Frank Peake, the former CEO and President of Sea Star Line, was sentenced in December for his role in a conspiracy to fix prices and surcharges on cargo shipped by water between the United States and Puerto Rico. The 60-month jail sentence was a record for a Sherman Act conviction. The Antitrust Division, which had sought an even longer jail sentence of 87 months, stated it hopes the record sentence “will get the attention of companies and executives around the world.”
Peake was convicted of participating in a price-fixing conspiracy from 2005-2008 that affected billions of dollars of goods shipped by coastal water freight transportation between the U.S. and Puerto Rico. Sea Star transports a variety of cargo, such as heavy equipment, perishable food items, medicines and consumer goods, on scheduled ocean voyages between the continental United States and Puerto Rico. During the trial the government proved that Peake and his co-conspirators agreed—through meetings, hundreds of emails and phone calls—to fix, stabilize and maintain rates and surcharges for Puerto Rico freight services. The conspiracy, which began shortly before Peake joined Sea Star, was carried out on a day-to day basis by subordinates. But Peake was aware of the cartel, approved of it, and became involved when issues had to be resolved at the highest level.
The Peake trial came after subordinates of his and co-conspirators from other companies had pled guilty and cooperated with the government. Peak’s direct subordinate at Sea Star, Peter Baci, was sentenced to 48 months in prison and fined $20,000. Peake’s counterpart at Horizon Lines, Gabriel Serra, was sentenced to 34 months in prison. Other executives at Sea Star and Horizon had pled guilty, and received prison terms ranging from 7 months to 29 months.
Peake was sentenced under the Antitrust Criminal Penalty Enhancement and Reform Act that was passed in 2004 and increased the Sherman Act maximum prison sentence from 3 years to 10 years. The Act also increased the maximum corporate fine from $10 million to $100 million, but this was not of great import as the Antitrust Division had been negotiating fines in excess of $100 million under an alternative fine provision that allows the fine to be up to twice the gross gain from the cartel, or twice the loss to the victims. The new penalty regime will apply to all post 2004 cartel conspiracies.
The United States has sentencing guidelines that weigh various factors to come up with a recommended “guidelines range” prison sentence. In response to the increase in the statutory maximum jail sentence, the United States Sentencing Commission revised the sentencing guidelines for price fixing and bid rigging. The most significant factor in calculating a recommended guidelines sentence is the volume of commerce affected by a cartel. The greater the commerce the greater the potential jail sentence. And this is true even for lower level employees involved in the cartel. Under the revised sentencing guidelines, it would not be unusual for an individual involved in an international cartel to be at or near the new ten year Sherman Act maximum under the sentencing guidelines.
The new maximum sentences and revised sentencing guidelines provide the Antitrust Division with powerful new leverage in securing cooperation in cartel investigations. Leniency, which was very effective when the maximum sentence was three years, becomes an even greater prize when executives may face ten years in prison. The Antitrust Division’s hand is strengthened in plea negotiations as well. In plea agreements with individuals, the Antitrust Division will always calculate a “guidelines sentence” range, but it will depart from that range in negotiating a jail term in return for the individual’s cooperation. Without a motion for departure from the Division, an individual could face ten years in prison instead of the previous maximum of three. For example, in the LCD panel price fixing cartel, the maximum sentence the Division agreed to in a plea agreement for an individual who cooperated was 18 months. But when two senior AU Optronics executives went to trial and were convicted, the Division sought a sentence of 10 years.
When courts impose a sentence, the judge is not bound by the sentencing guidelines. A court may depart for good reason. In fact, in the AU Optronics case, the court imposed a sentence of three years on the senior executives—not the 10 years requested by the Antitrust Division. (These executives are currently out of jail on bail. Their convictions are being appealed on the grounds that the Sherman Act does not apply to the extraterritorial foreign cartel activities of the defendants.) Even in the Peake case, the sentencing judge departed from the government’s sentencing guidelines recommendation of 87 months in imposing the record five-year sentence. But, even though judges have been reluctant (so far) to impose the full measure of a potential jail sentence, the mere possibility of a ten-year sentence, or at least one significantly longer than the previous maximum of three years, presents new challenges and dangers for individuals in cartel cases.