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The Pittsburgh Connection:

LOCAL FIRM SENDS COMPETITORS TO JAIL
AND GETS $300+ MILLION IN FINES FOR U.S.1
(A Corplaw Commentary)
by Barry J. Lipson

When earlier this year, you read the headline: DOJ Indicts Electrode Cartel Member
Mitsubishi For Price Fixing; or when you saw the earlier headline Antitrust Division Gets
Biggest Criminal Antitrust Fines Ever, and went on to read that SGL Carbon of Germany (SGL)
and its Chief Executive Officer, Robert J. Koehler, were then paying the largest antitrust fines
ever against a corporation ($135,000,000) and an individual ($10,000,000), respectively, for their
participation in the Electrode Cartel, did you know about the Pittsburgh connection?
When you still earlier heard that UCAR International, Inc., of Danbury, Connecticut
(UCAR), the largest U.S. producer of graphite electrodes, was paying a $110,000,000 criminal
antitrust fine for participating in a wide-ranging international conspiracy to fix prices and allocate
market shares worldwide for graphite electrodes, did you even think there may be a Pittsburgh
connection?
What about when you thought you heard (but it couldnt be true, could it?) that the two fired
UCAR top executives, Robert Krass, former President, Chief Executive Officer and Chairman of
the Board, and Robert J. Hart, former Senior Vice President and Chief Operating Officer, were
going to serve a total of 29 months in federal prison, and in addition pay personal fines totaling
$2,250.000, for the parts they played in this international antitrust conspiracy, did you even dream
there could be a Pittsburgh connection?
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How was the Antitrust Division of the U.S. Department of Justice (DOJ) able to obtain such
an ironclad case that SGL, UCAR, three individuals, and four other competitors, have, so quickly,
agreed to pay these immense sums already totaling over $300 million, and serve time in jail,
without even a trial or a fight? (Though Mitsubishi, one of the largest corporations in the world, and
a third UCAR ex-executive, Georges Schwegler, who were both indicted on January 19, 2000, may
still insist on being tried.)
The answer is The Carbide/Graphite Group, Inc. (C/GG), of One Gateway Center,
Pittsburgh, Pennsylvania, a fellow producer of graphite electrodes and Cartel member. As soon as
C/GG was subpoenaed by the DOJ in its investigation of the graphite electrodes industry, this coconspirator opted to turn states evidence and join the DOJs Corporate Leniency Program.
According to the DOJ, the cooperation of an amnesty [leniency] applicant led to the execution of
search warrants and the cracking of another international cartel, this time in the graphite electrodes
industry. C/GG was formed in 1988 as a Delaware corporation, through a leveraged buyout of
assets of the carbide and graphite businesses, and a Canadian subsidiary (Speer Canada, Inc.), of
The BOC Group plc, a British corporation.
Under the Leniency Program, a firm may be granted protection from criminal antitrust
prosecution if it voluntarily reports its involvement in an antitrust conspiracy and then fully cooperates in the criminal prosecution of its co-conspirators. As explained by Deputy Assistant
Attorney General Gary R. Spratling to the International Competition Policy Advisory Committee,
the Antitrust Division's amnesty program is one that provides that a company which comes
forward and gives us information on its involvement in an international cartel may avoid criminal
exposure . . .; and all officers, employees, and directors who come forward with full cooperation
can also avoid any type of criminal liability in the matter.
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But participation in the Corporate Leniency Program is supposed to be highly confidential.

How do we know of this Pittsburgh connection? Mr. Spratling explained further: In the past I have
been completely unable to talk about any participant in this program. However, an unusual thing
has happened. C/GG issued a press release revealing the fact that it came forward in the amnesty
program. He was, therefor, at liberty to speak, and revealed that in this case The Carbide/Graphite
Group came forward and participated in an amnesty program, the first company to come forward,
and obviously paid zero dollars in fines. The first company to be prosecuted, a cooperating
company [Showa Denko Carbon, Inc.], . . . agreed to pay $29 million in fines [increased to $32.5
million], and so you're comparing $0 to $29 million. The company that agreed to pay $29 million
has only 18 percent of the market, and so you can imagine what exposure the other firms have. That
$29 million is a reduction from $75 million, which would have been the fine had they not been
cooperating. From subsequent events, it appears that this exposure was at least $135 Million, the
criminal fine paid by SGL.
This, however, is not the first time this column has revealed the Pittsburgh
connection in federal antitrust criminal prosecutions. In the March, 1996 column we reported on
the sentencing of Pittsburgh-based Elkem Metals Company for engaging "in a combination and
conspiracy to fix prices of commodity ferrosilicon products sold in the United States" (Corplaw
Commentaries, Local Company Sentenced for Price Fixing, Pittsburgh Legal Journal, vol. 122, no.
46, March 7, 1996, p.1). Interestingly, UCARs graphite electrode business and Elkems
ferrosilicon business appears to have both originated at the old Union Carbide Corporation.
While Elkem was convicted, sentenced and criminally fined, it also did vastly improve its
position by cooperating with the Antitrust Division. In exchange for its cooperation and an antitrust
criminal fine of $1,000,000, Elkem bought protection from criminal prosecutions and jail time
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for its personnel; and "immunity" from other related antitrust criminal prosecutions for itself, its
multi-national Norwegian parent company Elkem A/S, listed affiliates of Elkem A/S, and three
named individuals. Such cooperation and fine also obtained for Elkem a commitment from the DOJ
"not to bring any other criminal charges under the federal antitrust laws or related criminal charges
under 18 USC 1341 (mail fraud) or 1343 (wire fraud)" against Elkem, against the enumerated
individuals, or against Elkem A/S and the enumerated related companies "for any offense
committed before the entry of the plea . . . involving their participation in a conspiracy to fix prices
of ferrosilicon products, foundry alloys or silicon metal in the United States." Thus, under the Plea
Agreement, Elkem was "immunized" for a longer period of time and a more extensive list of
products than those it had pled guilty of price fixing (to wit, commodity ferrosilicon products, other
ferrosilicon products, foundry alloys and silicon metal); and obtained such "immunity" for
individuals and companies who never themselves had pled guilty to or had been convicted of any
price fixing violations.
Then, too, in the March, 1997 column, we reported that the DOJ had obtained a $50 Million
criminal antitrust fine from a U.S. subsidiary of Bayer AG, a German company with very strong
Pittsburgh ties, after having obtained a $100 Million criminal antitrust fine from Bayers coconspirator Archer Daniels Midland Co. (ADM), which at that time was "the largest criminal
antitrust fine ever. This Billion Dime fine from ADM was for its role in two international
conspiracies to fix prices, to eliminate competition and allocate sales in the worldwide citric acid
market, in which Bayer participated, and in the worldwide lysine market. (Corplaw
Commentaries, Brother Can You Spare a Billion Dimes?, Pittsburgh Legal Journal, vol. 123, no.

