ACCOUNTING AND REPORTING PROBLEMS OF THE ELECTRICAL CORPORATIONS AND UTILITIES IN CONNECTION WITH TREBLE DAMAGE SUITS ARIS- ING FROM VIOLATIONS OF THE SHERMAN ACT Thesis for the Degree of Ph. D. MICHIGAN STATE UNIVERSITY Richard C. Larson, 1968 ‘9 usury THanS This is to certify that the thesis entitled Accounting and Reporting Problems of the Electrical Corporations and Utilities in Connection with Treble Damage Suits Arising From Violations of the Sherman Act presented by Richard C. Larson has been accepted towards fulfillment of the requirements for Ph.D. degree in Business Administration ,fl A 45% Omani. Major professor Date May 16, 1968 ABSTRACT ACCOUNTING AND REPORTING PROBLEMS OF THE ELECTRICAL CORPORATIONS AND UTILITIES IN CONNECTION WITH TREBLE DAMAGE SUITS ARIS- ING FROM VIOLATIONS OF THE SHERMAN ACT by Richard C. Larson PUIEOSG: In 1960 the federal government instituted criminal actions for antitrust violations against a number of electri- cal equipment manufacturers. As a result of these criminal actions many of the electrical companies were named as defendants in an unprecedented number of civil actions for treble damages. This dissertation is concerned primarily with the adequacy of corporate disclosure of pertinent financial data relating to these court actions and with the methods em- ployed by selected electrical corporations to provide such disclosure. The dissertation also examines the nature of the Opinions that were rendered by public accountant-auditors in connection with the published financial statements of these companies during the period of litigation. The final portion of the dissertation consists of u ’r Richard C. Larson an examination and evaluation of those generally accepted accounting principles and auditing standards considered applicable in these circumstances. Answers are sought for several basic questions: Did the electrical corporations adequately account for and disclose the financial impact of the antitrust cases? What is the public accountant- auditor's responsibility to third parties with regard to disclosure of potential losses from damage claims? Can generally accepted accounting principles and auditing standards be variously interpreted and applied to yield a variety of alternatives so as to negate substantially the general requirement of full disclosure? Method: Annual reports for the period 1959-1966 as published by the electrical companies included in the study were obtained and analyzed. Securities and Exchange Commission Form lO-K, 9-K, and 8-K Reports filed by the electrical companies were examined for relevant information. Docu— ments, transcripts of hearings, rulings, and other published data were obtained from the Government Printing Office, the Senate Documents Room, the Department of Justice, the Internal Revenue Service, and other government agencies. Selected corporate officials and others were surveyed by letter; others were personally interviewed. A similar survey was made of the public accounting firms which per- formed the audits for the electrical companies. 1.. Richard C. Larson Official accounting literature and pronouncements as well as books and articles in professional accounting journals formed the basis for theoretical evaluations while other books, periodicals, and newspaper articles furnished historical and background data. Findings: In essence, the findings tend to establish that in some instances the electrical companies did not adequately disclose or report liability for damage claims and settle- ments payments and that the public accountant-auditors did not take exception to this lack of disclosure. The findings also support the View that the failure to take exception to the lack of disclosure is primarily due to the fact that currently accepted standards and procedures of disclosing and reporting are not sharply defined but rather are per- missive and subject to diverse interpretations. Basic to the analysis of the auditor's responsibility is the premise that the prime function of the auditor's opinion is to lend credibility to the published financial statements of management. Management needs no such assur- ances, but third parties who must depend on published corporate statements for financial decision making depend on the auditor's opinion to ensure the reliability of management's representations. The research findings indi- cate an urgent need for the development of new concepts or at least major changes in present concepts regarding auditor- client and auditor-third party relationships. ACCOUNTING AND REPORTING PROBLEMS OF THE ELECTRICAL CORPORATIONS AND UTILITIES IN CONNECTION WITH TREBLE DAMAGE SUITS ARISING FROM VIOLATIONS OF THE SHERMAN ACT BY Richard C. Larson A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Accounting and Financial Administration 1968 o I, u A I ‘,' \1\ y LIST OF LIST OF INTRODU CHAPTER I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. TABLE OF CONTENTS TABLES O O O C O O O O O O O . APPENDICES . . . . . . . . . . CTION O O O O O O O O O O O O 0 BACKGROUND . . . . . . . . . . . INDICTMENTS AND PLEADINGS - 1960 CONVICTIONS, CONSENT DECREES, AND CIVIL SUITS - 1961 . . . . . . . . . TREBLE DAMAGE SUITS -- 1962-1963 FINAL SETTLEMENTS -- 1964-1966 ELECTRICAL EQUIPMENT USERS AND THE ANTITRUST CASES . . . . . . . ACCOUNTING STANDARDS AND DISCLOSURE THE ELECTRICAL COMPANIES AND DISCLOSURE ACCOUNTING FOR SETTLEMENTS . . . INCOME TAX IMPLICATIONS . . . . RESPONSIBILITY OF THE AUDITOR . FINDINGS AND IMPLICATIONS . . . BIBLIOGRAPHY . . . . . . . . . . . . . APPENDI X C O O O O O O O O O O O O 0 ii PAGE iii iv 33 61 89 113 144 160 186 198 238 251 270 282 304 TABLE LIST OF TABLES GOVERNMENT AND PRIVATE ANTITRUST CASES COMMENCED DURING THE YEARS 1958-1963 DEPARTMENT OF JUSTICE SETTLEMENT TERMS TYPE OF AUDITOR'S OPINION--BY YEARS NET-OF-TAX SETTLEMENT PAYMENTS AND ACCRUALS OF ELECTRICAL COMPANIES . UTILITY COMPANIES, DEFENDANTS, JUDGMENTS, AND SETTLEMENTS . . . . . ANTITRUST ACCOUNTING AND SETTLEMENTS DATA, WITH AUDITORS' OPINIONS RENDERED iii PAGE 66 92 136 142 156 214 APPENDIX A. APPENDIX B. APPENDIX C. LIST OF APPENDICES PAGE INDICTMENTS - PRODUCT LINES AND DATES . . . . . . . . . . . . . . 304 ELECTRICAL COMPANIES: INDICTMENTS, PLEAS, AND FINES . . . . . . . . . . . 306 ELECTRICAL UTILITIES SURVEYED . . . . . 308 iv INTRODUCTION This dissertation is the outgrowth of an analysis of the accounting and reporting problems faced by the heavy electrical equipment manufacturing companies as the result of the antitrust convictions of 1960 and the sub- sequent civil suits for treble damages against them by purchasers of their equipment. The attention of the writer was drawn to this topic as a possible area of investigation as the result of newspaper accounts indicating the possibility of treble damage awards. Further research revealed the interesting fact that, while the case for treble damages seemed strong, there were very few instances in which actual treble damages were paid. While the absence of significant treble damages awards might appear to vitiate the original purpose of the research, other intriguing problems and questions arose, and it was felt that the research might still have value if some of these matters could be brought to light and examined. Hypothesis: The primary hypothesis of this dissertation is that the financial reporting practices employed by the 1 electrical companies during the years 1960—1966 led to inadequate financial reporting and disclosure of certain antitrust matters. It is also hypothesized that the permissive interpretation of auditing standards and pro- cedures by public accountants and professional accounting organizations leads to diversity in practices and to differences between theory and practice in financial reporting. It is further hypothesized that the applica— tion of the