hold, as a result of the transaction, an aggregate total amount of voting securities, unincorporated interests, or assets of the acquired person valued in excess of $119.5 million but not more than $478 million, and the Size-of-Person thresholds below are met.
Size-of-Person
Test		 One party (including the party’s ultimate parent entity and its controlled subsidiaries) has at least $239 million in total assets or annual sales, and the other has at least $23.9 million in total assets or annual sales.

The full list of the revised thresholds is as follows:

Original Threshold 2023 Threshold 2024 Revised Threshold
$10 million $22.3 million $23.9 million
$50 million $111.4 million $119.5 million
$100 million $222.7 million $239 million
$110 million $245 million $262.9 million
$200 million $445.5 million $478 million
$500 million $1,113.7 million $1,195 million
$1 billion $2,227.4 million $2,390 million

The filing fees for reportable transactions and the six filing fee tiers also have been updated, as follows:

Filing Fee Size of Transaction under the Act
$30,000 For transactions valued in excess of $119.5 million but less than $173.3 million
$105,000 For transactions valued at $173.3 million or greater but less than $536.5 million
$260,000 For transactions valued at $536.5 million or greater but less than $1,073 million
$415,000 For transactions valued at $1,073 million or greater but less than $2,146 million
$830,000 For transactions valued at $2,146 million or greater but less than $5,365 million
$2.335 million For transactions valued at $5,365 million or more

The filing fee tiers, introduced in 2023, are adjusted annually to reflect changes in the GNP for the previous year.

The HSR Act’s dollar thresholds are only part of the analysis to determine whether a particular transaction must be reported to the FTC and DOJ; a full analysis requires consideration of exemptions to the filing requirements that may be available to an acquiror. Failure to notify the FTC and DOJ under the HSR Act remains subject to a statutory penalty of up to $51,744 per day of noncompliance.

Revised Thresholds for Interlocking Directorates

Section 8 of the Clayton Act prohibits one person from simultaneously serving as an officer or director of two corporations if: (1) each of the “interlocked” corporations has combined capital, surplus, and undivided profits of more than $48,559,000 (up from $45,257,000); (2) each corporation is engaged in whole or in part in commerce; and (3) the corporations are “by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws.”1

Section 8 provides several exemptions from the prohibition on interlocks for arrangements where the competitive overlaps “are too small to have competitive significance in the vast majority of situations.”2 A corporate interlock does not violate the statute if (1) the competitive sales of either corporation are less than $4,855,900 (up from $4,525,700); (2) the competitive sales of either corporation are less than 2 percent of that corporation’s total sales; or (3) the competitive sales of each corporation are less than 4 percent of that corporation’s total sales. The DOJ has been active recently in identifying and achieving remediation of interlocks that may violate Section 8.3

1 15 U.S.C. § 19(a)(1)(B).

2 S. Rep. No. 101-286, at 5-6 (1990), reprinted in 1990 U.S.C.C.A.N. 4100, 4103-04.

3 Department of Justice, Two Pinterest Directors Resign from Nextdoor Board of Directors in Response to Justice Department’s Ongoing Enforcement Efforts Against Interlocking Directorates (Aug. 16, 2023); Department of Justice, Justice Department’s Ongoing Section 8 Enforcement Prevents More Potentially Illegal Interlocking Directorates (Mar. 9, 2023); Department of Justice, Directors Resign from the Boards of Five Companies in Response to Justice Department Concerns about Potentially Illegal Interlocking Directorates (Oct. 19, 2022).

© Copyright 2024 Cadwalader, Wickersham & Taft LLP
For more on Merger Control Filings, visit the NLR Antitrust & Trade Regulation section.

Updated Merger Guidelines Finalized

On December 18, 2023, the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) jointly issued a significantly revised version of the Merger Guidelines that describes the frameworks the enforcement agencies use when evaluating potential mergers.

The newly finalized Merger Guidelines are the result of a nearly two-year effort that involved both agencies soliciting public input via listening sessions, written comments, and workshops.

The agencies describe the new Merger Guidelines as necessary to address the modern economy and how firms now do business. The Merger Guidelines are broken into multiple sections: Guidelines 1–6 describe the frameworks the agencies use when attempting to identify a merger that the agencies believe raises a prima facie concern, while Guidelines 7–11 explain how to apply those frameworks in specific settings. The guidelines also identify evidence the agencies will consider to potentially rebut an inference of competitive harm. Finally, these guidelines include a discussion of the tools the agencies use when evaluating the relevant facts, the potential harm to competition, and how to define the relevant markets.

