‘Extraordinary’ conflict leads to lighter sentence in major price-fixing scheme

In what prosecutors described as "extremely unusual extenuating circumstances" involving a conflicted government attorney, a Japanese corporation accused of being a major conspirator in a price-fixing scheme has settled its criminal case for a fine that's nearly half as much as it originally faced.

Nippon Chemi-Con Corp.'s plea deal, approved this week by U.S. District Judge James Donato in San Francisco, emerged after attorneys for the manufacturer of electrolytic capacitors alerted the U.S. Department of Justice that an antitrust division attorney who assisted in the prosecution previously worked for a law firm that represented Nippon.

Prosecutors said they didn't know of the conflict until then. Marvin N. Price Jr., the division's Washington, D.C.,-based acting director of criminal enforcement, said in a status report the attorney's work "had little, if any, effect" on the investigation. But he also said the attorney should have recused himself and litigating the issue could lead to the dismissal of the indictment.

The agreement brokered by Price's office and Nippon's attorneys at Paul, Weiss, Rifkind, Wharton & Garrison LLP "is the only way to ensure that [Nippon] receives a significant sentence and is held accountable for its leadership role in this long-running, price-fixing conspiracy" given the "extraordinary" circumstance, according to a sentencing memorandum prepared by the lead prosecutor, Mikal J. Condon in San Francisco.

Price appeared with Condon in Donato's courtroom Wednesday for the sentencing.

Nippon pleaded guilty in May to one count of violating the Sherman Antitrust Act, related to a price-fixing conspiracy that transpired from "as early as" November 2001 to about January 2014, according to the plea agreement.

Prosecutors said the conduct warranted the statutory maximum fine of $100 million, but they agreed to a downward departure to $60 million because of the risks created by the attorney's conflict. United States v. Nippon Chemi-Con Corp.

A sentencing memorandum from Roberto Finzi, a partner at Paul Weiss, requested $40 million, but Condon said the fine needed to be $60 million to be fair to other defendants that paid substantial fines for less criminal conduct.

That includes Nichicon Corp., which earlier this year paid a $54.6 million fine after pleading guilty to a criminal antitrust charge. Prosecutors offered Nichicon a downward departure, too, for a fine of $42 million, but Donato rejected it in April. United States v. Nichicon Corp., 17-CR0368 (N.D. Cal., filed July 11, 2017).

"Unlike Nichicon, [Nippon] at no point reduced its involvement in the conspiracy, and participated fully in the conspiracy until government investigations into the conspirators' illegal conduct became public," Condon wrote.

Donato agreed with prosecutors that the amount of commerce affected by the conspiracy -- court minutes say $530 million -- warranted the steeper fine. He also placed Nippon on probation for five years, as recommended in the plea deal.

Neither side disputes the attorney, who was not identified in court documents, previously worked at a firm in 2014 and 2015 that represented Nippon in the criminal investigation as well as related civil litigation.

The attorney joined the Department of Justice's Office of International Affairs in February 2015, where he assisted the Nippon prosecution team in preparing a mutual legal assistance treaty request to interview a witness.

Price's status report, filed in May, said the attorney "played a limited role," never suggested or made changes to the questions prepared for Japanese prosecutors and never revealed confidential information about his former client.

The attorney no longer works for the office, but it's unclear if his departure was connected to the conflict. Department of Justice officials did not respond to phone calls and emails seeking comment.

Nippon "strongly disagrees" that the conflict didn't prejudice the corporation.

"There is inherent prejudice in having a client's lawyer 'switch sides' and then begin working to help the government collect evidence to be used against that client and to assist in defeating an affirmative defense," according to the sentencing memorandum by Finzi, who appeared Wednesday for Nippon.

Nippon is the eighth business sentenced as part of an international investigation that included charges against four Nippon executives and six other corporate executives.