DOJ whistleblower says agency misused investigative powers

Ben Remaly

25 June 2020

DOJ whistleblower says agency misused investigative powers

The Department of Justice probed 10 cannabis mergers because of the attorney general’s “personal dislike for the industry”, a whistleblower has said, echoing a handful of complaints from other sources about apparent political interference at the agency. 

In testimony before the House Judiciary Committee on Wednesday, Antitrust Division attorney John Elias said the agency conducted in-depth reviews of 10 marijuana industry mergers that did not pose competition concerns chiefly to harass the companies involved. 

“These mergers were not even close to meeting established criteria for these kinds of investigations,” Elias said. 

The 14-year Antitrust Division veteran also said the agency’s investigation into an agreement between four automakers and the state of California did not appear to be based on bona fide antitrust values. 

“The career staff who examined it saw some very obvious defences – things like state action and Noerr-Pennington. You really have to twist things to get around those so it did not appear to be in good faith,” Elias said. 

A senior DOJ official told GCR USA it is inaccurate to say these investigations were undertaken to harass the companies. 

In a statement, the agency said it did not act inappropriately in any investigation and that Elias did not present any evidence to support his allegations. 

The DOJ said its office of the special counsel referred the Antitrust Division’s review of the marijuana mergers to the Office of Professional Responsibility following a complaint from anonymous whistleblowers. OPR is responsible for conducting oversight of alleged misconduct at the DOJ. 

In an email to Antitrust Division staff obtained by GCR USA, assistant attorney general Makan Delrahm sent out the OPR’s closing memorandum

“The cannabis industry provided a unique challenge to federal and state regulators alike, and it was reasonable for ATR [the Antitrust Division] to seek additional information from the industry through its Second Request process,” OPR associate deputy attorney general Bradley Weinsheimer wrote in the memo obtained by Politico

Weinsheimer said that the Antitrust Division’s second requests “would not have violated any relevant laws, regulations, rules, policies or guidelines” regardless of whether the whistleblowers’ allegations are true – a conclusion that Elias described as troubling during yesterday’s testimony. 

“That’s very concerning to me because it seems so self-evident that if your sole motivation is animosity, that that’s impermissible,” Elias testified. 

He called for a rule or regulation prohibiting this type of conduct if there is not already one. 

GCR USA has been unable to corroborate Elias’ allegations, but three former Antitrust Division attorneys from the current administration said the whistleblower’s claims appear to be consistent with a pattern they either observed or heard described by fellow staff – namely that front-office decision-making appeared to be more grounded in politics than legal merit.  

They said this pattern was inconsistent with past administrations. 

Marijuana mergers

In a given year, the DOJ and Federal Trade Commission review about 2,000 mergers that are assigned to either agency through an opaque clearance process. 

The DOJ issues a second request to the merging parties in approximately 1-2% of the deals that the agency reviews. This request for extra information is a burdensome investigative process that requires the companies to provide often up to hundreds of thousands of documents. 

According to Elias, nine out of the 31 second requests that the DOJ issued in 2019 were to mergers in the cannabis industry, which required work from dozens of staff attorneys and economists.

When reviewing the $682 million merger between MedMen and PharmaCann, which was first announced in December 2018, career staff said the deal was unlikely to raise significant competitive concerns, Elias said. 

Despite that conclusion, Attorney General William Barr ordered the Antitrust Division in March 2019 to issue a second request “because he did not like the nature of their underlying business”, Elias claimed. 

The whistleblower said assistant attorney general Makan Delrahim told an all-staff meeting in September 2019 that the investigations were motivated by the industry being “unpopular ‘on the fifth floor’”, in reference to Barr’s offices 

“So it was harassment by Bill Barr of an industry he didn’t like, is that correct?,” Democratic representative Steve Cohen asked during Wednesday’s hearing. 

“I think that is a fair way to characterise it, yes,” Elias said. 

Career staff still declined to open an investigation based on competitive concerns, but justified the opening of the probe into MedMen/PharmaCann to closely evaluate an industry that the agency had not looked at before. 

The Antitrust Division subpoenaed 1.3 million documents from MedMen and PharmaCann before the probe finished in September after concluding that the involved markets were “unconcentrated”. 

The parties abandoned their deal in October, citing shifting market conditions and an expected closing timeline that was “significantly impacted” by regulatory hurdles at the federal and state level. 

Elias said the Antitrust Division conducted similar probes into eight other mergers in the cannabis industry despite continuous objections from career staff because many of the deals involved market shares far below those that would usually justify an in-depth probe. Elias alleged that the DOJ investigated one additional cannabis deal that fell below filings thresholds via civil investigative demand.

In a second request to one of those mergers, the DOJ did not upload submitted documents until after it closed its investigation, which indicated that they were “irrelevant” to the probe, Elias said. 

In December, David Cicilline – chair of the House of Representatives antitrust subcommittee – asked Delrahim a series of questions about the agency’s review of the marijuana industry including the number of requests it had sent and whether the attorney general was involved. 

“Department of Justice policy limits my ability to comment on specific investigations,” Delrahim wrote in response. “However, Attorney General William Barr, in his role as attorney general and head of the Department of Justice, oversees the Antitrust Division.”