accounting profession's criterion of general acceptance contributes to such diversity, differences, and inadequacies. The value and effectiveness of standards and prin- ciples of reporting and disclosure are put to the test when an entire industry is faced with a unique and cri- tical situation which poses a threat to the companies in that industry. It is one thing to publicly espouse or subscribe to high-sounding concepts such as full and complete dis- closure, independence of the auditor, and responsibility of management and auditor to third parties, but it is quite another thing to fully implement these concepts when “the chips are down," and when corporate assets are threatened, or management's judgment or actions are questioned. The actions of the electrical companies, the in- dependent accountant-auditors, and other parties to the antitrust cases are described and critically analyzed in the dissertation to determine whether or not they measure up to the accounting and auditing standards considered essential and generally adopted by the accounting profession today. Then, in turn, these stan- dards are examined and evaluated. Scope and Limitations of Study: The research deals with specific criminal actions in 1960 in which the great majority of the electrical equipment manufacturers in this country were indicted for violations of the Sherman Act in the years imme- diately prior to the indictments. It also covers the period subsequent to the above mentioned criminal actions (1960-1966), when those same companies faced the threat of extensive civil damage suits for alleged over— charges on equipment purchases and then removed that threat by negotiated settlements. Sixteen of the 29 companies indicted were chosen for analysis. (See Appendix B) Those 16 companies appearing in the analysis were chosen because, (1) they were publicly held and financial statements were avail— able; (2) they were, for the most part, deeply involved in the collusive activity as determined by the indict- ments; and (3) they represented a brOad spectrum of the entire industry. The research was limited to some extent by either a reluctance or inability on the part of some sources to supply requested data. In two instances electrical com- panies were unable to furnish back cepies of published financial statements. Of the ten public accounting firms that rendered opinions on the electrical companies' finan— cial statements, five did not respond to requests for in- formation regarding their opinions as rendered. In two cases, the reason given was that the information sought was privileged information and, as such, was not pub— licly available. There was also a noticeable unwilling— ness on the part of some representatives of both the electrical companies and the customer utilities to discuss, during the litigation period, the implications of the treble damage claims to their respective companies. Such electrical company information as was used was obtained from published financial statements, proxy statements, prospectuses, other company publications, and speeches of corporate officials. In some cases, secondary source materials were used because of the unavailability of primary sources. METHOD OF APPROACH: The basic analysis concerns, initially, a study in depth of the criminal antitrust conspiracy cases and the subsequent civil damage actions involving selected cor— porations in the heavy electrical equipment industry. Secondly, a study is made of corporate disclosure and reporting methods over the period of the antitrust liti- gation to determine the adequaCy of that disclosure in 100‘.»- po-q‘. on. w.. ‘l'»- a. an... " .1 ‘0‘ h ‘ v ~I. ~_ A. “ v.- .. reporting the financial effect these cases and the ensuing damage suits had on the corporation. The public accountant-auditors' opinions rendered are analyzed in the light of corporate disclosure methods and in relation to generally accepted principles of accounting and auditing standards considered apprOpriate in the circumstances as directed by authoritative pro- nouncements of the professional accounting organizations. Answers are sought to basic questions such as: Did the electrical corporations adequately account for and disclose the financial impact of the antitrust cases? In cases where such disclosure might have been lacking in the financial statements, what was the nature of the auditor's Opinion on those statements? And then, finally, as basic to the support of the hypothesis stated above, an answer is sought to the question, Does authoritative opinion as expressed in generally accepted accounting principles and auditing standards permit such a latitude of disclosure alternatives so as to negate substantially the purpose of disclosure? To find the answers to the above questions and others the following data were accu- mulated and examined. Annual reports of these electrical companies, for the period 1959-1966, were obtained and analyzed carefully. In addition, the public accounting firms employed by the electrical companies were surveyed by letter. Securities and Exchange Commission Form lO-K, 9-K, and 8-K Reports as submitted by the electrical com- panies were studied in visits to the Chicago and Los Angeles offices. A large number of these reports were duplicated in their entirety for further analysis. Government publications were secured from the Government Printing Office and the Senate Documents Room. A number of documents and personal letters were received from the Department of Justice, the Internal Revenue Service, the Federal Power Commission, the Rural Electrification Administration, and the Securities and Exchange Commission. Transcripts of the hearings of the Kefauver subcommittee on Antitrust and Monopoly, in connection with the electrical cases, were obtained and studied. Personal letters were received from Senators Philip Hart and Harry Byrd and from Representative Emmanuel Celler concerning the income tax implications of the IRS rulings. Selected customer-utilities were surveyed by letter as to their accounting for settlement payments and, in a few cases, personal interviews with utility officials were conducted. A careful analysis of official accounting litera- ture and pronouncements as well as pertinent periodical and newspaper articles dealing with this topic was made, covering significant aspects of the cases studied. .- a. The study also raises questions regarding the independence of the auditor when faced with conflicting demands and regarding the responsibility of the auditor to third parties who must rely on the opinion rendered. STRUCTURE OF THE DISSERTATION: Chapters I through V give a chronological report of events in the electrical cases and discuss the re- porting and accounting methods followed by the electri- cal companies to disclose the financial effects of those events on the electrical companies. Chapter VI discusses the customer-utilities and how they disclosed and accounted for settlement proceeds. This chapter also deals with the federal and state regu— lations with respect to that accounting. Chapter VII deals with the theoretical aspects of disclosure of contingencies and materiality as they pertain to the reporting and accounting methods followed in the electrical cases. Chapter VIII is an evaluation of the disclosure of the contingent liabilities for treble damages on the part of the electrical companies in the light of the principles discussed in Chapter VII. Chapter IX is an analysis of the accounting for settlements by the electrical companies in the light of 'theeprinciples enunciated in Chapter VII. Chapter X is a discussion of the income tax implications of the electrical antitrust cases as applied to the electrical companies and the utilities. Chapter XI deals with the public accountant's responsibility to the client and to