1. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
By:
Walter
A.
Pavlo,
Jr.
August
1,
2012
Antitrust
on
The
High
Seas
Jacksonville,
FL
is
one
of
the
busiest
ports
on
the
east
coast
of
the
United
States.
Shipments
through
the
port
represent
more
than
16
million
tons
each
year
of
manufactured
goods,
farm
products,
coal,
crude
petroleum,
refined
petroleum
products
and
chemicals.
Ships
from
all
over
the
world
load
and
discharge
goods
in
the
port
each
day.
Shipments
to
and
from
domestic
U.S.
ports
are
also
part
of
port
activities
in
Jacksonville
but
their
activities
fall
under
unique
U.S.
government
maritime
laws.
The
Merchant
Marine
Act
of
1920-­‐Section
27,
better
known
as
the
Jones
Act,
provides
regulation
for
cabotage
(shipping
between
U.S.
ports).
These
regulations
require
that
all
goods
transported
by
water
between
ports
of
the
United
States
be
carried
on
U.S.
flagged
ships,
constructed
in
the
U.S.,
owned
by
U.S.
citizens,
and
crewed
by
U.S.
citizens.
The
purpose
of
the
Jones
Act
was/is
to
support
the
U.S.
maritime
industry
and
provide
general
security
by
having
U.S.
ships
move
cargo
between
U.S.
destinations.
Because
of
these
restrictions
and
the
relatively
small
size
of
these
trade
routes,
oligopolistic
markets
develop
where
only
a
very
small
number
of
carriers
serve
routes
to
states
or
territories
outside
of
the
mainland
U.S.
Puerto
Rico,
a
U.S.
territory,
falls
under
the
Jones
Act
for
maritime
transportation
between
the
continental
United
States
and
Puerto
Rico.
If
you
have
ever
gone
a
cruise
ship
out
of
the
port
in
Miami,
FL
and
your
destination
was
Puerto
Rico,
the
ship
stopped
at
a
location
outside
of
the
U.S.
prior
to
making
port
in
Puerto
Rico.
For
cruise
ships,
which
are
primarily
non-­‐U.S.
vessels,
they
are
required
to
do
this
because
it
would
be
a
violation
of
the
Jones
Act
to
leave
directly
from
Miami
and
then
make
port
in
Puerto
Rico.
Also,
in
a
similar
set
of
regulations,
the
U.S.
airline
industry
has
restrictions
that
limit
domestic
air
routes
to
domestic
U.S.
carriers.
This
is
why
you
do
not
see,
for
example,
Air
China
flying
from
Boston
non-­‐stop
to
Los
Angeles.
In
October
1998,
Sea
Star
Line
(SSL)
was
formed
to
provide
shipping
services
under
the
Jones
Act,
carrying
goods
from
Jacksonville,
FL
to
San
Juan,
Puerto
Rico.
SSL
provided
container,
shipping
services
on
their
two
ships,
which
were
both
about
764’
long
and
92’
wide.
They
could
carry
up
to
600
standard
(40’)
containers
at
a
speed
of
25
knots
(about
30
mph).

2. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
2
Background
Peter
Baci
(51)
joined
Sea
Star
Line
(SSL)
in
October
of
1998
having
spent
his
entire
career
in
the
maritime
industry
in
positions
of
increasing
authority
and
responsibility.
In
college,
Peter
had
obtained
a
Bachelor
of
Science
degree
from
a
well-­‐recognized
maritime
institution,
the
State
University
of
New
York
Maritime
College
in
New
York
City.
In
addition
to
his
degree
he
was
commissioned
in
the
United
States
Navy
Reserve
and
held
a
Third
Officer’s
Merchant
Mariners
License
by
the
United
States
Coast
Guard.
During
the
first
four
years
of
his
career
he
worked
on
the
ocean
and
visited
over
25
countries
from
South
Vietnam,
to
India,
to
Northern
Europe,
to
South
America.
He
loved
being
part
of
the
maritime
industry
and
eventually
took
management
jobs
in
the
shipping
industry
with
some
of
the
leading
shipping
companies.
At
each
step
of
his
career
he
performed
extremely
well
and
was
rewarded
by
his
employers
through
promotions
and
bonuses.
His
roles
at
these
companies
generally
focused
on
the
commercial
aspects
of
shipping
including
sales,
marketing,
business
development
and
pricing/yield
management.
Peter
was
also
a
family
man
who
was
married
and
had
two
children
who
were
in
high
school
at
the
time
he
joined
SSL.
During
his
time
at
SSL
he
served
as
President
of
the
Jacksonville
Maritime
Museum
Society,
President
of
the
Propeller
Club
of
the
United
States
for
the
Port
of
Jacksonville
and
First
Vice
President
of
the
Fort
Schuyler
Maritime
Alumni
Association.
SSL
got
its
start
in
1998
by
acquiring
the
assets
of
Puerto
Rico-­‐based
Sea
Barge,
which
had
put
itself
up
for
sale
after
15
years
of
being
in
business
as
a
Jones
Act
carrier
between
the
U.S.
and
Puerto
Rico.
SSL
took
over
the
existing
customers
and
launched
their
business.
An
initial
investment
in
the
company
was
made
by
three
partners;
Matson
Navigation
(45%),
Saltchuk
Resources
(45%)
and
Taino
Star
(10%).
Matson
had
experience
in
Jones
Act
transportation
services
and
it
was
subsidiary
of
a
larger,
NYSE
traded
company,
with
extensive
experience
in
shipping
between
the
continental
U.S.
and
Hawaii.
Saltchuk
Resources
(privately
held)
also
was
involved
in
domestic
shipping
routes
operating
between
the
continental
U.S.
and
Alaska.
Taino
Star
was
a
group
of
local
Puerto
Rican
investors
with
numerous
business
connections
in
Puerto
Rico
including
many
at
marine
terminal
facilities.
It
was
an
experienced
group
of
investors
with
significant
financial
strength
with
the
purchase
of
the
Sea
Barge
customer
base
and
the
financial
resources
of
the
investors.
Sea$Star$Line$(SSL) Saltchuk$Resources$45%
Matson$Navigation$45%
Taino$Star$$$$$$$$$$$$$$10%
Ownership$of$SSL

3. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
3
Matson
owned
two
ships
that
were
idled
in
San
Francisco
and
they
put
those
into
service
at
SSL.
The
speed
of
the
ships
(25
knots)
enabled
SSL
to
deliver
cargo
between
Jacksonville
and
San
Juan,
Puerto
Rico
in
54
hours
across
a
distance
of
nearly
1,200
sea
miles.
The
speed
was
particularly
important
for
the
movement
of
products
susceptible
to
spoilage
such
as
produce
and
fresh
chicken.
‘Speed’
was
also
important
for
customers
in
the
pharmaceutical
business,
soft-­‐drink
manufacturing,
package
shipping,
such
as
FedEx
and
UPS,
and
some
large
retailers
such
as
Wal-­‐Mart.
With
the
high
speed,
SSL
ships
were
able
to
make
a
round
trip
within
a
week
on
a
regular
basis.
It
provided
an
advantage
over
slower
vessels,
owned
by
competitors,
which
serviced
the
same
route.
SSL
had
its
own
management
team
and
its
President
reported
to
the
Board
of
Managers
representing
the
three
investors.
The
Board
of
Managers
met
with
the
SSL
President
and
his
management
team
on
a
quarterly
basis.
These
meetings
generally
focused
on
the
financial
results
of
the
business
and
included
strategic
planning
reviews
and
long
term
capital
planning.
The
Board
of
Managers
provided
direction
and
was
also
responsible
for
the
appointment
of
auditors.
One
member
of
the
SSL
team
was
the
Senior
Vice
President-­‐Commercial
to
whom
Peter
initially
reported
as
Vice
President-­‐Marketing.
Peter’s
initial
responsibilities
included
the
pricing,
intermodal
(movement
of
cargo
to
and
from
the
ship)
and
marketing
function.
Pricing
decisions
were
based
on
an
evaluation
of
the
customer’s
needs
and
the
competitive
environment.
The
marketing
function
measured
SSL’s
performance
in
the
market
and
the
development
of
market
strategies,
specifically,
which
parts
of
the
markets
SSL
wanted
to
focus
on
to
maximize
sales
and
profit.
In
this
position,
Peter
had
access
to
every
marketing
and
pricing
decision
that
affected
SSL’s
customers.
Peter
also
was
able
to
determine
the
market
share
of
each
competitor
in
the
U.S./Puerto
Rico
market
by
using
publically
available
information
from
the
Journal
of
Commerce
PIERs
system.
The
PIERs
system
represented
a
commercial
database,
available
by
subscription,
which
provided
a
view
into
recent
commodity
movements
of
U.S.
imports
and
exports.
The
Journal
of
Commerce
was
initially
a
marine
transportation
newspaper,
similar
to
what
the
Wall
Street
Journal
is
to
finance.
As
a
newspaper
it
sends
its
reporters
to
the
Customs
Houses
to
gather
shipping
information.
Over
time,
these
became
automated
data
feeds
of
valuable
information
that
every
shipping
company
used
to
gain
market
information.
It
provided
in-­‐depth
information
that
allowed
Peter
to
determine
exactly
which
loads
his
competitors
were
moving
to
and
from
Puerto
Rico.
SSL’s
competitors
had
the
same
competition
visibility.

4. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
4
The
Competition
There
were
a
number
of
barriers
to
entry
in
the
Puerto
Rican
cabotage
market,
which
meant
that
there
would
be
few
competitors.
The
primary
factors
limiting
competition
were
directly
attributable
to
the
Jones
Act
and
were:
a)
No
competition
from
foreign
operated
vessels
b)
Entrenched
market
positions
of
the
incumbent
shipping
companies
c)
Large
capital
investment
and
long
delivery
lead
times
in
building
a
new
container
ship
in
the
United
States
d)
Substantial
investment
in
infrastructure
needed
to
handle
container
ships
e)
Constraints
on
port
space
in
San
Juan,
Puerto
Rico
f)
High
fixed
costs
(e.g.
ship)
relative
to
variable
cost
(e.g.
fuel),
and
g)
Need
to
develop
a
broad
base
of
customer
relationships
to
realize
economies
of
scale
With
the
acquisition
of
Sea
Barge,
the
expertise
of
the
investor
partners
and
the
connections
of
those
same
partners,
SSL
was
able
to
overcome
these
barriers.
There
were
five
(5)
companies,
including
SSL,
competing
in
the
United
States
(primarily
Jacksonville)
to
Puerto
Rico
route
(see
table
below).
The
shipping
services
were
broken
down
into
two
types
of
services,
Ship
and
Barge.
The
two
primary
differences
between
the
services
was
speed
of
shipment
(Ship
Service
being
faster)
and
cost
(Barge
Service
being
cheaper).
The
competitive
landscape
and
the
number
of
vessels
in
use
were
as
follows:
Market Competitors Ship Service Barge Service
SSL 2
Navieras de Puerto Rico (NPR) 4
Crowley Liner Services 7
Horizon Lines 4
Trailer Bridge 4
Total 10 11
Pricing
in
this
environment
was
inelastic,
meaning
that
price
changes
of
the
service,
in
this
case
shipping,
did
not
cause
much
of
an
increase
or
decrease
in
the
amount
of
shipping
that
was
done
over
the
route.
After
all,
when
goods
have
to
be
shipped
to
an
island,
there
is
no
other
competition
for
transportation
such
as
truck
or
rail
services
(air
freight
is
cost
prohibitive
for
most
items
that
are
routinely
transported
in
bulk).
So
the
goods
have
to
be
shipped
no
matter
the
pricing
pressure
for
getting
the
goods
to
their
destination.
From
1998
until
2002,
Navieras
de
Puerto
Rico
(NPR)
embarked
on
a
volume-­‐driven
business
strategy,
which
meant
that
they
would
attempt
to
gain
more
business
at
any
price.
As
a
quasi-­‐government
(Puerto
Rico)
owned
operation,
it
had
already
sustained
significant
financial
losses
for
most
of
its
20

5. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
5
years
in
business.
The
strategy
was
to
drive
other
competitors
out
of
business
so
that,
over
time,
prices
could
be
increased
to
levels
that
would
yield
a
profit.
This
strategy,
and
the
competitive
environment,
would
put
pressure
on
SSL
as
it
started
its
new
business.
It
was
a
highly
competitive
market.
In
fact,
while
there
was
a
nearly
14%
increase
in
the
number
of
containers
shipped
on
Puerto
Rico
trade
routes
from
1994
through
2003,
freight
rates
for
shipping
between
the
U.S.
mainland
and
Puerto
Rico
declined
by
30%
due
to
excess
supply
(too
many
ships).
Operating
results
for
all
five
carriers
were
awful.
It
was
estimated
that
in
2001,
three
years
after
SSL’s
initial
voyage,
the
five
shippers
collectively
realized
financial
losses
in
excess
of
$100M.
The
investors
in
SSL
had
envisioned
a
peaceful,
mature
market
place,
like
the
ones
they
saw
on
their
Alaska
and
Hawaii
routes.
Instead
they
found
a
market
that
was
hyper-­‐competitive,
thanks
in
large
part
to
the
marketing
strategy
of
NPR.
Some
relief
came
when
the
owners
of
NPR
filed
for
bankruptcy
in
March
2001.
No
longer
able
to
sustain
annual
losses
and
achieve
the
goal
of
becoming
the
dominant
player,
NPR
dropped
out
of
the
business
by
filing
for
bankruptcy.
At
the
time,
NPR
had
about
20%
of
the
market,
so
this
was
good
news
for
the
surviving
competitors.
SSL’s
Board
of
Managers
met
to
decide
how
to
react
to
the
demise
of
NPR.
Saltchuk
was
motivated
to
purchase
the
assets
of
NPR
with
hopes
of
reshaping
the
market.
Matson,
on
the
other
hand,
wanted
to
stay
the
course
without
any
further
investment
(NPR
assets)
and
hope
for
better
results
with
one-­‐less
competitor.
SSL
averaged
an
annual
loss
of
$20
million
a
year,
so
throwing
more
money
into
the
company
was
of
no
interest
to
Matson.
Taino
Star
sided
with
Saltchuk,
and
the
decision
to
move
forward
with
the
purchase
of
NPR
assets
was
made,
but
Matson
wanted
out
of
the
investment.
Saltchuk
invested
the
money
needed
to
purchase
the
assets
of
NPR
($32
million)
and
a
settlement
was
negotiated
for
Matson
to
leave
the
partnership.
Saltchuk
was
now
90%
owner
of
SSL
and
Taino
Star
was
10%.
Saltchuk
management
would
clearly
be
calling
the
shots
for
SSL.
SSL
purchased
NPR’s
remaining
assets,
including
4
ships,
for
$32
million.
Three
of
NPR’s
ships
were
sold
as
scrap
and
one
was
sold
to
Horizon,
who
used
it
for
replacement
parts
(never
put
into
service).
Now
there
were
6
ships
providing
“Ship
Service”
where
there
had
been
10
before.
While
this
took
over
1,600
containers
per
week
of
capacity
off
of
the
market,
Peter
and
others
still
had
doubts
that
the
companies
could
be
profitable
in
this
market.
But
senior
management
still
saw
potential
and
sought
to
make
changes
in
the
management
structure.
The
senior
vice
president
of
SSL
was
terminated
in
2001
and
Peter
was
promoted
to
the
job.
The
person
who
Peter
replaced
had
been
the
person
who
brought
him
into
the
company.
The
President
of
SSL
was
terminated
and
the
new
majority
investor
sent
in
their
man
to
turn
things
around
until
a
permanent
president
could
be
found.
Saltchuk,
now
the
90%
owner,
began
to
throw
senior
management
resources
and
personnel
at
challenges
that
SSL
was
experiencing.
One
of
them
was
senior
shipping
executive,
Leonard
Shapiro.
As
a
result,
heated
meetings
to
turn
things
around
and
termination
of
employees
became
commonplace.

6. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
6
Shapiro
was
determined
to
turn
things
around.
Even
though
Peter
was
a
veteran
of
the
industry,
he
knew
things
were
tough
and
was
intimidated
by
the
new
management
and
the
difficult
working
conditions
in
the
office.
In
his
new
position,
Peter’s
most
important
mission
was
to
increase
the
yield/container
that
SSL
achieved,
which
would
in
turn
make
the
company
profitable.
Once
in
the
role,
he
considered
various
alternatives
to
achieve
his
goal,
including
simply
announcing
a
very
large
price
increase
shortly
after
the
asset
acquisition
of
NPR.
It
would
have
been
a
quick
fix
but
from
a
public
relations
standpoint
and
political
implications,
it
would
have
been
difficult
to
take
over
a
competitor,
NPR,
and
then
jack
up
the
prices
so
quickly.
Peter
continued
to
do
detailed
analysis
of
the
competition
and
evaluated
how
SSL
could
turn
the
business
around.
Crunching
some
numbers,
Peter
determined
that
SSL
needed
real
price
increases
to
generate
in
excess
of
$40
million
in
sales,
which
would
earn
it
a
good
profit.
With
NPR
gone,
and
its
ships
taken
out
of
commission,
there
looked
to
be
some
opportunity
to
meet
this
goal.
While
the
partners
in
SSL,
namely
Saltchuk,
had
plenty
of
money
to
support
the
business,
it
was
clear
that
continuing
to
lose
money
was
not
going
to
be
an
option.
Saltchuck
management,
primarily
Leonard
Shapiro,
began
to
take
an
active
role
in
the
company
after
the
purchase
of
NPR’s
assets
and
the
new
appointment
of
Peter
to
the
senior
VP
position.
Board
of
Manager
meetings
became
less
relevant
and
formal
meetings
with
staff
were
postponed.
Shapiro
started
taking
staff
support
from
Saltchuk
to
SSL’s
Jacksonville
offices
and
some
people
lost
their
jobs
in
the
process.
While
it
was
tough
for
everyone
at
SSL,
things
were
beginning
to
take
shape
and
there
was
a
new
sense
of
optimism.
Then
things
took
a
more
dramatic
turn.

7. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
7
The
Conspiracy
On
April
24,
2002,
Peter
Baci
traveled
to
Charlotte,
NC
to
participate
in
a
high
level
meeting.
The
request
for
his
attendance
came
from
Saltchuk’s
executive
Leonard
Shapiro,
who
was
taking
an
active
role
in
turning
around
Saltchuk’s
investment
in
SSL.
Joining
Peter
and
Shapiro
would
be
top
executives
from
SSL
and
Saltchuk,
as
well
as
executives
from
a
competing
shipping
line,
Horizon,
at
the
Park
Hotel
in
Charlotte,
NC.
This
group
represented
the
only
companies
offering
“Ship
Service”
to
and
from
Puerto
Rico.
Attendees
included
Phil
Bates
(Sea
Star’s
Sr.
Vice
President
of
Operations),
Gabe
Serra
(Horizon’s
Sr.
Vice
President
&
General
Manager
for
Puerto
Rico),
Neil
Perlmutter
(SSL’s
CFO)
and
Kevin
Gill
(Horizon).
The
purpose
of
the
meeting
was
to
conclude
an
agreement,
an
unwritten
agreement,
to
eliminate
the
NPR
capacity
from
the
Puerto
Rico
trade
route
and
make
other
arrangements
to
control
shipping
capacity
so
as
to
increase
prices.
It
was
that
easy.
There
would
be
no
more
losing
years.
Peter
felt
some
sense
of
relief
that
senior
management
was
involved
and
even
though
he
knew
the
meeting
was
wrong
(unethical
and
probably
illegal),
it
solved
a
lot
of
problems
for
him
and,
in
turn,
SSL.
While
on
the
surface
this
may
have
looked
like
a
solution
to
Peter
and
those
gathered
at
the
Park
Hotel,
it
was
a
violation
of
the
Sherman
Antitrust
Act.
It
was
a
criminal
violation.
With
the
reduction
in
shipping
capacity
associated
with
NPR’s
sale,
the
other
competitors,
Trailer
Bridge
and
Crowley,
saw
an
opportunity
to
begin
raising
their
prices.
Though
neither
company
was
represented
at
the
meeting
in
Charlotte,
it
was
apparent
to
them
both
that
a
market
without
NPR
was
a
good
one.
After
the
meeting
in
Charlotte,
Senior
Vice
President
of
Horizon
in
Puerto
Rico,
Gabriel
Serra,
told
Peter
that
his
contact
within
his
company
for
pricing
issues
was
going
to
be
Peter’s
long
time
friend,
Kevin
Gill.
Peter
had
known
Gill
for
years
and
each
knew
the
other’s
challenges
at
work.
Shortly
after
the
meeting
at
the
Park
Hotel,
Gill
and
Peter
met
at
Horizon’s
corporate
apartment
in
Charlotte
to
discuss
price
increases,
including
the
need
for
rates
to
increase
by
10%
per
year
across
the
board.
They
also
discussed
the
need
to
generate
additional
revenue
by
raising
fuel
surcharges,
rates
for
refrigerated
containers
and
rates
on
other
cargo
shipments.
Both
Horizon
and
SSL
also
increased
tariff
rates
and
SSL
increased
rates
on
NPR’s
old
customers.
With
Horizon
and
SSL
being
the
only
two
shipping
companies
offering
“Ship
Service”,
it
was
easy
to
control
the
entire
market.
Controlling
prices
was
not
enough.
The
two
companies
needed
to
assure
that
there
were
sufficient
loads
going
on
each
ship
to
make
each
run
profitable.
To
address
this
issue,
Leonard
Shapiro
met
with
Horizon’s
Gabriel
Serra
to
divide
the
business
50/50.
They
would
be
monitoring
each
other’s
business
to
assure
that
the
business
would
continue
to
be
equally
divided.
While
Peter
was
meeting
with
Gill,
Shapiro
met
with
senior
executives
at
Horizon,
Crawley
and
Trailer
Bridge
about
the
industry.
While
meetings
among
competitors
are
usually
reserved
for
trade
shows
or
conferences,
closed
meetings
with
competitors
are
very
uncommon.

8. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
8
Soon
meetings
and
communications
between
Peter
at
SSL
were
being
held
among
all
of
the
competitors.
Peter
was
working
the
day-­‐to-­‐day
level
of
the
conspiracy,
while
meetings
were
being
held
above
him
to
review
decisions
he
was
making.
At
one
point,
SSL’s
share
of
container
shipments
dropped
to
45%
compared
to
Horizon’s
54%.
At
about
the
same
time,
Peter
was
bidding
on
a
U.S.
military
contract
in
direct
competition
with
Horizon.
Peter
asked
his
counterparts
at
Horizon
to
allow
SSL
to
win
the
contract
in
order
to
bring
about
some
equity
in
market
sharing.
When
Horizon
refused,
Peter
escalated
the
issue
to
SSL’s
newly
appointed
president,
Frank
Peake.
Shortly
thereafter,
SSL
won
the
government
contract.
Everything
was
back
in
balance.
By
2003,
Peter
and
Gill
spoke
on
the
phone
two
to
three
times
per
week
and
also
emailed
pricing
and
other
information
to
each
other.
In
order
to
cover
their
tracks,
they
set
up
Gmail
account
aliases.
Peter’s
was
Lighthouse123@gmail.com.
The
conspiracy
began
to
work
with
an
efficiency
that
rivaled
the
legitimate
day-­‐to-­‐day
operations.
They
would
communicate
in
advance
to
ensure
that
they
avoided
each
other’s
major
customers.
They
rigged
the
bids
and
exchanged
information
in
advance
of
bids
so
that
they
would
each
understand
the
others
expectations.
It
was
a
coordinated
dance.
As
in
most
businesses,
20%
of
the
customers
produced
80%
of
the
revenue
stream
so
it
was
not
difficult
to
keep
track
of
which
customers
were
important
to
the
other
carrier.
If
an
account
was
shared
between
SSL
and
Horizon
they
predetermined,
based
upon
share,
who
would
be
the
“lead”
and
who
would
be
the
“follower”.
In
doing
this,
if
SSL
had
a
larger
share
of
a
particular
customers
business
they
would
make
the
initial
pricing
proposal
(lead)
and
afterwards
Horizon
would
follow
their
lead
with
a
higher
price,
assuring
a
satisfied
SSL
customer.
SSL
would
of
course
return
the
favor
for
Horizon
customers.
After
a
number
of
meetings,
Peter
came
away
with
firm
decisions
as
to
which
days
of
the
week
SSL
and
Horizon
vessels
would
sail
on
and
the
pricing
associated
with
those
loads.
The
two
then
exchange
exact
information
pertaining
to:
• Agreements
to
allocate
customers
of
Puerto
Rican
cabotage
• Rigging
bids
to
customers
for
PR
cabotage
• Fixing
rates,
surcharges
and
other
fees
for
Puerto
Rican
cabotage
• Marketing
and
selling
Puerto
Rico
cabotage
at
agreed-­‐upon
prices
• Exchanging
information
on
customers,
bids,
rates,
surcharges,
fees,
volumes
and
capacity
• Implementing
and
monitoring
the
arrangements
among
cartel
members
Peter
and
Gill
also
routinely
provided
information
to
their
superiors
on
pricing
and
customers
so
that
decisions
on
the
market
could
be
made.
Top
executives
from
the
companies
started
meeting
at
events
to
review
this
analysis
in
Washington,
DC,
golf
courses
in
Puerto
Rico
and,
one
time,
at
the
Iditarod
sled
dog
race
in
Alaska.
While
there
was
some
trepidation
by
both
Peter
and
Kevin
Gill,
they
felt
that
their
conversations
would
benefit
both
companies
and
the
bosses
would
certainly
approve
of
any
decision
that
meant
a
profit
for

9. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
9
their
respective
companies.
They
also
knew
that
any
pricing
changes
they
might
agree
to
would
have
to
be
approved
by
the
their
own
management.
Such
passive
approval
would
certainly
be
an
indication
that
they
(higher
executives)
condoned
the
means
to
get
to
those
prices.
As
time
went
by
and
as
SSL
and
Horizon
pushed
their
prices
up,
a
large
gap
had
developed
between
the
Ship
Service
pricing
and
the
Barge
Service
pricing.
As
Peter
would
say,
“A
rising
tide
raises
all
ships,”
so
it
was
time
that
every
competitor
in
the
Jacksonville-­‐Puerto
Rico
route
got
involved
in
increasing
shipping
prices
(and
profits).
Over
time
the
Barge
Service
carriers
started
to
raise
their
prices
to
closer
match
the
raises
experienced
on
the
Ship
Service.
Again,
most
of
the
individuals
involved
in
the
shipping
business
had
known
each
other
for
many
years
and
there
was
a
significant
level
of
trust.
From
May
2002
through
April
2008,
capacity
for
Puerto
Rican
cabotage
remained
flat,
but
rates,
surcharges
and
fees
increased
dramatically
and
nearly
simultaneously
across
all
suppliers.
Here
are
a
few
of
the
charges
customer
experienced:
February
2003
–
Horizon,
SSL
and
Trailer
Bridge
imposed
a
$40
per
container
terminal
handling
charge,
where
they
had
not
done
so
previously,
except
for
SSL.
April
2003
–
Horizon,
SSL,
Crowley
and
Trailer
Bridge
imposed
a
“security
fee”
per
container,
where
they
had
not
done
so
previously,
except
for
Trailer
Bridge.
May
2003
–
Horizon,
SSL,
Crowley
and
Trailer
Bridge
charged
a
bunker
fuel
surcharge
of
$225/container
March
2005
–
Horizon,
SSL,
Crowley
and
Trailer
Bridge
increased
bunker
fuel
surcharge
$280/container
April
2005
–
Horizon,
SSL,
Crowley
and
Trailer
Bridge
increase
bunker
fuel
surcharge
$310/container
June
2005
–
Horizon,
SSL,
Crowley
and
Trailer
Bridge
increase
bunker
fuel
surcharge
$340/container
September
2005
–
Horizon,
SSL,
Crowley
and
Trailer
Bridge
increase
bunker
fuel
surcharge
$375/container
It
should
have
been
apparent
that
something
was
wrong
in
the
market.
As
reported
in
the
Journal
of
Commerce
on
January
22,
2007,
container
volumes
for
Puerto
Rico
cabotage
decreased
between
8%
and
12%
in
2006,
yet,
freight
rates,
including
surcharges
and
fees,
increased
an
average
of
5%.
It
was
not
a
big
increase,
but
in
such
a
market
one
would
have
thought
prices
should
decrease.
On
March
5,
2007,
Marine
Log
quoted
John
D.
McCown,
Chairman
and
CEO
of
TrailerBridge
as
saying,
“These
are
the
best
quarterly
financial
results
that
Trailer
Bridge
has
reported
in
its
history.”
This
was
at
a
time
when

10. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
10
economic
factors
should
have
shown
that
such
price
increases
should
not
have
been
possible
(lower
demand
does
not
equal
higher
prices).
Peter
and
Gill
would
monitor
their
market
share
through
the
Journal
of
Commerce
PIERs
data
system
to
see
the
information
that
was
required
to
achieve
their
objectives
and
to
make
sure
that
both
companies
were
doing
what
they
agreed
to
do
(trust
but
verify).
It
was
an
honesty
check
among
the
co-­‐
conspirators.
The
PIERs
data
system
was
the
same
one
both
Peter
and
Gill
had
used
when
they
were
fierce
competitors
that
showed
them
how
much
business
the
other
was
doing.
Now
it
was
used
as
a
measuring
device
to
make
sure
those
in
the
conspiracy
were
keeping
their
word.
The
meetings
between
competitors
became
routine
and
just
a
part
of
doing
business.
In
fact,
many
within
the
SSL
organization
were
aware
of
the
information
exchange
between
SSL
(Peter
Baci)
and
Horizon
(Kevin
Gill).
It
was
an
open
secret
inside
the
company,
although
Shapiro
had
warned
Peter
to
keep
these
discussions
a
private
matter.
With
this
plan,
SSL
was
a
turn
around
success.
In
2002,
SSL
had
lost
money
but
in
2003
it
had
its
first
profitable
year….with
other
profitable
years
to
follow.
The
attitude
around
the
office
of
SSL
had
changed
from
concern
about
the
company
staying
open
to
plans
for
company
get-­‐togethers
and
bonuses.
There
was
renewed
energy
and
back-­‐office
talk
about
finding
another
job
had
all
but
vanished.
It
was
a
noticeable
sign
that
the
company
was
a
success.
Everyone
in
the
ownership
group
was
happy
with
the
performance
of
the
company
and
how
Peter
was
managing
things.
The
firing
of
employees
had
stopped,
and
a
secure
management
structure
was
in
place.
New
ship
construction
programs
were
discussed
and
planned.
Everything
was
going
extremely
well
and,
as
a
result
of
SSL’s
success,
Peter’s
salary
continued
to
increase,
as
did
his
annual
bonus.
There
was
never
any
money
given
to
Peter
in
exchange
for
participating
in
the
conspiracy.
His
reward
was
a
steady
job,
a
bonus
and
peace
of
mind
that
he
would
have
a
long,
successful
career
that
would
take
him
to
retirement.

