On March 21, 2018, the Chief Judge for the United States District Court for the Northern District of California sentenced Michael Marr to serve 30 months in federal prison and pay $1.4 million for his conviction on bid-rigging in violation of the Sherman Act, 15 U.S.C. § 1. Marr was indicted in 2014 and convicted in June 2017 of conspiring to rig bids at foreclosure auctions in Almeda and Contra Costa counties, just outside San Francisco. Prosecutors argued Marr was the “driving force” behind the fraud scheme, alleging that he purchased hundreds of properties and even sent multiple employees to rig auctions on his behalf.
The Marr conviction and sentencing is the most recent example of DOJ’s crackdown on foreclosure auction home buying schemes. In 2016, DOJ announced that it would be targeting schemes in which conspiring bidders agreed not to bid on selected properties to ensure the group won the property. After a public auction, these scheming groups held a private auction among themselves (sometimes on the same courthouse steps) to award the properties to the highest bidding conspirator. “These unlawful schemes enriched the conspirators while cheating financial institutions, debtholders, and in some cases, homeowners out of auction proceeds.”1 The prosecutions have covered auctions in several states:
In Marr’s case, the government had sought 37 months, and the defense had argued for no more than 24 months, based on the applicable sentencing guidelines. Judge Hamilton’s sentence was within the guidelines and was based in part on the “far-reaching corruption of a ‘public process.’”2 While many of the defendants acknowledged the corruption-angle, Marr apparently did not—perhaps revealing a lack of contrition that pushed the sentence upward. In any event, the conspiracy has led to at least three convictions for per se violations of the Sherman Act.
For his part, Marr is appealing the conviction, arguing that the case should have been tried under the “rule of reason,” which only prohibits restraints on trade that are “unreasonable,” rather than under the per se rule, which presumes that conduct such as price-fixing is unreasonable and unlawful.3 According to Marr, he is entitled to a new trial because the per se rule’s presumption deprived a jury from considering the reasonableness of his conduct, an essential element of a Sherman Act violation. In other words, Marr’s attorneys argue that due process required the jury to decide that Marr’s conduct was unreasonable. Marr also contended that the group had no actual control over the market—i.e. that the public auction process was controlled by the government, and not the group itself.
The government argued, and the trial court agreed, that Marr’s argument was wrong. Marr will surrender to BOP, but will proceed with his appeal to the Ninth Circuit. A co-defendant has already filed a similar appeal. That case is United States v. Gregory Casorso, No 17-10528 (9th Cir.).
DOJ’s successes in these big-rigging fraud cases are likely to encourage similar investigations and prosecutions in the future. Despite speculation regarding antitrust enforcement under the Trump administration, we would expect DOJ’s antitrust enforcement to continue to be aggressive in this space. Buyers beware.