third party users of financial statements. Chapter XII concludes the dissertation with a summary of the basic findings of the study, and assesses the implications of those findings for the accounting profession. CHAPTER I BACKGROUND Electrical Equipment Manufacturers: Corporations identified with the heavy electrical equipment industry are those which are engaged in manu— facturing electrical equipment having to do with the generation, transmission, and distribution of electricity. The products manufactured by the heavy electrical equipment industry range from small items such as cera- mic insulators no larger than a man's fist to huge steam turbine generators weighing many tons per unit. The electrical companies which make up this indus- try range from the huge industrial corporation, such as General Electric Company and Westinghouse Electric Cor- poration, with annual sales in the billions of dollars, to small specialty companies, such as Joslyn Manufac- turing and Supply Company or Lapp Insulator Company, which report annual sales in the tens of millions of dollars. While the range in physical size and in total dollar sales between the largest and the smallest com- ;panies is great, the actual number of companies manu- :facturing heavy electrical equipment is relatively small. chu'example, only 29 companies were involved in the anti- 10 trust suits and this included virtually the entire indus- try.1 Conditions'for'Collusion: The heavy electrical equipment industry produces the equipment which is used in the many electrical util- ities, both public and private, across the nation. These utilities, in turn, supply industry and other con- sumers with electrical power. The electrical utility industry has, in the last fifty years, experienced increased demands for electricity. This demand has been especially strong during periods of great economic activity such as World Wars I and II and the Korean War. Walton and Cleveland discuss at some length the cyclical growth of the electrical equipment industry during these years. While their main emphasis is on the industry itself, one can only conclude that the electrical equipment industry grew of necessity because of increasing demands for equipment from an expanding utility industry.2 The nature of the product of the electrical util- ities, electricity, is such that it cannot be stored or gplaced in inventory awaiting future use; it must be used 1See Appendix B, for listing of electrical com- panies . 2Clarence E. Walton and Fredrick W. Cleveland Jr., Ckerorations on Trial:' The Electric Cases, (Belmont, Ckalifornia: Wadsworth Publishing Company, Inc., 1964), :p. 17. 11 as produced. This means that the utilities must be pre- pared to supply electricity immediately as needed in the economy. In addition, the large capital investment involved and the complex and costly installations necessary for the generation, transmission, and distribution of elec- tricity necessitate long-range planning and lead time to ensure having the equipment in place and operating when demand increases to such an extent that regular facili- ties are not adequate to satisfy that demand. With the large number of customer utilities oper- ating in this country, it would appear that demand for heavy electrical equipment would be varied by local con— ditions of economic growth and that, while each utility's demand would be cyclical in nature, total demand would be more uniform. But as noted above, the three wars and the general economic expansion generated by them created heavy demands on all companies in the utility industry which, in turn, were passed on to the electrical equip- ment manufacturers as orders for additional equipment. The heavy electrical equipment industry, like the utility industry, has to invest heavily in capital equip- ment in order to have the capacity to manufacture and de- liver, in a reasonable time, electrical equipment ordered by the utilities. Faced with the heavy demand for equip- lnent by the whole utility industry during and immediately following the Korean War, the electrical industry ex— ]panded in order to be able to meet the demand. vll 12 As soon as the majority of the utilities made their initial post-war expansion, they were in a position to coast for a while until demand for their product be- gan to approach total capacity. Because a large portion of the utility industry was in phase in the demand cycle, the electrical equipment industry was faced with reduced demand and severe over-capacity. Apparently, it took some time for the companies in the utility industry to get out of phase as far as their individual demands were concerned because the electrical equipment industry faced such a severely cyclical demand condition that, as one official put it, it was a "feast n1 or famine sort of thing. Therefore, in order to keep their facilities operating in periods of relatively low demand, the electrical companies had to compete for scarce contracts. Ralph J. Cordiner, former president of General Electric Company, in a speech to a group of utili- ty executives, discussed this problem at some length; re— ferring first to the economy in general and then to the electrical industry; he said: During the depression of the 1930's and the Second World War, a great reservoir of postponed needs built up for both producers' durables and consumer's durables. When the flood of orders hit after World War II (and again during the Korean War) established companies built up their capacity. . . . Now, with those postwar needs fairly well satisfied there is a tem- porary excess of capacity. . . . 1Richard Austin Smith, "The Incredible Electrical CRJnSpiracy," Fortune, LXIII, (April, 1961), p. 170. 13 In the electrical industry the problem is intensified . . . by the tendency of the elec- tric utilities to order in cycles not directly related to their rather smooth growth curve. Thus, in one year manufacturers of heavy appa- ratus may have as little as one-tenth as many orders as in the preceeding year. The result, of course, is that manufacturers built up their capacity to take care of these order peaks, and then have to compete fiercely to obtain enough business to keep their staffs together and carry the high fixed costs . . . during the periods when customers are not granting orders. 1 Competition, of course, can take many forms. But in an industry in which the great majority of the products are standardized in terms of function, design, and qual- ity, and in which periods of low demand exist along with high capacity, the resulting competition may take the form of price competition. That the electrical companies resorted to active price competition in order to maintain production at profitable levels is a matter of history. In fact, the competition was so intense, and the price- cutting so great that, while the plants were active, the profit margin was reduced in many cases to a level at which responsible plant managers felt they had no alter— native but to negotiate with competitors in order to establish some basic price levels which would ensure a reasonable profit even though collusive agreements of this kind were, by law, illegal. A former manager at General Electric Company gave as the reason for this Conspiracy the intense price competition and the pres- . 1Ralph J. Cordiner, "The Winds of Change," Execu— Aggve Speeches and Reports to Share Owners, 1960-1962, Germual Electric Company, Schenectady, New York, p. 5. 