2nd Chip Maker Admits Guilt in a Price-Fixing Conspiracy
2005-04-25
2nd Chip Maker Admits Guilt in a Price-Fixing Conspiracy
By STEPHEN LABATON

Published: April 22, 2005



ASHINGTON, April 21 - Federal prosecutors announced Thursday that a second big maker of computer memory chips, Hynix Semiconductor of South Korea, had agreed to plead guilty to participating in a global conspiracy to fix prices and would pay a $185 million fine, the largest criminal penalty assessed during the Bush administration.

The Justice Department announced the inquiry last September and disclosed that Infineon Technologies, a German chip maker, had agreed to pay a $160 million fine in the case. Shortly after that announcement, four Infineon executives pleaded guilty to conspiracy to fix prices and were each sentenced to penalties of $250,000 and prison terms of four to six months.

Attorney General Alberto R. Gonzales said that the case was "another significant step forward in the department's ongoing fight to break up and prosecute international cartels that harm American consumers."

"This case shows that high-tech price-fixing cartels will not be tolerated," he said.

At a news conference announcing the latest plea agreement, Scott D. Hammond, the head of the criminal enforcement section of the antitrust division at the Justice Department, said that the six largest computer makers and countless consumers were victims of the scheme that ran from April 1999 to June 2002.

The memory chips are used in an array of consumer electronic products and computers. The investigation began after computer makers complained about possible collusion in the memory equipment market. The computer makers that Mr. Hammond said were hurt by the conspiracy are Dell, Compaq, Hewlett-Packard, Apple, I.B.M. and Gateway.

Mr. Hammond declined to quantify how much consumers were hurt by the scheme. He said in some instances, the price of chips rose by more than 100 percent and that computer makers responded by either increasing the prices of their products or offering less memory in personal computers and laptops.

He would not identify co-conspirators because he said the inquiry was continuing. But much is already known about the case. Micron Technology has acknowledged that it received amnesty for providing assistance in the inquiry. Samsung and Nanya Technology are defendants in a related class-action lawsuit brought by consumers.

Hynix disclosed last month that it had set aside $346 million to cover possible costs associated with the investigation and related civil action. Samsung, the largest maker of memory chips, has said it put aside $100 million and has received subpoenas from a grand jury examining the matter.

Mr. Hammond said that the government was not seeking restitution from Hynix because of the class-action case.

In the criminal case that Mr. Hammond said would be filed in federal court in San Francisco, the government accused Hynix of violating Section 1 of the Sherman Act by "participating in meetings, conversations and communications in the United States and elsewhere to discuss the prices" of memory chips.

"There was almost constant communication between the companies," Mr. Hammond said. "Pricing was negotiated on a regular monthly basis. There were weekly and sometimes daily conversations."

The $185 million penalty is the third-largest criminal fine under the Sherman Act. The two larger fines were levied in 1999 against two vitamin makers: $500 million against Hoffman-La Roche and $225 million against BASF.

S Korea Hynix Says Provisions Enough To Cover $185M Fine

DOW JONES NEWSWIRES
April 22, 2005 12:11 a.m.

SEOUL -- Hynix Semiconductor Inc. (000660.SE) said Friday that provisions set aside last year to cover possible legal settlements from the U.S. Justice Department's probe into alleged price-fixing in the global memory-chip market will fully cover its $185 million fine.

In a statement, the world's second-largest memory-chip maker said the fine will be paid in installments over the course of five years with no interest.

"The settlement of the investigation was a decision to... get rid of a going concern," Hynix said in a press release.

"The reserve which Hynix took in its 2004 financial statements in connection with this DRAM pricing investigation is more than adequate to cover the fine."

The comments came as Hynix confirmed Friday it settled with the U.S. Justice Department to plead guilty and pay the fine to settle price-fixing charges. Hynix said it has agreed to plead guilty to one count of "limited" violation of U.S. antitrust laws.

The fine involving the dynamic random access memory, or DRAM, chip maker is the third-largest criminal antitrust fine in U.S. history, the Department of Justice said.

According to Hynix's annual report filed with South Korea's Financial Supervisory Service, the chip maker booked a KRW346.6 billion charge in its 2004 financial statements to cover potential legal costs stemming from this investigation.

Last year, Germany's Infineon Technologies AG paid $160 million to settle price-fixing charges in the DRAM industry.

South Korea's Samsung Electronics Co. (005930.SE), the world's largest memory-chip maker, last year said it has set aside $100 million in possible costs related to the probe.

A Samsung spokeswoman Friday said the company continues "to cooperate with the investigation" and declined to comment further.

At 0325 GMT, shares of Hynix were unchanged at KRW13,150. The broader market was up 0.4%.