The Merger Guidelines are notable for signaling the FTC’s and DOJ’s desire to pursue a more aggressive enforcement agenda, specifically, by lowering the threshold at which proposed mergers will be deemed presumptively anticompetitive by those enforcement agencies. The new guidelines also seek to address relatively new concerns the agencies have identified, such as cross-market transactions and sequences of smaller transactions.

©2024 Epstein Becker & Green, P.C. All rights reserved.
For more on Merger Guidelines, visit the NLR Antitrust & Trade Regulation section.

Another Government Shutdown Looms: What It Means For Employers With Foreign National Employees

Only two days before the deadline in November 2023, the U.S. Senate passed a temporary budget to fund federal agencies through Jan. 19, 2024, marking the first time since 2012 that Congress entered a holiday season without the threat of a December shutdown. Now, following the start of a new year, lawmakers have less than two weeks to advance a recent spending agreement and reach a more permanent solution.

The November 2023 vote marked the second time Congress extended the budget for fiscal year 2023, which expired in September, to avert a government shutdown.

IMPACT ON IMMIGRATION

For employers, immigration funding and legislation are top of mind whenever a shutdown looms. Each time the government is on the verge of a shutdown, employers must identify cases that are affected and attempt to locate an avenue to mitigate the impact of the potential shutdown. This increases costs and reduces efficiency, among other complex consequences.

During the 2019 government shutdown, the U.S. Department of Justice suspended 60,000 hearings for non-detained migrants, causing significant delays in the immigration system. Rescheduling an appearance on the immigration docket can often take years, leaving migrants and their families to wait in uncertainty in the interim.

On the employment-based side of immigration, a mad dash ensues each time a government shutdown becomes imminent because applications made to the Department of Labor that are critical steps in both nonimmigrant and immigrant visa categories come to a halt. With already lengthy processing times, foreign national beneficiaries and their employers cannot afford to wait 90 days, as we saw in 2019, for government processing to resume.

Employers and their legal teams would be wise to shift their focus during these times to pushing forward the submission of as many Labor Condition Applications (LCAs), permanent labor certification applications (PERM), and prevailing wage determination requests as possible. A missed window of opportunity can result in years-long delays, or worse, the loss of work authorization, for critical foreign national talent in the U.S.

HOW TO PREPARE

With deadline déjà vu, now is the time for employers to prepare. Employers should consider the following three actions:

1) Submit Labor Condition Applications for all foreign nationals with a nonimmigrant visa (NIV) status expiring within the next six months, should the relevant nonimmigrant visa category require an application, such as for H-1B, H-1B1, and E-3 visa classifications

2) Submit Prevailing Wage Requests for all initiated PERM processes

3) File any PERM applications of individuals for whom the requisite recruitment steps and waiting periods have been completed

© 2023 BARNES & THORNBURG LLP
For more on Foreign National Employees, visit the NLR Labor & Employment section.

2023 Key Developments In The False Claims Act

2023 was another active year for the False Claims Act (FCA), marked by notable appellate decisions, emerging enforcement trends, and statutory amendments to state FCAs. We summarize the year’s most important developments for practitioners and government-facing businesses.

Developments in Caselaw

Supreme Court Holds That FCA Scienter Incorporates A Subjective Standard

The Supreme Court issued two consequential decisions on the False Claims Act this term. In the first, United States ex rel. Schutte v. SuperValu Co., 1 the Court held that objectively reasonable interpretations of ambiguous laws and regulations only provide a defense to the FCA’s scienter requirement if the defendant in fact interpreted the law or regulation that way during the relevant period. The Court held that the proper scienter inquiry is whether the defendant was “conscious of a substantial and unjustifiable risk” that their conduct was unlawful. 2 Previously, some courts (including the courts below in Schutte) had dismissed FCA claims based on an ambiguity in relevant statutory or regulatory provisions identified by a party’s attorneys, even if the party never actually believed that interpretation. Schutte precludes such a defense. That said, Schutte does require relators or the Government to allege facts to support an inference of actual knowledge of falsity, and some courts have granted motions to dismiss on that basis post-Schutte. 3

High Court Reaffirms Government’s Authority To Intervene And Dismiss Declined Actions, While Some Justices Raise Constitutional Questions