Automakers probe

Unlike the marijuana mergers, the DOJ had already defended its investigation into an agreement between Ford, Honda, BMW and Volkswagen prior to yesterday’s testimony. The four automakers announced in July that they had agreed with the state of California to increase gas mileage standards and reduce greenhouse gas emissions below rules that had been announced by the Trump Administration. 

“No goal, well-intentioned or otherwise, is an excuse for collusion or other anticompetitive behavior that runs afoul of the antitrust laws,” Delrahim wrote in a September editorial in USA Today

“I don't know why they need to agree amongst themselves to lower output” to advance lower emissions, Delrahim said during a congressional oversight hearing later that month.

Several critics of that probe, including Senator Sheldon Whitehouse, questioned whether the DOJ had political motives in opening the investigation, contending that the companies would likely be immune from prosecution under doctrines of state action or Noerr Pennington because they were reached with a state government.

In his testimony, Elias said the Antitrust Division’s political leadership instructed staff to open an investigation into the automaker’s agreement the day after President Trump tweeted about it in August. Elias testified that the timing of the president’s tweet and the instruction to open the investigation could lead to the inference that the probe was opened in bad faith. 

“It didn’t feel like a good faith calling of balls and strikes that I had been used to seeing,” Elias said. “When I saw these abuses, I thought the public should get to know about them.” 

Elias said the staff that worked on the probe never contacted Californian officials about the investigation to assess a state action defence. The California Air Resources Board has said it never received any inquiries from the DOJ and was never the subject of the investigation. 

In a letter sent earlier this month to Senator Whitehouse, the DOJ’s office of legislative affairs defended the integrity of the probe.

“Under well-settled precedent, however, state or federal government involvement in a collusive agreement does not, in and of itself, provide a defence to anticompetitive behaviour,” wrote assistant attorney general Stephen Boyd.

Boyd noted that “the evaluation of a potential horizontal automaker agreement began in early August”, before Trump tweeted about the probe on 21 August. 

In a statement yesterday, the DOJ said: “The Division’s investigation in this matter was entirely consistent with established policies and not the result of any influence from outside the department. Mr Elias’s testimony rests entirely upon his opinion and provides no evidence to the contrary.”

“Misuse of law enforcement”

During yesterday’s hearing, Republican representative Doug Collins challenged Elias’s assertion that he is an apolitical career staffer. He asked Elias if he had requested a role with the Democratic majority of the House Judiciary Committee and whether he was trying to be a part of the impeachment inquiry into President Trump. 

Elias said that he did hold discussions about taking that role but to work on matters related to antitrust and congressional oversight. He said he believed these conversations happened in early 2019, before the House impeachment inquiry began in October. 

Over 30 former Antitrust Division members signed a letter to the House Judiciary Committee describing Elias as a “person of integrity” before his testimony. 

“We know John to be a dedicated civil servant and a person who has committed his career to pursuing the mission of the Antitrust Division: protecting competition for the benefit of all Americans,” the DOJ alumni said. 

Several Antitrust Division alumni also criticised their former employer.

Bill Baer, who headed the Antitrust Division during the Obama administration, said the DOJ did not explain why it needed 10 separate probes to understand the cannabis industry. 

“Arguably the first deal in a nascent industry warrants scrutiny. What did you learn from the next nine?” he said to GCR USA.

Baer said antitrust enforcement has been “pretty non-partisan and merits-based” since the administration of President Richard Nixon. “But it seems the misuse of law enforcement to achieve other ends is spreading throughout a once-revered department,” Baer said separately in an editorial published yesterday. 

Maurice Stucke, a professor at the University of Tennessee College of Law, noted that the wider DOJ has prided itself on being apolitical, but antitrust enforcement initiatives began to shift along partisan lines starting with the administration of President George H W Bush. 

Stucke, an Antitrust Division alumnus, said these accusations are different: “They go more towards serving the political agenda of a president against the wishes of the staff. That’s highly unusual if these allegations are true.”

Fiona Scott Morton, a former chief economist at the division, said she had never seen anything like this. 

“It’s weaponising the antitrust laws,” she said “I’m an outsider, but it seems to me that Bill Barr has taken over the Antitrust Division and it is not clear what Delrahim’s role is anymore. It doesn’t seem like he’s standing up for the division.”

The testimony also led to calls from opposite sides of the ideological spectrum to restrict the discretion of the antitrust enforcers. 

“I don’t see any defence of this. It seems absolutely like an abuse of power,” said Geoffrey Manne, president of the International Center for Law & Economics, which seeks a more conservative approach towards antitrust enforcement. 

“My policy pitch would be, this is exactly why we should be constraining the discretion of [competition] enforcers,” he said.

Matt Stoller, director of research at the American Economic Liberties Project, which advocates for more aggressive enforcement, said Elias’ testimony provided another reason why antitrust scrutiny should only be mandated to protect competition through bright-line rules for market shares. 

He said other parts of the law that require further thought – such as economic analysis, the consumer welfare standard and the rule of reason – should be removed.

Yesterday afternoon, seven Democratic members of the Senate Judiciary Committee requested that Elias and Delrahim be subpoenaed to testify.