NEW YORK: An Introduction to New York
Last year saw the return of large, high-profile trials and increased enforcement. We expect the trend to continue through 2023. Front of mind is cryptocurrency enforcement, prosecutions related to the collapse of major crypto exchanges and the government’s ongoing effort to apply existing securities laws to those products. Notwithstanding high-profile trial losses in 2022, the Department of Justice (DOJ) Antitrust Division has indicated it will double down on its enforcement, particularly in the areas of labor, healthcare, and criminal monopolization. Finally, we will see how the DOJ intends to apply its policy statements relating to corporate cooperation announced in the Monaco Memo.
Crypto Prosecutions and Enforcement
Cryptocurrency enforcement took center stage in 2022 with the indictment of Sam Bank-Friedman (SBF), following the collapse of FTX. SBF has been charged with securities fraud, wire fraud and several conspiracy counts involving money laundering and campaign finance violations stemming from an alleged scheme that began as early as 2019 to defraud customers of FTX and lenders to Alameda Research, a crypto trading platform with close ties to the crypto exchange.
The SBF indictment rounded out the DOJ’s first actions in the crypto space, including indictments against a former employee of Ozone Networks (the owner of the OpenSea NFT exchange platform) and a former Coinbase employee and two associates. These indictments showcase the government’s use of traditional prosecutorial tools to target crypto crimes. We anticipate additional crypto indictments in 2023, including possible charges against other FTX associates.
The Securities Exchange Commission (SEC) continues to regulate crypto through actions against both individuals and issuers. In the Coinbase matter, the SEC initiated the first inside trading charges involving the crypto markets, while expanding its jurisdictional reach asserting that nine different cryptocurrencies were unregistered securities. Enforcement actions are unlikely to slow down in 2023 with the SEC having already charged Genesis and Gemini for the unregistered offer of crypto securities.
While the Commodity Futures Trading Commission (CTFC) has been critical of the SEC for “regulating by enforcement,” the CFTC itself is no stranger to crypto enforcement, with digital assets accounting for more than 20% of its enforcement actions in 2022. We anticipate this trend to increase in 2023.
Antitrust Prosecutions and Enforcement
Last year the DOJ’s Antitrust Division pushed the boundaries of antitrust enforcement and suffered several setbacks at trial. This included losing its first criminal wage-fixing and no-poach cases, both involving the healthcare sector, the loss at trial or dismissals of three cases based on information exchanges in the fast-food poultry industry. The DOJ tried some of the 14 charged individuals three times with two hung juries and a third jury handing down a full acquittal.
The Antitrust Division has indicated that it is undeterred by these losses, with new trials throughout the country focused on the labor market. A case against Maine home healthcare providers alleging a conspiracy to fix pay is scheduled for the first quarter of 2023. The Division is also bringing cases in Connecticut and Texas relating to no-poach and has filed an amicus brief in the Seventh Circuit arguing that past provisions in McDonald’s franchise agreements preventing hiring of each other’s workers violated the antitrust laws.
On 2 February 2023, the Antitrust Division announced that it has withdrawn three policies from 1993, 1996 and 2011 creating “safe zones” for healthcare companies to collaborate on certain activities including mergers with small providers, sharing expensive equipment, providing information to purchasers of healthcare services, and exchanging price and cost information. Enforcement will now be on a case-by-case basis. Companies and their counsel have been left without meaningful guidance about the legality of these common practices.
Practitioners are also watching to see if the Antitrust Division will bring additional criminal monopolization cases under Section 2 of the Sherman Act. In April 2022, the agency announced that after a 45-year break the Division would start seeking criminal indictments under Section 2 instead of focusing solely on Section 1 violations. A key difference is that Section 1 violations require an agreement where Section 2 violations do not. Since that announcement, the DOJ has brought two cases. The first, United States v Zito, No. 22-CR-00113 (D. Mt. 2022), resolved in a plea and was based on allegations that an asphalt contractor in Montana attempted to monopolize the market through a strategic partnership to control bids. The indictment in United States v Martinez, No. 22-CR-00560 (S.D. Tex. 2022) was unsealed in December 2022 and alleges monopolization in transmigrant activities through the use of threats, force and extortion. The differences in these cases demonstrates the breadth of activity the DOJ will challenge under the antitrust laws. The resurrection of Section 2 prosecutions after 45 years creates challenges for counsel due to a lack of recent authority, comparative sentencing information and underdeveloped caselaw.
The Monaco Memo: Corporate Cooperation, Individual Responsibility and Voluntary Disclosure
In September 2022, Deputy Attorney General Lisa Monaco issued a memo announcing policy revisions and priorities for the DOJ’s prosecution of corporations. Additional revisions were announced on 17 January 2023 by Assistant Attorney General Kenneth Polite. The Monaco memo states that the DOJ is focused on holding individuals accountable for corporate crimes. To receive cooperation credit, companies must identify everyone who had a hand in the misconduct, regardless of their seniority or executive status, and disclose everything they know about what happened. In exchange for voluntarily reporting and naming individuals, companies are more likely to avoid an institutional guilty plea and may have fines reduced by as much as 50-75%.
Whether this entices companies to self-disclose and reveal if senior executives were involved instead of casting blame towards the lower ranks and claiming the conduct was the result of “rogue employees” will be carefully watched. Trying to cabin conduct away from senior leadership has been a longstanding technique for defending corporations in government investigations. Senior leadership will not be enthusiastic about being in the line of fire and the DOJ will continue to consider C-Suite involvement an aggravating factor against a corporation seeking resolution. However, failure or delay in turning over this information risks the partial or complete loss of cooperation credits.
In her speech announcing the policy revisions, Deputy Attorney General Monaco stated that corporations and counsel should feel they are “‘on the clock’ to expedite investigations, particularly as to culpable individuals,” and the DOJ is inclined to look favorably on corporations that claw back compensation from involved individuals. Practitioners and general counsel will be examining corporate settlements in 2023 to determine if the carrots offered by the DOJ are worth the risks and to determine the seriousness of its commitment to pursue senior leadership involved in misconduct.