The Court also decided United States ex rel. Polansky v. Executive Health Resources, Inc., 4 which held that the Government may intervene in a declined action—i.e., where the Government declines to litigate the case at the outset under 31 U.S.C. § 3730(b)(4)(B)—for the purpose of dismissing it over the relator’s objection. The case essentially preserves the status quo, as courts widely recognized the authority of the Government to dismiss declined qui tams before Polansky. Polansky places two minor restrictions on the Government’s ability to dismiss declined actions. First, the Government has to intervene. 5 Second, the Government needs to articulate some rationale for dismissal to meet the standard of Rule 41(a), which the Court remarked that it will be able to do in “all but the most exceptional cases.” 6 More notably, however, three of the nine Justices (Justice Thomas in dissent and Justices Kavanaugh and Barrett in concurrence) signaled that they would entertain a challenge to the constitutionality of the qui tam mechanism under Article II. 7 Though the one court that has considered such arguments on the merits post-Polansky rejected them, 8 it remains likely that additional, similar challenges will be made.

Split In Authority Deepens On Causation In Kickback Cases

In FCA cases where the relator alleges a violation of the Anti-Kickback Statute (AKS), the payment of a kickback needs—at least in part—to have caused a submission of a false claim. That requirement flows from the statutory text of the AKS, which provides that claims “resulting from” AKS violations are “false or fraudulent claim[s]” for the purpose of the FCA. 9 But courts have not coalesced around a single standard for what it means for a false claim to “result from” a kickback. Before this year, the Third Circuit in United States ex rel. Greenfield v. Medco Health held that there needs to be “some link” between kickback and referral beyond temporal proximity. 10 On the other hand, the Eighth Circuit in United States ex rel. Cairns v. D.S. Medical, LLC, held that the kickback needs to be a but-for cause of the referral. 11 Earlier this year, the Sixth Circuit endorsed the Eighth Circuit’s interpretation of causation. The court reasoned that but-for causation is the “ordinary meaning” of “resulting from” and no other statutory language in the AKS or FCA justifies departure from a but-for standard. 12 But not every court has adopted the Sixth Circuit’s straightforward analysis.

In the District of Massachusetts, for example, two decisions issued this summer came out on opposite sides of the split. In both cases, United States v. Teva Pharmaceuticals USA, Inc., 13 and United States v. Regeneron Pharmaceuticals, Inc., 14 the Government alleged that the pharmaceutical companies were improperly paying copayment subsidies to patients for their drugs. Yet Teva adopted Greenfield’s “some link” standard, while Regeneron adopted the “but-for” standard of the Sixth and Eighth Circuits. The Teva court also certified an interlocutory appeal to the First Circuit to resolve the issue prior to trial, which remains pending. 15 FCA defendants in cases arising out of the AKS thus continue to face substantial uncertainty as to the applicable standard outside the Third, Sixth, and Eighth Circuits. That said, there is mounting skepticism of the Greenfield analysis, 16 and those defendants retain good arguments that the standard adopted by the Sixth and Eighth Circuits should apply.

Enforcement Trends

The also Government remained active in investigating and, in many cases, settling False Claims Act allegations. That enforcement activity included several large settlements, including a $377 million settlement with Booz Allen Hamilton arising out of its failure to comply with Federal Acquisition Regulation cost accounting standards. 17 Our review of this year’s activity revealed significant trends in both civil and criminal enforcement, which we briefly describe below.

Focus On Unsupported Coding In Medicare Advantage (Part C) Claims

Medicare recipients are increasingly turning to private insurers to manage the administration of their Medicare benefits: over half of Medicare enrollees now opt for managed care plans. 18 The Government announced several important enforcement actions focused on submissions to and the administration of Medicare Advantage plans.

