Posts Tagged ‘anti-trust’

As the US Coast Guard Marine Board of Investigation ponders why the American flag vessel El Faro sank with its crew of 33, Frank Peake, the former president of the company that owned the ship, faces a stark choice:

Surrender himself to the federal penitentiary at Fort Dix, New Jersey, to begin serving five years – the toughest sentence ever handed out for anti-trust price fixing.

Or appeal a second time in an attempt to soften the sentence – and delay the date he must begin serving the sentence.

“He has 45 days to report to Fort Dix,” said a clerk for Judge Daniel R. Dominguez of the U.S. District Court for the District of Puerto Rico in San Juan last week. “Or 90 days if he files an appeal.”

“We do plan to appeal in March,” said the office of Peake’s attorney, David Oscar Markus on Friday.

Perhaps understandably, the shipping company’s troubled background is not something Tote Services Inc. and Tote Maritime, Inc., have chosen to disclose at the Coast Guard hearing.  The rate-fixing felonies have not been directly linked to marine safety issues.

Nevertheless, company officials were asked by the Coast Guard at the hearings to brief the panel on the significant history of the company. A whole section of the opening days of hearings was labeled, “Who is Tote Services, Inc., and Tote Maritime, Inc.”  Captain Jason D. Neubauer, the chairman of the marine board, told company executives that that part of the hearing was intended to “get to know all about the company, its culture and history and how you go about making decisions.”

The Tote executives who appeared before the hearing were not at the company during its troubles with price fixing and side stepped the general “historical” questions by stating they could not speak to history before they joined.

“Well, yes, this is information that a Marine Board of Investigation would want to know,” said a retired Coast Guard captain attending the hearings.  “I suppose they were not compelled to tell them about past company felonies, but it wasn’t exactly transparent or candid, was it?”

The price-fixing conspiracy, which the company pleaded guilty to, ran from 2002 through 2008 when the FBI raided Sea Star Lines offices.  However, the fallout of the case continues today with major shippers suing Tote for damages they say they suffered due to the price-fixing.

The controversy also appeared to reach far above Sea Star Lines (now Tote Maritime) to Saltchuk, the privately owned corporation that controls Tote companies.   Leonard Shapiro, a founding partner of Saltchuk, has been deposed about his role in price fixing and in 2013 said through his attorneys that he was being investigated for possible criminal activity.

Peake was convicted in January 2013 and lost his appeal of the sentencing in October 2015 – coincidentally just two weeks after the El Faro disappeared.

The company that owned El Faro at the time, Sea Star Lines, pleaded guilty to felony price fixing charges and paid more than $14 million in fines. The company later changed names to Tote Maritime, Inc., which owned the El Faro at the time it sank.

The rate fixing conspiracy was described by federal prosecutors as one of the worst in the history of shipping, one that cost consumers millions in inflated prices because major shippers met to make sure prices were high and cargoes distributed among the carriers.    For those reasons, the prosecutors sought and won what they described as the toughest sentence in the history of anti-trust convictions.

“The sentence imposed today reflects the serious harm these conspirators inflicted on American consumers, both in the continental United States and in Puerto Rico,” said Bill Baer, Assistant Attorney General in charge of Department of Justice’s Antitrust Division at the time.

The conspiracy was said by witnesses in the trial to reach far up into the Tote organization and involved Leonard Shapiro, a founding principle of both Saltchuk and Sea Star.

Peter Baci, a Sea Star executive who was convicted and served four years in prison, said Peake and Shapiro urged him to meet with competitive lines and agree on rates.

Sea Star was losing $20 million a year at the time in 2002 and asked Baci to reverse that, according to Walter A. Pavlo, Jr., a specialist in white-collar crime who has researched the crime and written for Forbes and other publications about the conspiracy.

Pavlo wrote:

“Crunching some numbers, Peter determined that SSL needed real price increases to generate in excess of $40 million in sales, which would earn it a good profit. …

“…. with this plan, SSL was a turn around success. In 2002, SSL had lost money but in 2003 it had its first profitable year…. with other profitable years to follow.

“The attitude around the office of SSL had changed from concern about the company staying open to plans for company get-togethers and bonuses….Everyone in the ownership group was happy with the performance of the company and how Peter was managing things.”

It is unclear whether Shapiro is still associated with Saltchuk.  He declined to say at a 2013 court hearing. Queries to Saltchuk went unanswered, as did a call to Shapiro’s attorney.  At one point, Shapiro’s attorneys in 2013 maintained he was under criminal investigation and therefore could not answer civil discovery questions from plaintiffs.  The Justice Department declined comment when asked if Shapiro was under criminal investigation.