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Infineon Execs Plead Guilty to Price-Fixing

Four Infineon executives agreed to plead guilty to charges they conspired to fix prices in the computer memory sector, officials said Thursday.

The U.S. Department of Justice said each of the executives with the German-based chipmaker has agreed to pay a $250,000 criminal fine and serve prison terms ranging from four to six months for their participation.

The charges in the case stem from the DoJ's ongoing investigation of price fixing in the $5 billion a year Dynamic Random Access Memory (DRAM) market.

In the one-count felony charge filed today in the U.S. District Court in San Francisco, Heinrich Florian, Gunter Hefner, Peter Schaefer, and T. Rudd Corwin said they participated in a conspiracy to fix the prices of DRAM sold to Dell, HP, Compaq (prior to its HP merger), Apple, IBM and Gateway. The executives were charged with violating Section 1 of the Sherman Antitrust Act, which carries a maximum penalty of three years imprisonment and a $350,000 fine for individuals for violations occurring before June 22, 2004.

"These four executives are the first to plead guilty to a charge of fixing prices in what is still a very active and far-reaching investigation into antitrust violations in the DRAM industry," Scott D. Hammond, the Antitrust Division's Director of Criminal Enforcement said in a statement. "We will continue in our efforts to bring to justice other domestic and foreign-based executives who were involved with fixing DRAM prices."

In a statement, Infineon said it is fully cooperating with the ongoing DoJ investigation and has already taken steps such as clarifying its policies and retraining staff to make sure that "issues like these do not arise again."

"Two of these four individuals have already left the company or are in the process of leaving," Infineon said in its statement. "The two other individuals have been removed form their former jobs and work in other assignments. Please understand that we do not comment on personal matters of these individuals."

In a five page legal brief, the DoJ said the executives conspired through a series of meetings, conversations, and communications in the United States and elsewhere to discuss and agree on the prices of DRAM to be sold to certain customers. The inner circle then exchanged the information on sales of DRAM to certain customers, for the purpose of monitoring and enforcing adherence to the agreed-upon prices; and then authorized and in some cases ordered subordinate employees to participate in the conspiracy.

"This case reinforces our commitment to investigate and hold accountable all conspirators, whether domestic or foreign, that harm American consumers through their collusive conduct," R. Hewett Pate, Assistant Attorney General in charge of the Department's Antitrust Division said in a statement. "True deterrence occurs when individuals serve jail terms, and not just when corporations pay substantial criminal fines."

This is not the first time that Infineon has been in trouble for price fixing. On October 20, 2004, the company pleaded guilty to a charge of participating in the same conspiracy between July 1, 1999 and June 15, 2002 and was sentenced to pay a $160 million criminal fine - the third largest fine in antitrust history.

Although the DRAM market is one of the most volatile industries, a historical check of prices in the years in question does show huge market swings. Between November 2001 and the first few months of 2002, memory prices spiked to an estimated three times their normal levels after a two-year plunge but then dropped back down, according to the Semiconductor Industry Association (SIA). The trade group said the DRAM marketplace started off as a $20.7 billion industry in 1999 and skyrocketed to $28.8 billion in 2000. That number dropped to $ 11.2 billion in 2001 and started to bounce back in 2002 to $15.3 billion.

The DoJ's investigation has also flushed out collusion charges in other DRAM companies. The Justice Department and Commerce Department have also contacted Samsung and Micron Technologies as part of a broader investigation. Both companies have repeatedly denied participation in any broader collusion scheme.

On January 21, 2004, Micron Regional Sales Manager Alfred Censullo pleaded guilty to obstruction of justice in connection with the DoJ's investigation.

The European Commission is also conducting its own investigation.



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