On September 30, DOJ announced a $172 million settlement with Cigna due to an alleged scheme to submit unsupported Medicare coding to increase reimbursement rates. According to the press release, Cigna operated a “chart review” team that reviewed providers’ submitted materials and identified additional applicable diagnosis coding to include on requests for payment. The Government alleges that some of the coding Cigna added was not substantiated by the chart review. 19

Similarly, in October, the Government declined to prosecute insurer HealthSun for submitting diagnosis coding to CMS that increased applicable reimbursement rate of treatment without an actual underlying diagnosis by the treating physician. The declination was based on HealthSun’s voluntary self-disclosure of the conduct through the Criminal Division’s recently updated Corporate Enforcement and Voluntary Self-Disclosure Policy. 20 DOJ did, however, indict the company’s former Director of Medicare Risk Adjustment Analytics for conspiracy to commit healthcare fraud and several counts of wire fraud and major fraud against the Government in the Southern District of Florida. 21

In May, the United States Attorney’s Office for the Eastern District of Pennsylvania announced a settlement against a Philadelphia primary care practice based on the submission of allegedly unsupported Medicare diagnosis coding in Part C submissions. The press release asserts that the practice coded numerous claims with morbid obesity diagnoses when the patients lacked the required body-mass index for the diagnosis and diagnosed chronic obstructive pulmonary disease without appropriate substantiation. 22

Both managed care organizations and providers that submit claims to Medicare Advantage should review their claim coding practices to ensure that their claims accurately reflect the medical diagnoses of the treating physician, as well as the treatment provided.

DOJ Follows Through On Civil Cyber-Fraud Initiative

In 2021, DOJ announced the launch of its Civil Cyber-Fraud Initiative, 23 which was aimed at policing government contractors’ failures to adequately protect government information by meeting prescribed cybersecurity requirements. This year, the enforcement of that policy led the Government to alleged FCA violations based on implied or explicit certifications of compliance with cybersecurity regulations:

In September, the Government declined to intervene in a qui tam action against Pennsylvania State University alleging that Penn State falsely certified compliance with Defense Federal Acquisition Regulation Supplement 252.204-7012, which specifies controls required to safeguard defense-related information, during the length of its contract with the Defense Department. 24 However, the parties subsequently sought a 180 day stay of proceedings due to an ongoing government investigation, which was granted. 25 The application for the stay hinted that the Government may yet intervene in the action and file a superseding complaint. 26

DOJ also announced in September a $4 million settlement with Verizon Business Network Services LLC arising out of Verizon’s provision of internet services to federal agencies that was required to meet specific security standards. The Government’s press release, which specifically noted Verizon’s cooperation with the investigation, alleged that Verizon failed to implement “three required cybersecurity controls” in its provision of internet service, which were not individually specified. 27

Entities doing business with the Government should ensure that they are aware of all applicable cybersecurity laws and regulations governing that relationship and that they are meeting all such requirements.

Continued Crackdown On Telemedicine Fraud Schemes

Following OIG-HHS’s July 2022 Special Fraud Alert 28 regarding the recruitment of practitioners to prescribe treatment based on little to no patient interaction over telemedicine, DOJ announced several significant settlements involving that exact conduct. In many circumstances, the Government pursued criminal charges rather than civil FCA penalties alone.

In September, the United States Attorney’s Office for the District of Massachusetts announced a guilty plea to a conspiracy to commit health care fraud charge. The Government alleged that the defendant partnered with telemarketing companies to pay Medicare beneficiaries “on a per-order basis to generate orders for [durable medical equipment] and genetic testing,” and then found doctors willing to sign “prepopulated orders” based on telemedicine appointments that the doctors did not actually attend. 29

In June, as part of a “strategically coordinated” national enforcement action, DOJ announced action against several officers of a south Florida telemedicine company for an alleged $2 billion fraud involving the prescription of orthotic braces and other items to targeted Medicare recipients through cursory telemarketing appointments that were presented as in-person examinations. 30

Although enforcement in the telemedicine space to date has largely focused on obviously fraudulent conduct, practitioners should be aware that the Government may view overly short telemedicine appointments as insufficient to support diagnoses leading to claims for payment from the Government.

State False Claims Acts

Both Connecticut and New York made notable alterations to the scope of conduct covered by their state FCAs. Companies doing business with state governments should be aware that 32 states have their own FCAs, not all of which mirror the federal FCA.

Connecticut Expands FCA To Mirror Scope Of Federal Statute

Prior to this year, Connecticut’s False Claims Act covered only payments sought or received from a “stateadministered health or human services program” In June, however, Connecticut enacted a substantial revision to its state FCA, which seeks to mirror the scope and extent of the Federal FCA. 31 Those doing business with the state of Connecticut should conduct an FCA-focused compliance review of that business to avoid potential liability arising out of state law, and should also understand federal FCA jurisprudence, which is likely to have a significant influence on the new law’s interpretation.