11. ©
Copyright
Kordula,
LLC
www.500PearlStreet.com
August
1,
2012
11
The
Raid
On
April
17,
2008,
Peter
got
up
early
and
went
to
the
Jacksonville
International
Airport
heading
for
meetings
in
New
York.
As
he
was
taking
off,
the
FBI
and
the
Department
of
Justice
raided
the
offices
of
all
four
of
the
ocean
carriers
(SSL,
Horizon,
Crowley
and
Trailer
Bridge).
FBI
agents
knocked
on
the
front
door
of
Peter’s
home
only
to
find
he
was
not
there,
but
his
wife
was.
Peter’s
wife
called
his
cell
phone
just
as
he
was
getting
off
the
plane
in
Newark.
She
was
very
upset
and
told
him
what
had
transpired
and
gave
him
the
phone
number
of
an
FBI
agent
who
had
told
her
to
have
Peter
call
him
immediately.
As
his
wife
spoke,
Peter
knew
what
was
happening
but
it
seemed
like
a
dream.
Who
had
tipped
off
the
government?
His
initial
reaction
was
one
of
fear
and
isolation.
Having
never
been
in
trouble
with
the
law
in
all
of
his
61
years,
his
mind
raced
and
he
was
not
thinking
clearly.
His
first
thought
should
have
been
to
do
as
his
wife
told
him.
Instead,
he
made
a
call
to
an
old
friend
who
worked
for
him,
Alexander
Chisholm.
Peter
told
Chisholm
to
destroy
all
of
the
emails
in
the
Gmail
account
that
SSL
used
to
share
pricing
and
competitive
information
with
Horizon.
Chisholm
complied.
He
then
made
his
first
call
to
the
FBI
agent
who
had
visited
his
home.
The
FBI
agent
was
up
front
with
Peter,
telling
him
that
it
would
be
best
to
come
forward
immediately
and
cooperate
so
that
he
would
receive
the
best
treatment
when
it
came
to
criminal
charges.
Criminal
charges?
It
just
kept
getting
worse.
“What
to
do?”
he
kept
asking
himself.
As
he
was
thinking,
the
FBI
agent
told
him
that
the
offices
of
the
four
carriers,
including
those
in
Puerto
Rico,
were
being
raided
as
they
were
speaking.
He
advised
Peter
that
they
were
not
going
to
immediately
arrest
him
and
further
advised
him
that
they
had
him
on
tape
recordings
that
concerned
fixing
prices.
Someone
had
worn
a
wire?
Raids?
Arrest?
Tapes?
All
this
combined
with
the
fact
that
Peter
had
just
asked
Chisholm
to
destroy
emails.
Peter
could
now
add
an
obstruction
of
justice
charge
to
things
to
worry
about.
Wanting
to
get
off
the
phone,
Peter
told
the
FBI
agent
that
he
would
come
to
their
offices
after
he
arrived
back
in
Jacksonville.
Peter
then
tried
to
make
other
calls
to
the
office
to
see
what
was
going
on
but
his
company
cell
phone
and
email
access
had
been
suspended
during
the
raid.
He
was
cut
off
from
the
company
and
he
had
no
idea
what
people
were
going
through
back
at
the
office
and
at
other
offices….or
what
they
were
saying
about
him.
When
Peter
got
back
to
Jacksonville,
he
had
decided
that
rather
than
go
to
the
office
and
speak
with
the
FBI,
he
would
get
in
touch
with
a
lawyer
for
SSL.
What
Peter
did
not
know
was
that
in
the
short
time
he
was
in
New
York,
people
in
the
office
were
already
cooperating
with
the
government.
The
meeting
with
the
FBI
was
cancelled
and
a
lawyer
paid
for
by
SSL
called
the
government
and
said
that
Peter
had
legal
representation.
Peter
went
to
work
the
following
morning
and
met
with
a
couple
of
his
direct
reports
who
were
interviewed
the
previous
day.
It
was
awkward.
He
felt
awful
and
chose
not
ask
them
what
they
had
said
to
authorities
but
told
them
to
do
whatever
they
felt
was
right
and
to
protect
themselves
and
their

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August
1,
2012
12
families.
Peter
felt
alone
and
the
looks
on
his
co-­‐workers’
faces
told
Peter
that
they
had
probably
thrown
him
under
the
proverbial
bus.
It
was
an
odd
place
to
work
but
they
still
had
customers
calling
and
ships
moving
to
and
from
ports.
It
was
difficult
for
everyone.
The
week
following
the
FBI
raid
there
was
to
be
a
scheduled
company
meeting
to
review
operation
results
(SSL
was
doing
great),
but
that
meeting
was
superseded
by
the
events
associated
with
the
raid
of
the
company.
Saltchuk
corporate
counsel
came
to
the
office
and
interviewed
every
SSL
employee
that
had
been
interviewed
by
the
FBI,
and
Peter.
This
was
a
fact
gathering
effort
on
their
part.
Peter
was
offered
the
opportunity
by
corporate
counsel
to
have
his
own
lawyer,
who
had
been
selected
by
SSL.
Scared
to
talk
to
anyone,
Peter
decided
to
speak
only
with
his
own
lawyer
who
was
located
in
Miami.
Peter’s
personal
lawyer
was
provided
under
the
terms
of
an
Understanding
of
Advancement,
basically
meaning
that
the
fees
were
being
paid
by
SSL
but
if
he
were
found
guilty
of
a
crime
then
he
would
be
responsible
for
the
legal
fees….and
Peter
felt
very
guilty.
However,
the
alternative
was
talking
to
the
FBI
without
a
lawyer
or
talking
with
lawyers
who
represented
the
owners
of
SSL.
While
Peter
was
busy
thinking
about
what
to
tell
his
lawyer,
SSL
put
him
on
paid
administrative
leave,
which
meant
he
continued
to
get
his
salary
and
benefits
but
he
could
not
return
to
the
office.
Peter’s
lawyer
made
it
clear
that
Peter
alone
was
his
client
even
though
the
lawyer
was
being
paid
by
SSL.
Initially
his
lawyer
advised
him
that
his
role
would
be
to
keep
him
out
of
prison
and
to
maintain
his
employment
with
SSL.
Prison?
It
seemed
surreal.
Peter
was
concerned
but
his
lawyer
told
him
that
he
had
to
be
honest
about
everything,
and
that
meant
EVERYTHING.
As
they
met,
Peter’s
lawyer
understood
that
his
client
was
deeply
involved
in
illegal
actions
and
would
most
likely
be
looking
at
prison
unless
they
could
find
a
way
to
cooperate
with
the
government
and
get
some
leniency.
It
was
decided
that
Peter’s
lawyer
would
travel
to
Washington,
DC
to
meet
with
members
of
the
Department
of
Justice
to
see
if
they
could
negotiate
a
deal.
The
meeting
did
not
go
well
as
the
government
already
had
a
lot
of
information,
even
at
this
early
stage
of
the
investigation.
The
government
did
agree
to
a
meeting
with
Peter
in
Miami,
with
his
attorney
present,
to
go
through
some
questioning.
This
is
known
as
a
“proffer”,
which
is
an
agreement
to
allow
someone
under
investigation
to
be
questioned
by
federal
authorities
without
having
their
answers
be
used
against
them
at
trial…unless
it
is
information
the
government
already
knows.
That
meeting
went
well
as
Peter
remembered
a
lot
of
meetings,
dates,
times
and
names.
Much
of
what
he
said
matched
what
others
had
said,
but
Peter
was
at
the
center
of
the
action.
Afterwards
his
attorney
began
the
negotiation
of
a
plea
agreement.
Prison
was
now
a
certainty
and
as
soon
as
it
was
known
that
Peter
was
in
negotiations
to
plead
guilty,
his
employment
with
SSL
was
terminated
with
an
effective
date
of
August
31,
2008.
Peter
was
also
responsible
for
his
own
legal
fees.