14 sures it placed on managers to maintain an acceptable level Of profits. He stated: We did feel that this was the only way to reach part of our goals as managers. Each year we had to budget for more profit as a per cent of sales, as well as for a larger percentage of the business. My boss . . . wouldn't approve a budget unless it was a "reach" budget. We couldn't accomplish a greater per cent of net profit to sales without getting together with competitors.l In order to gain industry-wide cooperation in these pricing agreements, some method of price setting and also allocation of scarce business was necessary, and so a conspiracy was developed to achieve these re- sults. That there was a conspiracy, or several conspir- acies, Operating in different product divisions within the industry at different levels of intensity, in dif— ferent periods of time, is established fact. As far as can be determined, no electrical company has denied that certain of its officials were active at one time or another in these meetings. Some of these companies, however, have insisted that their employees who were in— volved in antitrust activities did so without the know- ledge or consent of top management and, in some cases, in spite of company regulations forbidding such activity. The pricing conspiracies took two forms. On the Cflue hand, with items that were largely standardized and 1Smith, Op. cit., p. 172. u- a. '1 Ir 15 which were manufactured as inventory or "shelf" items, the conspirators attempted to agree on the maintenance of "book" price, that is, published prices, or some percen- tage "off book." Frequently, on these items, the quoted prices per unit to utility customers would be identical, even down to two or three decimal places.1 In other cases, the conspirators agreed upon a spread of prices, presumably to avoid the possible ques- tions that identical prices might raise and to create the illusion of competitive pricing. To achieve this spread and allocate the available business between themselves ac- cording to a prearranged scale of percentages, they re— sorted to a complex "phase of the moon" formula in which, according to a pattern of periodic tables, each partici- pating company would have "position," that is, the Oppor- tunity to bid a few points lower than the others on any particular item. One indictment refers to this aspect of the conspiracy in these terms: At these periodic meetings, a scheme or formula for quoting nearly identical prices to electric utility companies, private industrial corpora- tions, and contractors was used by defendant corpo— rations, designated by their representatives as a "phase of the moon" or "light of the moon" formula. Through cyclic rotating positioning inherent in the formula one defendant corporation would quote the low price, others would quote intermediate prices and another would quote the high price; these positions would be periodically 1U. S. Senate, "Administered Prices," Hearings Be— fOrethe Subcommittee on Antitrust and Monopoly, Part 13, “Washington: United States Government Printing Office, 1959), p. 6834. 16 rotated among the defendant corporations. This formula was so calculated that in submitting prices to these customers, the price spread between defendant corporations' quotations would be sufficiently narrow so as to eliminate actual price competition among them, but sufficiently wide so as to give an appearance of competition. This formula was designed to permit each defen- dant corporation to know the exact price it and every other defendant corporation would quote on each prospective sale. This arrangement necessitated frequent meetings to assess the degree of success of the plan and to iron out any differences which might have arisen between partici- pants since the last meeting. While the persons in a particular company who were engaged in collusion were aware that their company could maintain a relative position under the collusive agree- ments, the temptation was great to undercut the other parties to the agreement by underbidding in violation of the agreement whenever a particularly valuable contract was available. The "white sale of 1955" was an instance of this nature and one which had far-reaching effects. The year 1954 was a poor one for the heavy elec- trical equipment industry. At General Electric Company sales drOpped $176 million and profits, as a percentage of sales, were below the 1950 mark of eight per cent.2 1United States District Court for the Eastern Dis— trict of Pennsylvania, United States of America v. Westing- house Electric Corporation, et. al., Criminal Indictment NO. 20399, filed June 22, 1960, as quoted in: Walton and Cleveland, Op. cit., page xiii. 2Smith, Op. cit., p. 172. 17 When General Electric lost a big turbine order to Westing- house because Westinghouse bid on that order at a price considerably lower than book price, the decision by General Electric not to be underbid on subsequent orders started a chain reaction in which each company in the industry lowered its bid prices successively as its competitors dropped their prices. Commenting on develop— ments in this period, Richard A. Smith says that: . . . Before it was over, the electrical in— dustry was discounting price as much as 40 to 45 per cent off book. Delivery dates began stretching out, got as far as five years away from the date of sale. This of course meant that the impact of 1955's giveaway prices was not confined to that one year; the blight they put on profits persisted down to 1960. The pattern of collusion apparently was a cyclical one, perhaps related to the cyclical demand pattern es- tablished by the utilities. At any rate, the conspiracy was characterized by a period of close collaboration, by the conspirators, on prices and quotas, to a breach in the agreement by some company representatives, then to bitter pricecutting, and finally, to second thoughts about profit margins and collusive attempts to get prices back up to "book." Things would just get back to some degree of stability when someone would covertly offer to sell "off book" and thus start the whole cycle over again. Walton and Cleveland explain the forces operating 1J1 the industry very succinctly by saying that: 11bid. 18 In negotiating prices for large purchases of standard equipment or for non-standard apparatus made to order, buyers Often have a decided ad— vantage. Because they necessarily have excess capacity, they must plan their expansion for several years ahead. The lead time in ordering heavy apparatus may be two years or more. Over the short run of, say, a year or two, utilities may narrow their margins of excess capacity by staying out of the market. To the extent that they do so, the manufacturer's backlog of orders is reduced and pressure is created in the manu- facturing industry to build up the order back- log tO assure that the shops will be occupied. The obvious way to induce utilities to re-enter the market is to offer price concessions.l As noted above, the pricing behavior of the elec- trical equipment industry became suspect when it became generally known that bidding at identical prices was a frequent occurrence in the industry. In detailing a sequence of events which led to the grand jury indictments of the electrical equipment manufacturers in this manner, Fuller notes that: In 1957, MacGregor Smith, . . . head of Florida Power and Light, blasted the industry for ridiculously high prices and endless, monotonous identical bids. Complaints were constantly being received by the Department of Justice, and piling up more and more as the years went on . . . by July, 1959, the industry was full of jitters. TVA had blasted the identical bidding . . . Kefauver's Knoxville hearings were pending. The grand juries in Philadelphia had just swung into action . . . When the complaints began to come in to the De- Partment of Justice they came from two general classes; 1Walton and Cleveland, op. cit., pp. 27-28. 2John G. Fuller, The Gentlemen Conspirators, (New York:; The Grove Press, Inc., 1962), pp. 54454. 