New York Expands FCA To Cover Allow Tax-Related FCA Claims Against Non-Filers

New York is among the few states whose state FCAs cover tax-related claims. Prior to this year, though, the state and its municipalities could only assert tax-related claims against those who actually filed and whose filings contained false statements of fact. In May, New York amended its FCA to allow a cause of action against those who knowingly fail to file a New York tax return and pay New York taxes. 32 Companies doing business in New York should be aware that not filing required taxes in New York may potentially subject them to, among other things, the treble damages for which the FCA provides.

1 143 S. Ct. 1391 (2023).
2 Schutte, 143 S. Ct. at 1400-01.
3 See, e.g., United States ex rel. McSherry v. SLSCO, L.P., No. 18-CV-5981, 2023 WL 6050202,
at *4 (E.D.N.Y. Sept. 15, 2023).
4 143 S. Ct. 1720 (2023).
5 Id. at 1730.
6 Id. at 1734.
7 Id. at 1737 (Kavanaugh, J., concurring); id. at 1741-42 (Thomas, J., dissenting).
8 See United States ex rel. Wallace v. Exactech, Inc., No. 7:18-cv-01010, 2023 WL 8027309, at
*4-6 (N.D. Ala. Nov. 20, 2023).
9 See 42 U.S.C. § 1320a-7b(g).
10 United States ex rel. Greenfield v. Medco Health Sol’ns, 880 F.3d 89, 98-100 (3d Cir. 2018).
11 United States ex rel. Cairns v. D.S. Med., LLC, 42 F. 4th 828, 834-36 (8th Cir. 2022).
12 United States ex rel. Martin v. Hathaway, 63 F. 4th 1043, 1052-53 (6th Cir. 2023).
13 Civ. A. No. 20-11548, 2023 WL 4565105 (D. Mass. July 14, 2023).
14 Civ. A. No. 20-11217, 2023 WL 7016900 (D. Mass. Oct. 25, 2023)
15 See United States v. Teva Pharma USA, Inc., No. 23-1958 (1st Cir. 2023).
16 See, e.g., Regeneron, 2023 WL 7016900, at *11 (remarking that the Greenfield analysis is
“fraught with problems” and “disconnected from long-standing common-law principles of
causation”).
17 https://www.justice.gov/opa/pr/booz-allen-agrees-pay-37745-million-settle-false-claims-act-
allegations.
18 https://www.kff.org/policy-watch/half-of-all-eligible-medicare-beneficiaries-are-now-enrolled-
in-private-medicare-advantage-plans/.
19 https://www.justice.gov/opa/pr/cigna-group-pay-172-million-resolve-false-claims-act-
allegations.
20 See https://www.justice.gov/opa/speech/assistant-attorney-general-kenneth-polite-jr-delivers-
remarks-georgetown-university-law.
21 https://www.justice.gov/opa/pr/former-executive-medicare-advantage-organization-charged-
multimillion-dollar-medicare-fraud.
22 https://www.justice.gov/usao-edpa/pr/primary-care-physicians-pay-15-million-resolve-false-
claims-act-liability-submitting.
23 See https://www.justice.gov/opa/pr/deputy-attorney-general-lisa-o-monaco-announces-new-
civil-cyber-fraud-initiative.
24 See United States ex rel. Decker v. Penn. State Univ., Civ. A. No. 22-3895 (E.D. Pa. 2023).
25 Id. at ECF Nos. 24, 37.
26 Id. at ECF No. 24.

27 See https://www.justice.gov/opa/pr/cooperating-federal-contractor-resolves-liability-alleged-
false-claims-caused-failure-fully.
28 https://oig.hhs.gov/documents/root/1045/sfa-telefraud.pdf.
29 https://www.justice.gov/usao-ma/pr/owner-telemedicine-companies-pleads-guilty-44-million-
medicare-fraud-scheme.
30 https://www.justice.gov/opa/pr/national-enforcement-action-results-78-individuals-charged-
25b-health-care-fraud.
31 See Conn. Gen. Stat. §§ 4-274–4-289.
32 See N.Y. State Fin. Law § 189(4)(a).

© 2023 Binder & Schwartz LLP. All Rights Reserved
For more news on the False Claims Act, visit the NLR Financial Institutions & Banking section.