13. ©
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August
1,
2012
13
Pleading
Guilty
and
Prison
Peter’s
first
day
in
federal
court
was
October
20,
2008.
In
the
weeks
between
his
first
meeting
with
the
Department
of
Justice
and
October
20th
he
tried
to
recall
as
many
details
about
what
he
had
done
and
what
he
knew
others
had
done
relative
to
the
conspiracy.
Everyone
that
Peter
provided
information
about
had
been
close
business
and
personal
friends
for
years;
it
was
difficult.
His
personal
objective
at
this
time
was
to
try
and
move
this
forward
as
quickly
as
possible…
GET
IT
OVER
WITH.
There
was
a
drive
to
plead,
get
the
prison
sentence
and
start
serving
his
time
as
soon
as
possible.
After
all,
his
prison
sentence
could
not
end
without
it
beginning
at
some
point.
What
was
ironic
about
the
date
of
October
20,
2008
was
that
it
represented
the
ten-­‐year
anniversary
of
Peter’s
start
at
SSL.
He
would
have
never
envisioned
this
ending.
Peter
was
not
the
only
one
who
would
be
in
court
that
day
entering
a
guilty
plea.
Along
with
Peter
were
the
subordinate
at
SSL
he
had
called
to
destroy
documents
and
delete
the
Gmail
account
once
he
knew
of
the
raid,
Alexander
Chisholm.
Then
there
was
Garbiel
Serra
(Horizon)
and
two
people
who
worked
for
him
at
Horizon,
Kevin
Gill
and
Gregory
Glova.
Glova
had
taken
over
for
Gill
after
Gill
had
requested
to
be
moved
to
another
position
because
he
grew
uncomfortable
in
his
role
of
having
to
fix
prices.
He
trained
Glova,
a
good
friend,
to
work
with
Peter
and
moved
on
to
a
new
position
that
did
not
involve
setting
prices
with
competitors.
Peter
was
sentenced
to
prison
based
on
Federal
Sentencing
Guidelines.
Those
guidelines
are
rules
that
set
out
a
uniform
sentencing
policy
for
individuals
and
organizations
convicted
of
felonies
against
the
United
States.
Those
guidelines
mandate
“points”
for
each
offense
and
those
points
are
then
matched
to
a
chart
(Federal
Sentencing
Guideline
Table)
to
arrive
at
a
range
of
months
in
prison
for
the
judge
to
consider
during
sentencing.
The
guidelines
are
just
a
recommendation
for
the
judge
in
considering
a
length
of
prison
sentence,
but
most
sentences
fall
within
the
recommended
range
of
the
guideline.
Peter’s
plea
incorporated
a
$20,000
fine
and
a
total
offense
level
of
32
(See
Exhibit
II
for
breakdown),
which
was
discounted
slightly
by
his
cooperation
and
acceptance
of
responsibility
to
reach
an
offense
level
of
25
(57-­‐71
months).
Peter
entered
his
plea
of
“Guilty”
and
a
sentencing
date
was
scheduled
for
January
30,
2009.
As
a
condition
of
his
plea,
Peter
was
fingerprinted,
had
his
photo
taken
and
was
questioned
about
every
aspect
of
his
personal
life
(finances,
family,
home,
cars,
health,
etc.).
All
of
this
information
would
be
used
to
put
together
a
Presentencing
Report,
which
is
prepared
by
the
government.
He
had
to
surrender
his
passport
and
was
informed
that
he
would
not
be
allowed
to
travel
outside
of
the
Jacksonville
area
without
permission.
During
this
time,
Peter
also
spent
time
with
prosecutors
about
information
he
knew
on
others
involved
in
the
conspiracy
who
had
not
yet
pled
guilty.
On
January
30,
2009,
Peter
Baci
was
sentenced
to
prison
for
48
months.
It
was
slightly
below
the
recommended
sentence
but
the
government
and
judge
both
agreed
that
his
testimony
was
substantial.
At
the
writing
of
this
case
study
(May
2012),
Peter’s
cooperation
has
led
the
arrest
of
others….people
he

14. ©
Copyright
Kordula,
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August
1,
2012
14
had
also
once
worked
with
at
SSL.
He
will
be
asked
to
testify
at
those
trials
as
a
government
witness.
Peter
was
the
first
one
sentenced
in
this
case,
and
as
it
turned
out,
he
has
received
the
longest
sentence
to
date.
Peter
was
the
last
one
to
cooperate
of
the
four
others
that
had
pleaded
guilty
back
in
October
2008.
On
April
15,
2009,
almost
six
months
after
pleading
guilty
and
a
year
after
the
initial
FBI
raid
on
SSL,
Peter
arrived
at
the
Federal
Prison
Camp
in
Pensacola,
FL.
Peter
made
the
six-­‐hour
drive
across
Florida
with
his
30
year-­‐old
son.
They
decided
to
head
over
the
night
before
surrendering
to
prison
and
stayed
at
a
local
beach
hotel.
He
entered
the
main
building
of
the
prison
facility
shortly
before
noon
and
stated
his
name,
“Peter
Baci”,
and
sure
enough,
they
were
expecting
him.
He
waited
as
a
guard
made
a
call
and
within
a
few
minutes
another
prison
officer
arrived
to
take
him
to
a
room
called
Receiving
and
Discharge,
which
is
the
room
where
inmates
are
received
into
the
prison
system
and
released
back
into
society.
Peter
was
asked
questions
about
his
health
and
state
of
mind.
There
were
also
various
forms
to
fill
out
and
Peter
turned
over
prescriptions
for
medication
he
was
taking
under
doctor’s
orders.
Those
prescriptions
were
confiscated
and
he
was
told
that
he
could
see
a
physician
inside
the
prison
within
a
few
days
to
get
any
prescriptions
needed.
The
only
item
Peter
was
allowed
to
keep
was
his
eyeglasses.
The
guard
handed
him
an
orange
jump
suit
and
told
him
to
strip
off
all
of
his
clothes.
His
clothes
and
personal
items
were
inventoried
and
put
in
a
package
that
Peter
sealed.
These
items
were
mailed
back
to
Peter’s
home.
With
that,
Peter
was
sent
with
another
inmate
to
obtain
his
everyday
green
prison
uniform,
which
he
would
wear
until
his
release.
By
4:00pm
the
day
of
his
surrender
to
prison,
Peter’s
son
was
not
even
back
to
Jacksonville
while
Peter
was
standing
up
in
his
cell
for
a
daily
prisoner
count
conducted
by
a
prison
guard.
Peter’s
sentence
was
48
months.
In
the
federal
system
there
is
no
probation
but
inmates
can
earn
“good
time”
for
good
behavior.
It
is
an
incentive
for
inmates
to
obey
the
rules
and
keep
order
while
in
prison.
An
inmate
can
earn
up
to
54
days
of
good
time
taken
off
of
their
sentence.
In
addition,
Peter
qualified
for
additional
time
off
because
of
his
participation
in
the
500-­‐hour
Residential
Drug
and
Alcohol
Program.
In
total,
Peter
spent
25
months
in
prison
and
six
months
in
a
Halfway
House/
Home
Confinement,
which
ended
as
of
November
14,
2011.
During
his
time
in
prison,
Peter’s
cooperation
with
the
government
continued,
including
an
appearance
before
a
Grand
Jury.
Since
his
release,
Peter
is
on
two
(2)
years
of
probation,
which
will
end
in
November
2013.
Peter
was
able
to
find
employment
as
a
clerk
for
a
small
shipping
company
in
Jacksonville.
He
has
no
management
authority.