19 those smaller electric companies that were being "squeezed" by the arbitrary price policies followed in the "white sales" mentioned earlier and from customer—utilities which complained of identical bidding. According to Herling, the government's investigations began in earnest early in 1957 when: . . . so many complaints had poured in charging the big companies with selling below cost . . . that the Department of Justice decided to make another investigation, limited . . . to the big companies . . . The Federal Bureau of Investigation was ordered to make a fairly sweeping investigation of the electrical field: the "white sales," identical bidding, allegations of allocation of bids or customers. They confined that investigation to major products . . . to keep from being swamped by the vast variety of electrical products . . . Over the next few months, hundreds of files were diligently examined. Slowly, in the late summer of 1958, returns began to come in from a scattering of electrical precints. The number of documents grew tremendously . . . From Labor Day, 1958, until Spring, 1959, a cou- ple of agents working steadily at it assimilated enough data to justify the FBI's efforts to elicit more information on certain phases of the industry's activity. They were in the process of moving in more deeply when the TVA story on identical bids broke. According to Fuller, the key act that brought about the investigation and the subsequent criminal ac- tion was a publication of sealed bids by the Tennessee Valley Authority (referred to as TVA) in its weekly news- Paper on May 9, 1959. A local reporter noted that the bids shown were identical. Upon questioning TVA lJohn Herling, The Great Price Conspiracy, (Wash- ingyton: Robert B. Luce CO. Inc., 1962), pp. 14-15. 20 authorities, he found that this practice was not unusual and had been in effect for quite some time.1 In July of 1959, Business Week commented on the problem faced by TVA. The article stated that: In May (1959) TVA complained that "for many years" some 50 of its suppliers have been making identical bids on a wide range of items. 2 The article then went on to list a number of elec- trical firms and the prices quoted on specific items, some identical to the fourth decimal point. Another source states that: A sampling of TVA records turned up twenty- four instances of matched or identical bids in just over three years. Some of these bids figured down to a hundredth of a cent. Margaret Ragsdale, in a lead article in Editor and Publisher, notes the part played by the Knoxville News- Sentinel in bringing the TVA story to the public. She writes: A two-year news and editorial campaign by the Knoxville News-Sentinel helped to break up price-rigging practices in the electric equip- ment manufacturing business . . . The News- Sentinel . . . had cooperation from the Tennes- see VaIIey Authority . . . the public power agencies in the cities of Knoxville and Chat- tanooga, and the Senate Anti-Monopoly Subcommittee headed by Senator Estes Kefauver of Tennessee. The campaign developed after an editorial page article in December, 1958. The piece was pegged on a complaint by Allis-Chalmers after TVA had 1John G. Fuller, Op. cit., p. 21. zuTVA Bids Stir Up Antitrusters," Business Week, July 11, 1959, p. 30. 3John Herling, op. cit., p. 2. 21 given a hydroelectric generator contract to a Swiss company which had underbid A-C by 40 per cent. A-C accused TVA of exporting jobs and U. S. dollars. A few months later, TVA, at the News-Sentinel's request, Opened purchasing records. . . There followed a series on iden— tical bids, often down to the penny. From TVA reports the News-Sentinel went to purchasing records of the munIprally-owned retail power agencies in Knoxville and Chatta- nooga, which revealed similar rigged-bid experiences. About the same time Senator Kefauver . . . in a floor speech said he would ask the elec- trical equipment corporations for an explana— tion. In August 1959 the Kefauver committee went into action with hearings in Knoxville. It uncovered the same set of facts on price- rigging as had been published in the News- Sentinel. The same writer quoted TVA officials as stating that they were "at the mercy of the big power equipment makers; that it (TVA) often let contracts by tossing a coin, because all bids were identical."2 S. R. Finley, General Superintendent of the Elec- tric Power Board of Chattanooga, in testimony at the Ke- fauver committee hearings referred to above, testified that, in connection with identical prices; . . . I have complained against it in dif- ferent conversations . . . I have complained about it to officials of both the large com- panies like that, but you never get anywhere with them . . . They just listen . . . and you keep getting similar prices.3 lMargaret Ragsdale, "Newspapers Sparked Price- Rigging Story," Editor and Publisher, Vol. XCIV, No. 7, February 18, 1961, p. 12. 21bid. . 3United States Senate, "Administered Prices," Hear- 3393 Before the Subcommittee on Antitrust and Monopoly, Part 13, p. 6754. 22 Later in his testimony, Mr. Finley stated that, on one occasion involving identical bids, he awarded the contract to the company that was furthest away so that it would have to pay the most freight to deliver the order.1 Federal Antitrust Laws: The two primary federal laws dealing with and de- fining collusive conspiracies and giving the penalties for violation thereof are those which are commonly known as The Sherman Act and The Clayton Act. The Sherman Act, or more properly, the Act of Con- gress of July 2, 1890, entitled, "An Act to protect trade and commerce against unlawful restraints and monOpolies," as amended, provides, in part, that: Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal . . . Every person who shall make any contract or engage in any combination or con- spiracy declared . . . to be illegal shall be deemed guilty of a misdemeanor, and, on convic— tion thereof, shall be punished by fine not exceeding fifty thousand dollars, or by impri- sonment not exceeding one year, or by both said punishments, in the discretion of the court.2 and . . . Every person who shall monopolize or attempt to monOpolize, or combine or conspire with any other person or persons, to monOpolize any part of the trade or commerce among the several lIbid., p. 6755. 2c. 647, 26 Stat. 209, 15 U. s. c. Sec. 1. 23 states, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on convic- tion thereof, shall be punished by fine not exceeding fifty thousand dollars, or by im— prisonment not exceeding one year, or by both said punishments, in the discretion of the court. The applicable portions of the Clayton Act are sections four and five. Section four provides for the re- covery of treble damages by injured parties by stating that: Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue there— fore in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of the suit, including a reasonable attorney's fee.2 Section five of the same act provides that a final judgment in an action brought by the government, whether it is a civil action or a criminal action, shall be considered as "prima facie" evidence in any action brought by a private litigant in which the acts of the defendant are the same acts as complained of by the government.3 It was under the provisions of the Sherman Act that the federal government brought its indictments against the electrical equipment companies. Later in the lIbid., Sec. 2. 238 Stat. 731 (1914) Sec. 4. 338 Stat. 731 (1914) Sec. 5. 