Bringing Down the House – Antitrust Division Takes on Real Estate Foreclosure Schemes

The Antitrust Division’s prosecutions of international and national cartels get a lot of headlines.  Without question, that work is important – conspiracies to fix the prices of auto parts or capacitors can raise the cost of doing business by hundreds of millions of dollars each year even if consumers often haven’t heard of the companies or parts involved. And, of course, consumers can readily understand the importance of preventing collusion as to widely-used consumer goods like generic drugs and canned tuna.

But what many people don’t realize is that typically almost half of the Division’s criminal investigations target local or regional conspiracies, for example the investigations of mortgage foreclosure bid-rigging conspiracies that the Division has prosecuted in California and several Southeastern states – investigations which are now entering their final stage with trials against the remaining defendants.

These local/regional prosecutions are high priorities for the Division because they typically concern conspiracies that directly affect individual consumers, either because individuals are the victims or because the conduct undermines competition for critical federal, state or local procurement projects, funded with taxpayer money.

The mortgage foreclosure schemes targeted some obvious – and not so obvious – victims.  Artificially depressing prices at foreclosure auctions hurts the financial institution that holds the mortgage, which gets less for the foreclosed property than it would have otherwise.  But in many places these schemes also hurt the unfortunate families who lost their homes.  In addition to losing their homes, these families lost the chance to get back whatever money they should have received if their homes had been auctioned off at a fair price above what was owed on the mortgage. And all homeowners are hurt if reducing expected recoveries from foreclosure auctions results in higher interest rates for everyone.

Unfortunately, numerous real estate investors have tried to take advantage of the disruption caused by the 2008 financial crisis to line their own pockets.  Over the last several years, Division prosecutors in Atlanta, San Francisco, and Washington DC have brought charges against more than 125 individual real estate investors for participating in these bid-rigging schemes that thwarted competition designed to protect and benefit consumers.  Furthermore, thanks to the work of the Division’s prosecutors in Atlanta and Washington DC and agents from the Federal Bureau of Investigation – and with the help of the Georgia Attorney General’s Office – more than $4 million in restitution has been paid to homeowners who were victims of these schemes and more restitution is likely as the Division’s investigations wind down.

Furthermore, the fact that Division staffs are currently preparing for 7 trials in 3 states involving 15 individuals charged with victimizing homeowners and financial institutions by rigging bids at these auctions is a testament to the Division’s resolve to prosecute the most culpable individuals responsible for this illegal conduct.  Since only the most difficult antitrust cases typically go to trial, the large number of pending foreclosure auctions trials demonstrates the Division’s commitment to ensure individual accountability with respect to this pernicious conduct, regardless of the time and effort required to achieve this result.

And while every trial is different, Division staff in San Francisco recently sent a strong deterrence message in the first foreclosure auctions trial tried by the Division in the Bay Area.  This past December, Division prosecutors went to trial against four defendants charged with rigging bids at foreclosure auctions. Over the course of a two-week trial, the jury heard evidence that the defendants had schemed to win hundreds of properties at foreclosure auctions in Alameda County at depressed prices.  The conspirators decided who among them would “win” the public auctions and who would get paid off to not bid against the designated winners.  The conspirators would then hold a second, secret auction to award the properties to whichever conspirator submitted the highest bid during that auction.  After hearing this evidence, the jury promptly returned with guilty verdicts as to all four defendants.

As a new year dawns, Division staff will continue to prepare for the upcoming foreclosure auctions trials against the remaining defendants in these investigations.  And the Division will continue to work with our federal, state, and international law enforcement partners to make sure that all conspiracies to undermine competition and victimize American consumers – whether international, national or local/regional – are detected and prosecuted, while emphasizing a deterrence message squarely aimed at the individuals who choose to violate the antitrust laws by fixing prices, rigging bids and allocating markets.