15. ©
Copyright
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LLC
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August
1,
2012
15
Epilogue
Both
SSL,
Horizon
and
Crowley
have
settled
their
criminal
cases
with
the
Department
of
Justice.
SSL
was
sentenced
to
pay
a
$14.2
million
criminal
fine
on
December
20,
2011.
Horizon
Lines
LLC
was
sentenced
to
pay
a
$15
million
criminal
fine
on
March
22,
2011.
On
August
1,
2012,
Crowley
Liner
Services,
Inc.
pleaded
guilty
and
was
sentenced
to
pay
$17
million
criminal
fine
for
its
role
in
a
conspiracy
to
fix
prices
in
the
coastal
water
freight
transportation
industry.
The
other
companies,
Crowley
and
Trailer
Bridge,
were
not
charged
criminally.
SSL
agreed
to
pay
a
fine
of
$14.2M.
Horizon
Lines
agreed
to
pay
a
fine
of
$15M
to
the
U.S.
government.
A
class
action
settlement
valued
in
excess
of
$50M
was
awarded
to
customers
who
claimed
that
they
were
harmed
by
the
price
fixing
practices.
The
companies
paying
into
the
settlement
included;
SSL
$18.5M,
Horizon
$20M
and
Crowley
$13.75M.
On
November
17,
2011,
Peter’s
boss
at
SSL,
Frank
Peake
(President
of
SSL),
was
arrested
as
part
of
the
continuing
investigation.
Mr.
Peake
has
pled
“not
guilty”
and
his
trial
is
scheduled
for
some
time
in
2012.
Horizon
was
delisted
from
the
NYSE
on
October
14,
2011
due
to
low
trading
price
(capitalization)
and
has
been
working
with
its
shareholders
to
restructure
its
$80
million
debt.
Trailer
Bridge
filed
for
bankruptcy
in
January
2012
and
is
currently
working
on
a
restructuring
plan.
SSL
is
still
in
operation
and
is
now
owned
90
%
by
American
Shipping
Group,
Inc.(Parent
of
Saltchuk)
and
10%
Taino
Star,
Inc.
The
investigation
into
price
fixing
in
the
Puerto
Rico
routes
covered
by
the
Jones
Act
are
active
in
the
Department
of
Justice.
Gabriel
Serra
(Inmate
#32577-­‐018)
–
Pled
guilty
on
October
20,
2008
that
he
and
his
co-­‐conspirators
engaged
in
a
combination
and
conspiracy
in
violation
of
Section
1
of
the
Sherman
Act
to
suppress
and
eliminate
competition
in
the
market
for
cabotage
between
the
U.S.
and
Puerto
Rico.
R.
Kevin
Gill
(Inmate
#32574-­‐018)
–
Pled
guilty
on
October
20,
2008
that
he
and
his
co-­‐conspirators
engaged
in
a
combination
and
conspiracy
in
violation
of
Section
1
of
the
Sherman
Act
to
suppress
and
alimnate
competition
in
the
market
for
cabotage
between
the
U.S.
and
Puerto
Rico.
Gregory
Glova
(Inmate
#32576-­‐018)
–
Pled
guilty
on
October
20,
2008
that
he
and
his
co-­‐conspirators
engaged
in
a
combination
and
conspiracy
in
violation
of
Section
1
of
the
Sherman
Act
to
suppress
and
eliminate
competition
in
the
market
for
cabotage
between
the
U.S.
and
Puerto
Rico.
Peter
Baci
(Inmate
#32572-­‐018)
–
Pled
guilty
on
October
20,
2008
that
he
and
his
co-­‐conspirators
engaged
in
a
combination
and
conspiracy
in
violation
of
Section
1
of
the
Sherman
Act
to
suppress
and
eliminate
competition
in
the
market
for
cabotage
between
the
U.S.
and
Puerto
Rico.
Alexander
G.
Chisholm
(Inmate
#32573-­‐018)
–
Pled
guilty
on
October
20,
2008
that
he
became
aware
of
an
investigation
by
a
grand
jury
sitting
in
the
Middle
District
of
Florida,
assisted
by
the
FBI,
into
possible
federal
antitrust
offenses
in
Puerto
Rican
cabotage,
on
April
17,
2008,
he
corruptly
altered,
destroyed

16. ©
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August
1,
2012
16
and
concealed
records
and
documents
and
attempted
to
do
so
with
the
intent
to
impair
the
availability
of
the
records
and
documents
for
use
in
the
investigation.
Frank
Peake
–
Peake,
the
former
president
of
SSL,
was
arrested
on
November
17,
2011
and
is
scheduled
to
stand
trial
on
January
14,
2013.
Peter
Baci
is
listed
as
a
government
witness.
In
April
2012,
Kraft
Foods
Group,
Inc.
and
The
Kellogg
Company
filed
a
lawsuit
against
SSL,
Saltchuk
Resources,
Crowley
and
Mr.
Leonard
Shapior
alleging
price
fixing.
Both
Kraft
and
Kellogg
chose
not
to
settle
with
the
shipping
companies
and
have
instead
pursued
their
own
lawsuit
for
damages
associated
with
their
companies
shipping
goods
to
Puerto
Rico.
There
has
been
pressure
to
eliminate
the
protectionist
legislation
that
is
the
Jones
Act.
Unions
and
domestic
shipping
companies
want
to
protect
the
Jones
Act
while
large
corporations
that
ship
goods
believe
that
shipping
prices
are
kept
at
high
rates.
In
2012,
Senator
John
McCain
(Republican,
Arizona)
introduced
legislation
that
would
repeal
the
Jones
Act.
Businesses
in
Hawaii
are
also
applying
pressure
to
their
representatives
stating
that
shipping
goods
from
Los
Angeles
to
Hong
Kong,
is
half
the
price
of
shipping
goods
from
Los
Angeles
to
Hawaii
(half
the
distance).
Ship
builders
are
also
getting
involved
stating
that
with
cut
backs
in
the
Department
of
Defense
budget
and
the
elimination
of
the
Jones
Act
at
the
same
time
would
destroy
their
businesses.
As
of
2009,
85%
of
new
cargo
ship
capacity
worldwide
was
built
by
Korea,
China
and
Japan.
There
is
also
pressure
on
the
airline
industry
to
further
deregulate
to
allow
foreign
carriers
on
domestic
routes.

17. ©
Copyright
Kordula,
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August
1,
2012
17
Source
Documents
This
case
is
based
off
of
the
case
of
antitrust
filed
by
the
U.S.
government
against
Peter
Baci
in
the
United
States
District
of
Florida,
Jacksonville
Division,
Case
No.:
3:08-­‐cr-­‐350-­‐J-­‐32TEM.
Ct.
1:
15
U.S.C §
1.
Source
documents
include
the
following:
United
States
of
America
v.
Peter
Baci,
Case
No.:
3:08-­‐cr-­‐350-­‐J-­‐32TEM,
Plea
Agreement,
October
20,
2008
United
States
of
America
v.
Peter
Baci,
Case
No.:
3:08-­‐cr-­‐350-­‐J-­‐25JRK,
Indictment,
October
1,
2008
Department
of
Justice,
Press
Release,
“Florida-­‐Based
Sea
Star
Line
LLC
Agrees
To
Plead
Guilty
And
Its
Former
President
Is
Indicted
For
Price
Fixing
On
Coastal
Freight
Services
Between
The
Continental
United
States
and
Puerto
Rico,
November
17,
2011
Civil
Case,
CIVIL
NO.
08-­‐1467
(DRD)
(08-­‐1525,
08-­‐1553,
08-­‐1555,
-­‐08-­‐1617,
08-­‐1626,
08-­‐1618,
08-­‐1665);
08-­‐1569
(DRD);
MDL
NO.
08-­‐1960,
Second
Consolidated
Amended
Class
Action
Complaint,
February
23,
2009
IN
THE
UNITED
STATES
DISTRICT
COURT
FOR
THE
DISTRICT
OF
PUERTO
RICO,
JOINT
MOTION
FOR
PRELIMINARY
APPROVAL
OF
SETTLEMENT
WITH
ALEXANDER
CHISHOLM,
CERTIFCATION
OF
SETTLEMENT
CLASS,
AUTHORIZATION
TO
DISSEMINATE
CLASS
NOTICE,
AND
STAY
OF
PROCEEDINGS
AGAINST
CHISHOLM,
Master
Docket
No.
08-­‐md-­‐1960
(DRD)
Charlotte
Observer,
“Shipping
Company
Fined
$45
million
–
Horizon
Lines
to
Plead
Guilty
in
Price-­‐Fixing
Scheme
For
Freight
to
Puerto
Rico,”
February
25,
2011
The
Journal
of
Commerce,
“Sea
Star,
Crowley
Confirm
Antitrust
Payouts,”
April
25,
2011
United
States
of
America,
Plaintiff
v.
Frank
Peake,
Defendant,
Indictment,
Criminal
No.
11-­‐512
(JAF),
Violation:
15
U.S.C.
§ 1, November
17,
2011
Department
of
Justice,
Press
Release,
“Former
Shipping
Executive
Sentenced
to
48
Months
In
Jail
For
His
Role
in
Antitrust
Conspiracy,”
January
30,
2009
Jacksonville
Business
Journal,
“Former
Horizon
Officers
Get
Prison
Terms,”
May
12,
2009
Pacific
Shipper,
“Widespread
Conspiracy
Alleged,”
February
8,
2009
Notice
of
Settlement,
“If
you
paid
for
ocean
shipping
services
(“cabotage”)
between
Puerto
Rico
and
the
continental
United
States,
you
could
receive
a
benefit
from
class
action
settlements,”
August
25,
2010
United
States
District
Court
For
The
District
of
Puerto
Rico,
MDL
Docket
No.
3:08-­‐md-­‐1960,
Opinion
and
Order
on
Legal
Fees,
August
30,
2011
United
States
of
America
v.
Alexander
G.
Chisholm,
Case
No.:
3:08-­‐cr-­‐353-­‐J-­‐25MCR,
Indictment,
October
1,
2008
Journal
of
Commerce,
“Horizon
Converts
$49.7
Million
of
Debt
to
Equity”,
Joseph
Bonney,
Senior
Editor,
January
11,
2012
United
States
of
America
v.
Gabriel
Serra,
Case
No,”
3:08-­‐cr-­‐349-­‐J-­‐327TEM,
Plea
Agreement,
October
20,
2008
Jones
Day,
“Antitrust
Alert:
U.S.
Justice
Department
Obtains
Record
Jail
Sentence
for
Antitrust
Conspiracy:
The
Value
of
Cooperation
and
Judicial
Discretion,”
April
2009
Kraft
Foods
Group,
Inc.
and
The
Kellogg
Company
v.
Sea
Star
Line,
LLC;
Saltchuk
Resources,
Inc.;
Crowley
Maritime
Corporation;
Crowley
Liner
Services,
Inc.
and
Leonard
H.
Shapiro
in
the
U.S.
District
Court
for
the
District
of
South
Carolina
Charleston
Division,
April
13,
2012
Arrowpac
Incorporated;
et.al.
v.
Sea
Star
Line,
LLC’
Saltchuk
Resources,
Inc.;
Totem
Ocean
Trailer
Express,
Inc.;
Crowley
Maritime
Corporations’
Crowley
Liner
Services,
Inc.;
and
Leonard
Shapiro,
in
the
U.S.
District
Court
for
the
District
of
South
Carolina
Charleston
Division,
Case
No.
2:12-­‐
cv-­‐1008-­‐CWH,
April
12,
2012
Department
of
Justice
Press
Release,
FLORIDA-­‐BASED
CROWLEY
LINER
SERVICES
INC.
PLEADS
GUILTY
TO
PRICE
FIXING
ON
FREIGHT
SERVICES
BETWEEN
U.S.
AND
PUERTO
RICO,
August
1,
2012

