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CARTEL CASE STUDY John W. McReynolds Assistant Chief New York Field Office Antitrust Division U.S. Department of Justice

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Presentation on theme: "CARTEL CASE STUDY John W. McReynolds Assistant Chief New York Field Office Antitrust Division U.S. Department of Justice"— Presentation transcript:

1 CARTEL CASE STUDY John W. McReynolds Assistant Chief New York Field Office Antitrust Division U.S. Department of Justice

2 Case Study Customer allocation conspiracy The industry The investigation The evidence –Particular emphasis on documents & trial exhibits

3 Linen Supply Market Products –Table linens –Napkins –Chef’s uniforms –Aprons –Waiter’s uniforms

4 Linen Supply Market Services –Deliver clean linen products –Pick up dirty & soiled linens –Bring dirty linens back to their plants for washing & ironing –Deliver clean linens the following week

5 Linen Supply Market Customers –Restaurants –Cafeterias –Caterers –Food shops –Delicatessens –Pizzerias

6 Linen Supply Market Geographic area –New York City metropolitan area

7 Linen Supply Market Size of market –Over $200 million annually –Thousands & thousands of customers

8 Linen Supply Market Competitors –6 large local –2 national –Hundreds of small

9 Linen Supply Market Duration of conspiracy –Early 1994 through October 2002 –Individual agreements dating back to 1980s

10 Linen Supply Market The customer allocation conspiracy –All 6 large local competitors –Agreed to not compete for each others’ existing customers Instruct salesmen not to solicit Put in high quotes or refrain from quoting Phone each other when a customer is looking to switch

11 Linen Supply Market Rules –OK to compete for newly opened businesses –If owners open up another location, it is “protected” –If a conspirator “cheats” by taking a customer, you can retaliate by taking a customer of equal size

12 Linen Supply Market Conditions favorable to collusion Standardized products Products do not have close substitutes High entry costs for large scale operation Few firms that can service large & upscale restaurants High market shares Detection of cheating & enforcement

13 Linen Supply Market Other conditions favorable to collusion –6 largest competitors: Fathers & grandfathers knew each other Many were immigrants from eastern Europe Union negotiations Industry association meetings Helped each other when in need Bought & split up linen supply companies together Purchased linens from same manufacturers

14 Linen Supply Market History of industry Antitrust violations 1958 consent decree Terminated in 1992 Arson Violence Organized crime

15 Linen Supply Market: Investigation How investigation began: Late new entrant: Linens Inc. Over the next 2 years took 20 top New York City restaurants Disrupted cartel

16 Linen Supply Market: Investigation Retaliation, beginning early 2002 Threatening phone calls Threatening s Truck break-ins Assault Complaints to National Labor Relations Board Union organizing efforts Picketing at major restaurants

17 Linen Supply Market: Investigation Linens Inc. contacted Antitrust Division in April 2002 General manager interviewed Last worked in the industry in the 1980s Background/historical/anecdotal information No first-hand knowledge

18 Linen Supply Market: Investigation Covert stage Threatening phone calls: trap & trace Threatening s: trace Consensual monitoring – meetings with 1 of the 6 conspirators – the “peacemaker” – group meeting with the “peacemaker” & most aggressive of the conspirators

19 Linen Supply Market: Investigation Overt stage – part 1 October 2002 issued to 6 largest linen supply companies Amnesty applicant

20 Linen Supply Market: Investigation Overt stage – part 2 Beginning March witnesses –4 Voluntary without attorney –3 Voluntary with attorney – statement protection –6 Compelled – grand jury, under oath & immunity

21 Linen Supply Market: Investigation December 2003 President & his company Cooperate Both plead guilty Company pay $3.5 million fine

22 Linen Supply Market: Investigation Overt stage – part 3 Issued subpoenas to 6 additional linen supply companies 2 credit reporting agencies 6 credit card companies 6 restaurants 1 union 1 car leasing company

23 Linen Supply Market: Investigation Overt stage – part 3, continued Witnesses –10 Voluntary without attorney –2 Voluntary with attorney – statement protection –15 Compelled – grand jury, under oath & immunity

24 Linen Supply Investigation Summary Documents 350 boxes, containing over 25,000 pages Witnesses - 40

25 Linen Supply Investigation Summary 1 amnesty applicant 2 individuals & companies pleaded guilty to antitrust & cooperate 1 individual pleaded guilty to perjury & cooperate 1 individual & company pleaded guilty to antitrust; individual also pleaded guilty to obstruction of justice 2 individuals & companies were indicted – just recently changed pleas to guilty

26 Linen Supply Market: Trial Direct evidence Circumstantial evidence Corroborative evidence


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