24 Civil suits for treble damages the plaintiffs were citing the provisions of the Clayton Act. Kefauver Hearings: The late Senator Estes Kefauver, as chairman of the Senate's Subcommittee on Antitrust and MonOpoly, summed up the findings of his group by stating that: These hearings have been a part of our continuing investigation of administered prices. We have found that in certain indus- tries the price of all companies arrives at the same figure, and they are able to sustain the price at that figure, usually a high one, even though the demand for the material or the product may decrease, and even though the plant facilities are operating only partially. It would appear from the information we have received that the very purpose of inviting the submission of secret bids on most elec- trical equipment has been and is being defeated by the systematic practice of identical bidding. Should identical bids be arrived at by agree- ment or understanding, such practice would likely be held to be in violation of the Sher- man Antitrust Act. Senator Kefauver two years later commented on the above hearings and then explained the reason for their interruption by stating: Today, we resume the inquiry we started nearly 2 years ago in Knoxville. At that time, hearings were begun by the subcommittee after TVA and a number of municipalities complained that electrical equipment manufacturers were submitting identical bids on large amounts of equipment. . . . 1U. S. Senate, "Administered Prices," Hearings . . ., Part 13, pp. 6793, 6794. 25 We gathered a considerable amount of infor- mation in those hearings with respect to the identical bids. . . . but we postponed further hearings after learning that a grand jury had been convened in Philadelphia to investigate price-fixing conspiracies in the industry.1 Corporate Disclosure Methods: Most of the electrical companies studied are incor- porated, and their stock is widely held and freely traded. As such, they are required to comply with the accepted methods of disclosure as prescribed by the federal and state regulatory agencies. This disclosure, in most cases, requires the pub- lication of an annual report containing financial state- ments which are adequately annotated and which have been audited by an independent public accountant. This report is usually published shortly after the end of the cor- poration's fiscal year. It is generally understood that disclosure of important information in the annual report can be made in the following ways: 1. By inclusion in the president's letter or textual matter. 2. By inclusion in the notes to the financial statements. 3. By inclusion, parenthetically, in the finan- cial statements. 4. By quantification and inclusion in the finan- cial statements. 1U. S. Senate "Administered Prices," Hearings Be- figge the Subcommittee on Antitrust and MonOpoly, Part 27, (Washington: Government Printing Office, 1961), p. 16507. 26 5. By reference to the matter in the independent accountant's Opinion. In addition, where the corporation's securities are publicly traded, and where the corporation is regis- tered for that purpose, it must file certain prescribed reports with the federal government's Securities and Ex- change Commission, commonly known as the SEC. The major reports required by the SEC are the Form lO—K Annual Report, the Form 9-K Semi-Annual Report, and the Form 8-K Current Report. These are prescribed forms which stipulate the nature of the information re- quired and the time of the year they must be filed. The Form 10-K Annual Report must be filed annually and requires, in addition to the data usually appearing in the corporation's annual report, more detailed sched- ules Of specific financial items, information as to cor- porate dealings in stock, and other related information. The Form 9-K report is merely an interim report giving a Statement of Profit and Loss and Earned Surplus for the first six months of the fiscal year of the cor- poration reporting. The Form 8-K is a current report and must be filed with the SEC by registrant corporations within 10 days after the close of the month in which any of certain Lmescribed events occur, if that event is considered sig— nificant according to criteria established by the SEC. Perhaps the most relevant item in this report, as far as this research is concerned, is the item entitled, "Legal 27 Proceedings," which requires the registrant corporation to: (a) Briefly describe any material legal pro- ceedings, other than ordinary routine litigation incidental to the business, to which the regis- trant or any of its subsidiaries has become a party or of which any of their prOperty has be- come the subject. . . . (b) If any such proceeding previously reported has been terminated, identify the proceedings, give the date of termination and state the dis- position thereof with respect to the registrant and its subsidiaries. The instructions to this part of the report, how- ever, provide that: No information need be given with respect to any proceeding which involves primarily a claim for damages if the amount involved, exclu- sive of interest and costs, does not exceed 15 per cent of the current assets of the registrant and its subsidiaries on a consolidated basis. However, if any proceeding presents in large degree the same issues as other proceedings pending or known to be contemplated, the amount involved in such other proceedings shall be included in computing such percentage.2 Other forms of disclosure are stock prospectuses, state and local reports, as required, and public news re- leases. Disclosure Of Antitrust Events: While no specific legal action was taken against any of the electrical corporations during the year 1959, 1United States Securities and Exchange Commission, Washington, D. C., Form 8-K Current Report, March 5, 1959, pp. 4, 5. 2Ibid., p. 5. 28 the amount Of grand jury and other investigative activity, the public airing of complaints, the apparently widespread involvement of corporations and individuals, was such that these events must have had significant corporate disclo- sure connotations. Of the sixteen electrical companies that are re- ported on, only four disclosed any information in their 1959 annual reports relative to the antitrust proceedings. In each of these four cases, the company published its annual report after the intial formal indictments were returned on February 16 and 17 of 1960. As a matter of the "disclosure of subsequent events," these companies dis- closed the grand jury indictments even though they oc- curred subsequent to December 31, 1959, the effective end of the reporting period. It might be noted that, of those twelve companies which did not disclose the matter of antitrust activity, four published their statements before the date of the indictments. Textual Disclosure: Disclosure varied from a short paragraph or note in the president's letter regarding the indictments to a more lengthy discussion of the matter in detail. An ex- ample of this type of disclosure is that given in the president's letter in the annual report for 1959 of the I-T-E Circuit Breaker Company, dated February 29, 1960. ‘Under the heading, LITIGATION, the report states: 29 As this report goes to press, word is re- ceived that a Federal Grand Jury sitting in Philadelphia, Pennsylvania, has returned a number of indictments against 12 electrical equipment manufacturers and 18 employee indi- viduals charging violations of the Federal Anti-Trust laws relative to price fixing and, on the part of some companies, supression of competition through the manipulation of pri- ces of components. Corresponding civil ac- tions were filed in the United States Dis- trict Court in Philadelphia. The I-T-E Circuit Breaker Company was one of the com- panies indicted and was named in certain of the civil actions. No Company employees were named in the indictments. The Company, which has known of this investigation since last summer, has cooperated fully with the Grand Jury and has instructed its employees who were concerned to do likewise. This investigation and the indictments have received wide mention in the public press. It is felt that public comment on these charges by the Company at the present time should be limited to a few facts of which many have been aware and which we believe will become increasingly clear as this situation develops further. The Company's policy has always been basically strongly competitive on quality, service and specifically, prices and terms of sale. Being a large supplier of components it has labored to make its pri- ces favorable to its purchasers of components even though in numerous cases these purchasers to some extent may be considered competitors. It is felt strongly that it will become apparent that not only is the field of products con- cerning which the indictments have been brought among the most highly competitive price-wise in the electrical equipment industry, but it will also appear that the company has been and is highly competitive in its pricing policy in that field. It might also be noted with interest that the indictments have to do prin- cipally with heavier electrical power equip- ment, the recently extremely low prices of which have been mentioned earlier in this re— port.1 lI-T-E Circuit Breaker Co., 1959 Annual Report, IPhiladelphia, Pennsylvania, p. 7. 