The Sherman Antitrust Act was enacted in 1890 to curb concentrations of power that interfere with trade and reduce economic competition. It was named for U.S. Senator John Sherman of Ohio, who was an expert on the regulation of commerce.
One of the act’s main provisions outlaws all combinations that restrain trade between states or with foreign nations. This prohibition applies to any agreement to fix prices, limit industrial output, share markets, or exclude competition. Price fixing, bid rigging, and market allocation are violations and often are prosecuted criminally, but there is also civil liability for such actions.
Criminal enforcement of the Sherman Act is the responsibility of the Antitrust Division of the United States Department of Justice (DOJ). For offenses committed on or after June 22, 2004, the maximum corporate fine is $100 million, the maximum individual fine is $1 million and the maximum jail term is 10 years.
These violations are also subject to the alternative fine provision in 18 U.S.C. § 3571, which permits a fine of up to twice the gross financial loss or gain resulting from a violation. In those instances when the federal government or its agencies have been the victims of antitrust violations, the DOJ may obtain treble damages under the Clayton Act (15 U.S.C. § 15a) and civil penalties up to treble damages under the False Claims Act (31 U.S.C. § 3729). In addition, private parties (including state and local governments) can recover three times the damages they suffer as a result of an antitrust violation, and they may use successful federal prosecution of collusion as prima facie evidence against a defendant in a follow-on suit for treble damages.
Price fixing, bid rigging, and market allocation are generally prosecuted criminally because they have been found to be unambiguously harmful, that is, per se illegal. Such agreements have been shown to defraud consumers and unquestionably raise prices or restrict output without creating any plausible offsetting benefit to consumers, unlike other business conduct that may be the subject of civil lawsuits by the federal government. Bid rigging is the way that conspiring businesses effectively raise prices where purchasers – often federal, state, or local governments – acquire products or services by soliciting bids. In a bid-rigging conspiracy, competitors agree in advance who will submit the winning bid on a contract that a public or private entity wants to let through a formal or informal competitive bidding process. In other words, competitors agree to eliminate competition for some piece of defined business, whether it be a sale, a contract, or a project.
How Does It Apply To Foreclosure Sales?
As we have recently seen on the local level, bid rigging can also involve real estate foreclosure auctions. Since 1995, the DOJ has filed over forty cases in connection with bid-rigging conspiracies designed to artificially lower public auction prices at real estate foreclosure auctions. These conspiracies often involve real estate brokers and investors who agree secretly not to compete against each other at real estate foreclosure auctions. Instead, one member of the conspiracy would bid the lowest price possible to win the property. Then, after the formal auction, the conspirators would hold a second private or knockout auction at which the conspirators would actively bid against each other for the foreclosed property. The winner of this second, secret auction would make an illicit commission or premium payoffs to the others to compensate them for not bidding at the public auction.