Wednesday, December 14, 2011

Scamming A Good Days' Work: Data Storage Cartel Busted, Slaps On The Wrist All Round

Optical disc drives have been pretty cheap for years now, yet there is enough money in the business, that three executives managed to collude in price fixing of these devices, scamming HP, Dell and Microsoft in the process – and in the end the consumer, who foots the higher prices. The three are from Hitachi-LG Data Storage Inc. (HLDS) and have reached a plea agreement with the U.S. Department of Justice on price fixing charges for optical disc drives during the 2005-2009 timeframe. According to Security Week, the three executives, Sang Hun Kim, Young Keun Park, and Sik Hur, will each pay $25,000 USD in fines and serve little sentences of seven to eight months in prison at a "correctional facility" aka prison, that is yet to be decided.

The scams worked by fixing the bidding for contracts with HP, Dell, and Microsoft, with the Hitachi / LG joint venture eliminating as much competitive bidding as possible for orders of CD-ROM, CD-RW, DVD-ROM and DVD-RW drives. There were different procurement events held for HP, Dell and Microsoft and the quantity of drives awarded depended on where their pricing ranked. To effect this, the executives did the usual thing of holding secret meetings and sharing information such as sales, market share and pricing to monitor and enforce adherence to these agreements. The whole point of the scams of course, was to keep the bidding prices very close to each other and crucially, at high levels, thus making the scammers a tidy profit.

And why are those sentences so 'little'? Because each of these honest Joe's were charged with multiple violations of the Sherman Act, with each violation carrying a maximum fine of $1M and up to 10 years in prison; a hefty price to pay. These executives are extremely wealthy people, so it does make you wonder what under the table deals they may have brokered to have such light slaps on the wrists handed out to them. It would not be surprising if they each end up in some minimum security prison with all mod cons and generous visiting hours. Certainly a very small price to pay for the amount of money they scammed from these companies and effectively the common man. The FBI investigation continues and remains open.

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