Last Friday the Justice Department announced a plea agreement with Anthony B. Ghio, a California real estate executive. Mr. Ghio agreed to plead guilty to one violation of the Sherman Act, and he faces a maximum penalty of ten years imprisonment and a $1 million fine. He probably won't get the maximum penalty, but the DOJ did not say what sentence it would recommend to the U.S. district court in San Francisco.
So what exactly did Mr. Ghio do? The DOJ's criminal information isn't all that, uh, informative, but the gist of it is that Mr. Ghio and various unnamed associates engaged in a combination and conspiracy to suppress and restrain competition by rigging bids to obtain selected real estate offered at San Joaquin County, California public real estate auctions. The DOJ deemed such activities an unreasonable restraint of interstate trade and commerce.
Basically, the DOJ claims Mr. Ghio and his unnamed conspirators got together before the auctions and agreed that one of them would bid for a particular property; in some cases, after the auction was completed, the conspirators then held a second auction among themselves. In the DOJ's mind, this violated the rights of the banks that conducted the original auctions, since the conspirators were able to obtain title to real estate sold at noncompetitive, rigged prices:
[A]fter the conspirators' designated bidder bought a property at a public auction, they would hold a second auction. Then each participating conspirator in turn would bid amounts above the public auction price he or she was willing to pay. The conspirator who bid the highest amount at the end of the rounds won the property. That difference between the price at the public auction and that at the second auction was the group's illicit profit, and it was divided among the conspirators in payoffs. Ghio participated in the bid-rigging scheme from April 2009 until October 2009.
There's a lot of rhetoric here - illicit profit, noncompetitive, rigged prices, - but no substance to the DOJ's charges. Refusing to bid at a foreclosure auction is not a crime; that is, it does not violate the rights of anyone. Nor should the secret second auctions concern anyone who believes in individual rights and free markets. Once someone buys a property, they are free to resell it as he or she sees fit. By the DOJ's logic, anyone who has ever flipped a house or engaged in speculation is a felon.
You might wonder why the Justice Department is prosecuting a man for his bidding practices at a single California county's foreclosure auctions. The DOJ's information explains that Mr. Ghio's actions terribly harmed interstate commerce, because mortgage holders located in states other than California held mortgages, appointed trustees, and received proceeds from the public auctions that were subject to the bid-rigging agreement. Ah, so that's the problem: The DOJ is bailing out poor, beleaguered banks that didn't recover as much as they wanted to at foreclosure auctions, because they were outsmarted by some local real estate speculators. Those darn kids!
It's also worth noting that the DOJ touted Mr. Ghio's plea agreement as the product of a new Financial Fraud Enforcement Task Force established by President Barack Obama last year:
President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
If a bunch of speculators agreeing not to bid at a San Joaquin County foreclosure auction constitutes significant financial crimes, then the Republic is in truly wretched shape. To think there's a massive federal apparatus policing local foreclosure auctions - deciding whether the bids submitted were high enough to compensate politically connected lenders for their poor lending decisions - suggests the economic and moral compass of the Obama regime is even more misaligned then even I'd previously thought. These people want to send Anthony Ghio to prison because he wouldn't submit a competitive bid at an auction. Think about that for a moment.
Unfortunately, this prosecution also suggests one of my other fears may come true: Since the passage of the Obama tax bill (aka health care reform), I've been sounding the alarm about the potential, additional antitrust consequences for physicians and other health care providers. For the past decade, the Federal Trade Commission has cracked down hard against any physician group that tries to improve its bargaining position with insurers - yes, the FTC actually outlawed this - by subjecting them to civil consent orders. But antitrust makes no distinction between civil and criminal liability; it's purely a matter of prosecutorial discretion. There's nothing in current law preventing the DOJ from converting the existing FTC civil cases into criminal cases, subjecting individual physicians to the same ten-year prison sentence and $1 million fine Mr. Ghio now faces.
So what happens when physicians start balking at the next round of government demands to cut rates? My guess is that El Presidente forms a Health Care Fraud Enforcement Task Force - assuming one doesn't exist already - and the DOJ starts rounding up doctors and announcing plea agreements similar to the one signed by Mr. Ghio. If throwing doctors in jail doesn't lower the costs of medical care, nothing will.