A Strong Cartel

The European Commission in November fined eight companies a total of $755.1 million for participating in eight distinct secret Market-sharing and price-fixing cartels affecting vitamin products. Each cartel had a specific number of participants and duration, although all operated between September 1989 and February 1999.

“This is the most damaging series of cartels the Commission has ever investigated due to the sheer range of vitamins covered which are found in a multitude of products from cereals, biscuits and drinks to animal feed, pharmaceuticals and cosmetics” said Competition Commissioner Mario Monti. “The companies’ collusive behavior enabled them to charge higher prices than if the full forces of competition had been at play, damaging consumers and allowing the companies to pocket illicit profits. It is particularly unacceptable that this illegal behavior concerned substances which are vital elements for nutrition and essential for normal growth and maintenance of life.”

Following the opening of an investigation in May 1999, the European Commission found that 13 European and non-European companies participated in cartels aimed at eliminating competition in the vitamin A, E, B1, B2, B5, B6, C, D3, Biotin (H), Folic Acid (M), Beta Carotene and carotinoids markets.

Monti said that a striking feature of this complex of infringements was the central role played by Hoffmann-La Roche and BASF, the two main vitamin producers, in virtually each and every cartel, while other players were involved in only a limited number of vitamin products.

As an instigator who participated in all the cartels, Swiss-based Hoffman-La Roche was given the highest cumulative fine of $462 million. The German BASF was fined $296.16 million.

The Fraud Report

The U.S. federal government collected a record $1.6 billion in civil fraud recoveries during the 2000 fiscal year. Health care fraud and oil and mineral rip-offs topped the list of implicated industries.

Nearly $1.2 billion of the Department’s settlements and judgments related to cases filed under the federal whistleblower statute, which allows individuals who disclose fraud to share in the government’s recovery. To date, whistleblowers have been awarded over $210 million for cases resolved in the past fiscal year.

Health care fraud cases topped the list of annual recoveries, totaling more than $1.2 billion. This amount includes a $745 million settlement with HCA-the Healthcare Company for numerous fraudulent schemes which allegedly pervaded the nation’s largest chain of for-profit hospitals.

The government also recovered $104 million from Quorum Health Group for submitting alleged false cost reports to Medicare for hospital expenses, and $103 million from Vencor, a major nursing home chain, for alleged false claims to Medicare, Medicaid and TRICARE, the military’s health care program, for, among other things, long term care alleged to be inadequate.

“The cost of health care fraud is immense, both in terms of taxpayer dollars and the quality of care provided,” says Justice Department Civil Division chief Robert McCallum.

After health care, the largest category of fraud recoveries involved oil and other minerals extracted from public lands. The Justice Department recovered more than $194 million from companies alleged to have underpaid royalties for such rights. Shell, Texaco, Kerr-McGee, Burlington Resources and Exxon are among the companies that have been caught in the government’s net.

Cooking the Books

In what appears to be the third largest securities fraud settlement in history, Waste Management, Inc. will pay $457 million to settle a case brought by the Connecticut Retirement Plans and Trust Funds.

The Fortune 500 company provides waste management services to approximately 25 million residential and two million commercial customers nationwide and serves municipal, commercial, industrial and residential customers throughout North America.

The company allegedly failed to properly disclose to investors serious problems related to the merger between U.S.A. Waste Services and the old Waste Management Inc. in 1998 and certain company officials allegedly engaged in insider trading during 1999.

The company subsequently replaced top management.

Waste Management also announced in November that accounting giant Arthur Andersen settled a related lawsuit brought by Waste Management shareholders in Texas state court. Andersen will pay Waste Management $20 million.

In addition to the monetary benefits for class members, Waste Management has agreed to institute certain corporate governance changes designed to increase the role and independence of the company’s audit committee and to give shareholders greater control over corporate management. For example, the company also agreed to recommend to its shareholders that their entire Board of Directors be elected annually, replacing the current system of staggered terms.

“This third largest securities fraud settlement was about more than money,” said Connecticut Attorney General Richard Blumenthal. “It compels far-reaching reforms in governing the corporation and makes management more accountable. It also raises the bar for standards of management and gives shareholders a stronger say in corporate decisions.”

— Russell Mokhiber