FTC and DOJ Propose Significant Changes to US Merger Review Process

On 27 June 2023, the Federal Trade Commission (FTC) and the Department of Justice–Antitrust Division (DOJ) (collectively, the Agencies) announced sweeping proposed changes to the US-premerger notification filing process. The proposed changes mark the first significant overhaul of the federal premerger notification form since its original release in 1978 and would require parties to report

On 27 June 2023, the Federal Trade Commission (FTC) and the Department of Justice–Antitrust Division (DOJ) (collectively, the Agencies) announced sweeping proposed changes to the US-premerger notification filing process. The proposed changes mark the first significant overhaul of the federal premerger notification form since its original release in 1978 and would require parties to reportable transactions to collect and submit significantly more information and documentation as part of the premerger review process. If finalized, the proposed rule changes would likely delay deal timelines by months, requiring significantly more time and effort by the parties and their counsel in advance of submitting the required notification form.

In this alert, we:

  • Provide an overview of the current merger review process in the United States;
  • Describe the proposed new rules announced by the Agencies;
  • Explain the Agencies’ rationale for the new proposed rules;
  • Predict how the proposed new rules could impact parties’ premerger filing obligations, including deal timelines; and
  • Explain what companies should expect over the next several months.

BACKGROUND ON THE HSR MERGER REVIEW PROCESS

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act or “HSR”) requires certain persons making acquisitions of assets, voting securities, and non-corporate interests (i.e., interests in partnerships and limited liability companies) to:

(a)    File premerger notifications with the FTC and DOJ; and

(b)    Wait until the expiration or termination of a waiting period (usually 30 days) before consummating the acquisition.

Most mergers and acquisitions valued in excess of USD$111.4 million fall under the HSR Act subject to size-of-party thresholds in certain cases. Additionally, there are several exemptions that may apply to an otherwise reportable transaction.

The FTC or the DOJ reviews the parties’ HSR filings during the waiting period to determine whether the transaction may substantially lessen competition in violation of the antitrust laws. If, at the end of the waiting period any concerns have not been placated, the reviewing agency may issue a Request for Additional Documents and Information (commonly referred to as a Second Request), a very broad subpoena-like document seeking documents, data, and interrogatory responses from the filers. This tolls the waiting period until both parties substantially comply with the Second Request. The reviewing agency then has an additional 30-day period to decide whether to challenge the transaction in court.

WHAT ARE THE PROPOSED CHANGES?

On 27 June 2023, the FTC and DOJ announced a number of significant changes to the HSR notification form and filing process, the first such overhaul in almost 45 years. The Agencies released the proposed changes and rationale for the same in a 133-page Notice of Proposed Rulemaking (Notice) that will be published in the Federal Register later this week. While antitrust practitioners are still digesting the full extent of all of the proposed changes, it is clear that they would require parties to submit significantly more information and documentation to the Agencies as part of their HSR notification form. The most notable additional information and documentation includes:

  • Submission of additional deal documents, including draft agreements or term sheets (as opposed to just the preliminary agreement), where a definitive transaction agreement has not yet been executed; draft versions of all deal documents (as opposed to just the final versions); documents created by or for the deal team lead(s) (as opposed to just officers and directors); and verbatim translations of all foreign language documents.
  • Details about acquisitions during the previous 10 years.
  • Identification of and information about all officers, directors, and board observers of all entities within the acquiring person, including the identification of other entities these individuals currently serve, or within the two years prior to filing had served, as an officer, director, or board observer.
  • Identification of and information about all creditors and entities that hold non-voting securities, options, or warrants totaling 10% or more.
  • Disclosure of subsidies (e.g., grants and loans), by certain foreign governments, including North Korea, China, Russia, and Iran.
  • Narrative description of the strategic rationale for the transaction (including projected revenue streams), a diagram of the deal structure, and a timeline and narrative of the conditions for closing.
  • Identification and narrative describing horizontal overlaps, both current and planned.
  • Identification and narrative describing supply agreements/relationships.
  • Identification and narrative describing labor markets, as well as submission of certain data on the firms’ workforce, including workforce categories, geographic information on employees, and details on labor and workplace safety violations.
  • Identification of certain defense or intelligence contracts.
  • Identification of foreign jurisdictions reviewing the deal.

WHY ARE THESE CHANGES BEING PROPOSED?