47, March 11, 1997, p.1.) It should be noted that the earlier $100 Million ADM fine was for two
conspiracies, while the later $110 Million UCAR fine was for a single conspiracy.
ADM and its personnel, however, are still hurting. On September 22, 2000, two ADM
executives, Michael D. Andreas, former Executive Vice President, and Terrance S. Wilson,
former Group Vice President and President of ADM's Corn Processing Division, were resentenced for their leadership roles in the conspiracy to fix prices and allocate sales in the lysine
market worldwide. The re-sentencing was mandated by an earlier Court of Appeals' ruling that
the District Court had erred in denying a sentencing enhancement for these leadership roles.
They had originally each been sentenced to serve merely 24 months jail time as run of the mill
conspirators, and to each pay fines of $350,000. For being conspiracy leaders, Andreas sentence
was increased to 36 months jail time and Wilsons to 33 months. The fines remained the same, at
$350,000 each. Joel I. Klein, Assistant Attorney General in charge of the Department's Antitrust
Division observed that the increased sentences imposed in this case should strengthen the
message that executives who engage in price fixing will pay a heavy price [through] significant
jail time.
The Carbide/Graphite Group (C/GG) and Elkem are also hurting, even though they cooperated with the antitrust enforcers. Thus, C/GC did not get off scot-free, and Elkem did not limit
its monetary liability to One Million Dollars, as they have both been the subjects of intense private
treble damage civil antitrust litigation. Neither the Corporate Leniency Program, nor Plea
Agreements, could provide protection from these private civil suits, in which, incidentally, the
burden of proof for plaintiff is considerably less. Nor could they protect them from foreign
prosecutions.
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For example, subsequent to the initiation of the DOJ investigation, a number of private
treble damage civil antitrust actions and class actions have been filed against C/GG in the U.S.
District Courts, for its participation in the electrode antitrust conspiracy. Then, too, a group of
Canadian purchasers have filed a lawsuit in the Ontario Court (General Division), claiming a
conspiracy and violations of the Canadian Competition Act; and the Canadian Competition and
Consumer Law Division has initiated an inquiry. The antitrust enforcement authorities of the
European Union have also initiated investigations.
C/GG has advised the European Commission (EC) that it desires to invoke the Notice on
the non-imposition or reduction of fines in cartel cases (the Leniency Notice) protocol, as it had
previously done in the U.S. Generally, under this protocol, the EC may substantially reduce fines
and other penalties if a company cooperates with the EC, and in the sole judgment of the EC
provides significant information to the EC. C/GG has additionally advised the Canadian authorities
that it desires to cooperate.
Accordingly, The Carbide/Graphite Group, during fiscal 1998, recorded a $38 million pretax charge ($25 million after expected tax benefits) for potential liabilities which may result from
civil lawsuits, claims, legal costs and other expenses associated with the antitrust matters noted
above and the investigations initiated by the antitrust enforcement authorities of the European
Union. This reserve has subsequently been increased by an additional $7 million; and the Fiscal
2000 Third-Quarter Report of C/GG still cautions: Factors that could affect actual future results
include the developments relating to the antitrust investigations by the Department of Justice, the
antitrust enforcement authorities of the European Union or related civil lawsuits as well as the
assertion of other claims relating to such investigations or lawsuits or the subject matter thereof,
and other antitrust developments or settlements.
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Oh, well, so long as there are expected tax benefits, and a Pittsburgh connection . . .
But the question remains, are there still other Pittsburgh connections, such as with the later
record $500 million criminal antitrust fine, this time paid by Hoffmann-La Roche Ltd, a Swiss
pharmaceutical giant, for fixing prices and allocating market shares for Vitamins C and other
vitamins it sold here and abroad? Do you remember that the recent $50 million criminal antitrust
fine paid by the U.S. unit of Bayer, reported above, was for fixing the prices of citric acid? Well
citric acid is chemically very closely related to Vitamin C.
Please address your comments, questions and suggestions for future Corplaw
Commentaries Columns on marketing and business law, and other legal subjects to Barry J.
Lipson, Esquire, at bjlipson@gmail.com.
Copyright 2000-2011 by Barry J. Lipson.

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Corplaw Commentaries, "Local Firm Sends Competitors to Jail," by Barry J. Lipson, Lawyers
Journal, October 20, 2000, p.6.