30 The General Electric Company disclosed the anti- trust situation in the chairman's letter by stating that: On February 16 and 17, 1960, Grand Jury indictments were returned and companion civil suits filed against your Company and a number Of others firms alleging price fixing conspira- cies involving a number of electrical apparatus products. It has been the long standing policy of the Company to insist on conduct even beyond the requirements of the antitrust laws. This Company policy has been forcibly and repeatedly emphasized to all management employees. We condemn all restrictive practices and shall continue to insist on pursuing a policy of creative and aggressive competition. Disclosure in Financial Statements: The only company out of the four in 1959 to re- fer tO the antitrust problem in the financial statements and notes was the relatively small A. B. Chance Company. It mentioned the matter in the president's letter as follows: As some readers may know, a federal grand jury in Philadelphia voted indictments in February, charging our Company and a number of others with violations of federal antitrust laws. We entered a plea of not guilty April 8 and the case is now ayaiting trial in Federal District Court. The company also set up an item on the balance sheet, be- low the stockholders equity section, entitled "Contin- gent Liability -— Notes F and G." There was no balance 1General Electric Company, 1959 Annual Report, New York, N. Y., p. l. 2A. B. Chance Company, 1959 Annual Report, Central- ia, Missouri, p. 3. 31 given, but Note F, in the notes to the financial state- ments, made this statement: On February 17, 1960, the Company, along with several other companies in the electrical equipment industry, was indicted on charges relating to alleged violations of the Sher- man Antitrust Act. Civil actions were also filed against the Company based on the same facts and circumstances which formed the basis of the antitrust charges. The poten- tial liability, if any, of the Company, arising from the indictment or civil actions cannot now be determined.1 This was the only case in which the antitrust matter was referred to within the financial statements themselves. The one other company that disclosed the anti- trust matter was the Joslyn Manufacturing and Supply Company. In the president's letter, this company stated that: On February 17, 1960, a federal grand jury sitting in Philadelphia, Pennsylvania, returned indictments charging this Company and a number of other companies with violation of federal antitrust laws in connection with the sale of porcelain insulators, lightning arresters and cutouts. Our attorneys are studying the indictments, and we can make no comment at this time.2 Disclosure in Auditor's Opinion: In none of the annual reports studied for 1959 did the independent auditor's Opinion mention the exis- tence of the antitrust proceedings in any way. lIbid., p. 12. 2Joslyn Manufacturing and Supply Company, 1959 Annual Report, Chicago, Illinois, p. 11. 32 Disclosure in SEC Reports: Securities and Exchange Commission Form 10-K re- ports filed by the electrical companies for the year 1959, do not mention antitrust proceedings. CHAPTER II INDICTMENTS AND PLEADINGS - 1960 The first indictment, alleging a conspiracy in the sale of Oil circuit breakers, was returned on February 16, 1960. This indictment named five electrical equipment companies and five individuals as defendants. Two addi— tional indictments were returned on the same date. One of these, dealing with low-voltage power circuit breakers, named three of those companies appearing on the first in- dictment. The other indictment, having to do with power switchgear assemblies, named the same five companies ap- pearing in the original indictment. This indictment was superseded by an amended one in June. On February 17, 1960, four more indictments were returned alleging conspiracies in insulators, lightning arrestors, Open-fuse cutouts, and bushings. As the year progressed, grand jury activity in- creased. Additional indictments were returned during the year as follows: May 19 -------- 3 indictments May 25 -------- 4 indictments June 22 ------- 2 indictments June 23 ------- l indictment June 29 ------- 2 indictments September 15 -- 1 indictment October 20 ---- 1 indictment 33 34 With the return of the final indictment on Octo- ber 20, 1960, it appeared that twenty indictments had been returned in all, involving twenty-nine different companies and forty-five different individuals. Several of the companies appeared on only one or two indictments but certain others (and perhaps this can be construed as indicative of the degree of their in— volvement in the alleged antitrust activities) appeared on a number of indictments. For example, of the twenty separate indictments handed down by the grand juries in 1960, General Electric Company and Westinghouse Corpora- tion were named in nineteen.l Other companies indicted, in order of the degree of their involvement, as measured by number Of indictments, were: I-T-E Circuit Breaker Co., (9 indictments); Allis-Chalmers Mfg. Co., (8); McGraw-Edison Co., (7); Federal Pacific Electric Co., (4); H. K. Porter Co., (4); Joslyn Mfg. and Supply Co., (4); and Ohio Brass Co., (4).2 The remaining companies studied were named in three indictments or less. It is not possible or necessary to recite in de- tail the contents of the successive indictments handed down against the industry; however, excerpts from one of 1"Philadelphia Electrical Cases," Statistical Data on Indictments, Defendants, Pleas, and Sentences, United States Department of Justice, 6 Mimeographed pages. (NO ciate), Unpublished. 2Ohio Brass Company is not included in this study. 35 the indictments mentioned above might be helpful in ex— plaining the legal question involved. In criminal action No. 20399, in the United States District Court for the Eastern District of Pennsylvania, dealing with a product called "Power Switchgear Assem- blies" and filed in Philadelphia on June 22, 1960, the grand jury indicted five of the major manufacturers and twelve officials of those companies and also named three other companies as co-conspirators, charging that: Beginning at least as early as 1958 and continuing thereafter at least to September 23, 1959, the defendants, together with the co-conspirators and other persons, . . . en- gaged in a combination and conspiracy in un- reasonable restraint of . . . interstate trade and commerce in power switchgear assemblies in violation of Section I of the Act of Con- gress Of July 2, 1890 . . . as amended, com- monly known as the Sherman Act. . . . The aforesaid combination and conspiracy consisted of a continuing agreement, under- standing, and concert of action among the defendants, the conspirators and other per- sons . . . , the substantial terms of which were: (a) To fix and maintain prices, terms, and conditions for the sale of power switchgear assemblies: (b) To allocate among themselves the business of supplying power switchgear assemblies to Federal, State, and local governmental agencies; (c) To submit noncompetitive, collusive, and rigged bids for supplying power switchgear as- semblies to electrical utility companies, Federal, State, and local governmental agen— cies, private industrial corporations, and contractors throughout the United States; and (d) To refrain from selling certain types of power switchgear assemblies or components thereof to other manufacturers of electrical equipment. 