In its press release announcing the proposed new rules, the FTC stated that “[t]he proposed changes to the HSR Form and instructions would enable the Agencies to more effectively and efficiently screen transactions for potential competition issues within the initial waiting period, which is typically 30 days.”1 The FTC further explained:

Over the past several decades, transactions (subject to HSR filing requirements) have become increasingly complex, with the rise of new investment vehicles and changes in corporate acquisition strategies, along with increasing concerns that antitrust review has not sufficiently addressed concerns about transactions between firms that compete in non-horizontal ways, the impact of corporate consolidation on American workers, and growth in the technology and digital platform economies. When the Agencies experienced a surge in HSR filings that more than doubled filings from 2020 to 2021, it became impossible to ignore the changes to the transaction landscape and how much more complicated it has become for agency staff to conduct an initial review of a transaction’s competitive impact. The volume of filings at that time also highlighted the significant limitations of the current HSR Form in understanding a transaction’s competitive impact.2

Finally, the FTC also cited certain Congressional concerns and the Merger Fee Filing Modernization Act of 2022, stating that the “proposed changes also address Congressional concerns that subsidies from foreign entities of concern can distort the competitive process or otherwise change the business strategies of a subsidized firm in ways that undermine competition following an acquisition. Under the Merger Filing Fee Modernization Act of 2022, the agencies are required to collect information on subsidies received from certain foreign governments or entities that are strategic or economic threats to the United States.”

HOW WILL THESE CHANGES POTENTIALLY IMPACT PARTIES’ HSR FILINGS?

The proposed changes, as currently drafted, would require significantly more time and effort by the parties and their counsel to prepare the parties’ respective HSR notification forms. For example, the proposed new rules require the identification, collection, and submission of more deal documents and strategic documents; significantly more information about the parties, their officers, directors and board observers, minority investments, and financial interests; and narrative analyses and descriptions of horizontal and non-horizontal relationships, markets, and competition. Gathering, analyzing, and synthesizing this information into narrative form will require significantly more time and resources from both the parties and their counsel to comply.

Under the current filing rules, it typically takes the merging parties about seven to ten days to collect the information needed for and to complete the HSR notification form. Under the proposed new rules, the time to gather such information and complete an HSR notification form could be expanded by multiple months.

WHAT IS NEXT?

The Notice will be published in the Federal Register later this week. The public will then have 60 days from the date of publication to submit comments. Following the comment period, the Agencies will review and consider the comments and then publish a final version of the new rules. The new rules will not go into effect until after the Agencies publish the final version of the new rules. This process will likely take several months to complete, and the new rules–or some variation of them–will not come into effect until that time.

While the final form of the proposed rules are not likely to take effect for several months, the Agencies’ sweeping proposed changes to the notification form and filing process are in line with the type of information that the Agencies have been increasingly requesting from parties during the merger review process. Accordingly, parties required to submit HSR filings over the next several months should be prepared to receive similar requests from the Agencies, either on a voluntary basis (e.g., during the initial 30-day waiting period) or through issuance of a Second Request, and they should build into their deal timeline (either pre- or post-signing) sufficient time to comply with these requests.

 

1 “FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review,” FTC Press Release, June 27, 2023, available at FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review | Federal Trade Commission.  

2 “Q and A on the Notice of Proposed Rulemaking for the HSR Filing Process,” FTC Proposed Text of Federal Register Publication, available at 16 CFR Parts 801 and 803: Premerger Notification; Reporting and Waiting Period Requirements | Federal Trade Commission (ftc.gov).

Copyright 2023 K & L Gates

Tempur Sealy Acquisition of Mattress Firm: A Vertical Bridge Too Far for the FTC?

In a deal announced on May 9, Tempur Sealy International, Inc., the world’s largest mattress manufacturer, has agreed to acquire Houston-based Mattress Firm Group, Inc., the largest U.S. brick-and-mortar bedding retailer, with more than 2,300 locations and a robust e-commerce platform. The companies hope to finalize the $40 billion deal in the second half of 2024.

Following pre-merger notification of the deal last October, the FTC is reportedly taking a deep dive into the mattress industry to assess whether the transaction is likely to harm competition. The depth of the investigation itself signals a departure from the antitrust agencies’ traditional approach to “vertical” mergers in which firms in the same industry but in non-overlapping market segments (such as manufacturing and retailing the same product category) benefit from a soft presumption of legality. Customarily, vertical integration was perceived to be benign, if not somehow “efficiency enhancing.”

Whatever the merits of applying such leniency to traditional supply chains of widgets, it does not serve competition policy well in an economy dominated by technology-driven platforms that serve several enormous groups of customers at once. In today’s markets, non-overlapping vertical arrangements can severely affect whether rival firms can gain access to inputs, markets, or prospective customers.

Evidence of the FTC’s awareness of the potential for vertical mergers to cause competitive harm abounds. On September 15, 2021, the FTC withdrew the FTC/Department of Justice 2020 Vertical Merger Guidelines and Commentary. The Commission’s majority said that the 2020 Guidelines included a “flawed discussion of the purported procompetitive benefits (i.e., efficiencies) of vertical mergers, especially its treatment of the elimination of double marginalization” and by failing to address “increasing levels of consolidation across the economy.”

Mattresses and Widgets

A course correction is borne out by the Commission’s recent challenges to several proposed vertical mergers, including Nvidia Corp.’s attempted acquisition of Arm Ltd., Lockheed Martin Corporation’s attempted acquisition of Aerojet Rocketdyne Holdings, Inc., Microsoft Corp.’s acquisition of Activision Blizzard Inc., and Illumina, Inc.’s acquisition of GRAIL, Inc. After the parties abandoned the Nvidia/Arm acquisition, the FTC’s press release was effusive: “This result is particularly significant because it represents the first abandonment of a litigated vertical merger in many years,” the Commission said.

Enter the Tempur Sealy/Mattress Firm transaction, a vertical acquisition in a product category whose markets resemble widgets more than online merchandising or payment networks. Tempur Sealy became the world’s largest mattress manufacturer in 2012, when Tempur-Pedic acquired Sealey Corp. for $1.3 billion. The company currently earns revenues of $5 billion a year, almost a third of the $17 billion U.S. mattress market. Mattress Firm, the largest mattress retailer in the U.S. with annual revenues of $2.5 billion a year, has been owned since 2016 by German retail holding company Steinhoff International Holdings NV. The firm filed for Chapter 11 bankruptcy protection in October 2018, but quickly emerged the following month after closing 700 stores.

The merging parties are no strangers to one another, having engaged in a commercial relationship for the past 35 years. In 2017, Tempur Sealy sued Mattress Firm for selling mattresses that infringed on the Tempur-Pedic line-up, but in 2019, after its emergence from bankruptcy, Mattress Firm and Tempur Sealy struck a long-term partnership agreement. A merger of the two firms has been under discussion in one form or another for most of the past decade.

Public statements by the parties stress the complementarity of the deal, which they describe as combining “Tempur Sealy’s extensive product development and manufacturing capabilities with vertically integrated retail.” The merged entity will end up with about 3,000 retail stores, 30 e-commerce platforms, 71 manufacturing facilities, and 4 R&D facilities around the world. It is the kind of combination of complementary businesses that not long ago might not have even earned a Second Request from the antitrust agencies.

The FTC, which at least since last December has been investigating the potential effects on the mattress industry of a merger between the two market leaders, issued a Second Request earlier this month. By February, the Commission had already interviewed executives from the top 20 mattress manufacturers, according to a report in Furniture Today (February 2, 2023).

Disruptors and Goliaths

The FTC is likely to discover a large and growing global industry undergoing significant changes in how mattresses are designed, marketed, and sold in reaction to changing consumer preferences.

Several online mattress-in-a-box companies have disrupted the industry. Today, nearly half of all consumers purchases are online. They will also find fairly low barriers to entry into both brick-and-mortar and online retailing and mattress manufacturing. Their review of the Tempur Sealy/Mattress Firm transaction will also encounter two players in the market with a long history of cooperation.

With 20 manufacturers significant enough to interview, the Commission would appear to be faced with a fairly competitive market – one in which little or no foreclosure of rivals to the ability to obtain inputs or the availability of channels of distribution to reach consumers will result from the proposed transaction. Additional competitive pressure comes from Amazon, which began selling its own mattresses in 2018 as part of the Amazon Essentials line, and Walmart, which introduced its own mattress-in-box brand, Allswell, available online and in stores.

On balance, the acquisition of Mattress Firm by Tempur Sealy would not appear to raise significant antitrust issues. A challenge to this transaction by the FTC may be a vertical bridge too far. That is no doubt the assessment reached by Scott Thompson, chairman and CEO of Tempur Sealy, who expressed confidence in clearing the FTC’s antitrust review, “either in the traditional sense or through litigation.”

© MoginRubin LLP

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