1United States Senate, "Administered Prices," iHearings, Part 27, p. 17111. 36 The formal indictment then gives specific instan- ces of meetings in which these activities took place and goes into great detail regarding the nature of these meetings. The indictment then states that: The effects of the aforesaid combination and conspiracy have been that: (a) Prices of power switchgear assemblies throughout the United States have been raised, fixed, and maintained at high and artificial levels; (b) Price competition in the sale of power switchgear assemblies throughout the United States has been restrained, suppressed, and eliminated; (c) Purchasers of power switchgear assemblies throughout the United States have been deprived of the benefits of free competition in the purchase of these products; and (d) Public agencies engaged in the generation, transmission, or distribution of electricity have been denied the right to receive competi- tive sealed bids, as required by law, and have been forced to pay high artificially fixed pri- ces for power switchgear assemblies. In the final pleadings on the above indictments, all five companies indicted pleaded "guilty" and ten of the twelve individuals on the indictment also pleaded “guilty." One person pleaded "nolo contendere" and one was dropped from the indictment by agreement with De— partment of Justice officials because of the insuffi- ciency of evidence.2 Pattern of Pleadings: lIbid., p. 17113. 2Philadelphia Electrical Cases, "Statistical Study," op. cit“ 37 During the year, as the indictments were being returned and were being made public, the electrical com- panies in press releases, at their stockholder meetings, and in annual reports, quite unanimously protested their innocence of any wrongdoing. At the first hearing, on March 16, 1960, after the initial indictments, the electrical companies uni— formly pleaded "not guilty" or "nolo contendere" to the indictments. On March 24, 1960, at another arraignment, the general pattern was to plead "nolo contendere."1 The Justice Department attorneys strongly objected to the ac- ceptance of "nolo" pleas. Therefore the presiding judge issued the following statement: I am taking the position that I will not accept these pleas of nolo contendere, and I shall give you five days to make up your minds to enter pleas of "not guilty" or pleas of 'guilty. . . . On April 2, 1960, Allis-Chalmers changed its pleas to "guilty" while General Electric and Westinghouse plead— ed "not guilty." Later yet, at another hearing, on June 14, Allis Chalmers attempted to plead "nolo contendere." At this, the clerk of the court stated, "We do not accept nolo contendere pleas."3 In View of that statement, the the Allis-Chalmers counsel again pleaded "guilty" to the charges, while the other companies again maintained a "not guilty" stance. lJohn c. Fuller, p. 85. 21bid. 3Ibid., p. 87. 38 At this June arraignment, presiding Judge J. Cullen Ganey of the Federal District Court decided to postpone sentencing until all of the grand jury indictments were returned.1 As the year 1960 progressed and the indictments multiplied, it was apparent that the detached air of innocence was becoming more difficult for the electrical companies to maintain. As Walton and Cleveland express it: The defensive position of the companies was weakened by the fact that Allis Chalmers had pleaded guilty in all of the cases in which it was a defendant. . . .2 This same source then explains the developments in the last days before the final pleadings by reporting that: After the nineteenth indictment, represen- tatives of G. E. and Westinghouse approached the government and inquired whether the public interest would be served by pleas of guilty in the most serious of the cases, and "nolo" pleas in the remainder. Three days of con- ferences in Washington early in November 1960 . . . resulted in an agreement that certain cases were sufficiently important that the government would insist on guilty pleas, but that it would accept "nolo" pleas in the remainder. At the date set for the pleadings, December 8, 1960, the twenty-nine corporations and the forty-five lWalton & Cleveland, op. cit., p. 38. 2Ibid. 3Ibid. 39 individuals (because some of the corporations and indi- viduals were named on more than one indictment) made the following final pleas: thirty-five individual pleas of "guilty" and seventeen "nolo contendere"; thirty-five corporate pleas of "guilty" and seventy-three corporate "nolo contenderes."l Significance of Guilty Pleas: Historically, from the time of the enactment of the Sherman Act in 1890 down to November, 1960, companies and individuals accused of antitrust violations had been permitted, in the great majority of cases, to plead "nolo contendere." Mund, in his analysis of the inter— relationship of government and business has this com— ment on the plea Of "nolo contendere": In criminal cases, it is possible for a defendant to plead nolo contendere (I will not contest it) with the consent of the court. This plea means that the accused party makes no contention as to whether or not he is guilty and agrees to accept the decision Of the court. Actually, a plea of nolo contendere is tanta- mount to a plea of guilty. If the court ac— cepts the plea, it is in a position to impose criminal penalties according to the provisions of the law.2 In the past, the government's cases had been based largely on circumstantial evidence. The assumption was that, because certain things took place in an industry, lIbid., p. 40. 2Vernon A. Mund, Government and Business, 4th ed., (New York: Harper and Row,.l965), p. 104. 40 the only conclusion that could be drawn was that collusion existed. In the face of this type of evidence, the time- tested routine called for the accused company to plead "nolo contendere," to pay its fine, and to have its case dropped. In effect, the plea of "nolo contendere" fre- quently satisfied the needs of the Antitrust Division of the Department Of Justice to record that it had develOped a sufficient case showing criminal violation of the anti- trust 1aw. The prospect of lengthy litigation with the heavy costs to the government, coupled with the uncer- tainty Of conviction based on the type of evidence used, was a deterrent to anything other than a settlement based upon a "nolo" pleading. The situation, however, was entirely different in the electrical equipment industry's antitrust conspiracy cases. This time the federal investigators were able to obtain eyewitness testimony, documented records as to time and place of conspiratorial meetings, as well as persons present, tOpics discussed, and terms of agreement.1 With such formidable evidence at their disposal, as noted above, early in 1961 the federal attorneys successfully argued for something more than the usual "nolo contendere" plea, although, initially, the electrical companies sought to enter this type of plea. The degree of feeling of the [Epartment of Justice toward this matter can perhaps be ‘1‘ _ 1For a descriptive analysis of the function of a