18. ©
Copyright
Kordula,
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August
1,
2012
18
Exhibit
I
-­‐
Time
Line
2001
–
NPR
Navieras
filed
for
bankruptcy
and
ceased
operations
May
2002
–
first
meeting
to
discuss
fixing
prices
December
2005
–
Glova
joins
the
conspiracy
April
17,
2008
–
FBI
raids
offices
at
Horizon,
SSL
and
Crowley.
Alexander
Chisholm
accessed
a
remote
server
from
his
home
computer
and
deleted
files
that
were
relevant
and
material
to
the
grand
jury’s
investigation….he
later
recovered
the
files
and
gave
them
to
the
government.
The
instruction
to
delete
files
came
from
Peter
Baci,
“take
down
the
G-­‐mail
account.”
May
7,
2008
–
Sea
Star
issued
a
press
release
stating
that
it
was
cooperating
with
DOJ’s
investigation
and
had
placed
a
number
of
employees
on
indefinite
administrative
leave
for
violations
of
company
policy.
August
31,
2008
–
Peter
Baci
is
terminated
from
SSL
as
his
attorney
enters
into
discussions
to
arrange
a
guilty
plea
with
the
government.
October
1,
2008
–
Baci,
Gill,
Glova
charged
with
one
count
of
conspiracy
to
suppress
and
eliminate
competition
by
rigging
bids,
fixing
prices
and
allocating
customers
October
1,
2008
–
Chisholm
charged
with
altering,
destroying
and
concealing
records.
October
20,
2008
–
Serra
(Horizon
Puerto
Rico)
pleads
guilty,
Gill
(Horizon)
pleads
guilty,
Glova
(Horizon)
pleads
guilty,
Baci
(SSL)
pleads
guilty
January
30,
2009
–
Peter
Baci
sentenced
to
48
months
in
prison
and
fined
$20,000
(no
restitution
as
he
had
no
significant
assets
and
the
companies
would
eventually
have
to
pay
some
form
of
settlement).
May
12,
2009
–
Alexander
Chisholm
(SSL)
was
sentenced
to
7
months
in
prison
and
fined
$4,000.
Gabriel
Serra
(Horizon)
was
sentenced
to
34
months
in
prison
and
fined
$20,000.
R.
Kevin
Gill
(Horizon)
was
sentenced
to
29
months
in
prison
and
fined
$20,000.
Gregory
Globa
(Horizon)
was
sentenced
to
20
months
in
prison
and
fined
$20,000.
June
11,
2009
–
Horizon
came
to
a
settlement
agreement
as
part
of
a
class
action
suit
to
pay
$20,000,000.
In
addition,
it
provided
relief
to
members
of
the
class
action
to
freeze
shipping
rates
for
a
period
of
two
years.
January
15,
2010
–
Crowley
came
to
a
settlement
agreement
as
part
of
a
class
action
suit
to
pay
$13,750,000.
In
addition,
it
provided
relief
to
members
of
the
class
action
to
freeze
shipping
rates
for
a
period
of
two
years.

19. ©
Copyright
Kordula,
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August
1,
2012
19
July
21,
2010
–
SSL
came
to
a
settlement
agreement
as
part
of
a
class
action
suit
to
pay
$18,500,000.
In
addition,
it
provided
relief
to
members
of
the
class
action
to
freeze
shipping
rates
for
a
period
of
two
years.
February
24,
2011
–
Horizon
Lines
agrees
to
pay
$45
million
fine
to
the
U.S.
government
and
plead
guilty
to
taking
part
in
a
scheme
to
fix
prices
for
freight
transportation
to
Puerto
Rico.
It
also
agreed
to
pay
$1.8
million
fine
in
Puerto
Rico
to
settle
lawsuits
from
people
alleging
they
paid
inflated
prices
because
of
the
company’s
price
fixing.
April
2011
–
Horizon
negotiates
a
reduced
payment
with
the
government
for
$15
million,
down
from
$45
million,
after
noting
the
financial
difficulties
of
the
company.
Includes
statement
that
its
legal
fees
associated
with
this
action
cost
it
almost
$11
million.
April
25,
2011
–
A
class
action
lawsuit
settles
with
those
claiming
harm
from
the
conspiracy
by
the
companies
involved.
Sea
Star
line
paid
$18.5
million,
Crowley
paid
$13.75
million
and
Horizon
paid
$20
million.
These
amounts
are
in
addition
to
criminal
fines.
July
13,
2011
–
Crowley,
SSL
and
Trailer
Bridge
share
in
a
$70.5
million
contract
with
the
Department
of
Defense
for
cargo
sealift
transportation
services.
October
14,
2011
–
New
York
Stock
Exchange
suspends
Horizon
Lines
from
trading
because
the
company’s
average
capitalization
over
30
trading
days
fell
below
$15
million.
The
stock
was
trading
at
$0.32/share.
It
now
trades
on
the
OTC
market
under
the
symbol
HRZL.
November
16,
2011
–
Trailer
Bridge
files
for
Chapter
11
Bankruptcy
(NASDAQ:
TRBR)
November
17,
2011
–
Frank
Peake,
Chief
Operating
Officer
and
President
of
SSL
is
indicted
November
18,
2011
–
SSL
agreed
to
pay
a
$14.2
million
criminal
fine
to
the
U.S.
government
December
20,
2011
-­‐
SSL
was
sentenced
to
pay
a
$14.2
million
criminal
fine
to
U.S.
government.
January
11,
2012
–
Horizon
settles
with
debt
holders
to
convert
$49.7
million
in
debt
to
equity
January
17,
2012
–
Trailer
Bridge
files
plan
to
exit
Chapter
11
after
negotiating
with
is
debt
holders
on
$82.5
million
in
notes.
April
2012
-­‐
Kraft
Foods
Group,
Inc.
and
The
Kellogg
Company
filed
a
lawsuit
against
SSL,
Saltchuk
Resources,
Crowley
and
Mr.
Leonard
Shapior
alleging
price
fixing.
Both
Kraft
and
Kellogg
chose
not
to
settle
with
the
shipping
companies
and
have
instead
pursued
their
own
lawsuit
for
damages
associated
with
their
companies
shipping
goods
to
Puerto
Rico.
August
1,
2012
-­‐
Crowley
Liner
Services,
Inc.
pleaded
guilty
and
was
sentenced
to
pay
$17
million
criminal
fine
for
its
role
in
a
conspiracy
to
fix
prices
in
the
coastal
water
freight
transportation
industry.

20. ©
Copyright
Kordula,
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www.500PearlStreet.com
August
1,
2012
20
Exhibit
II
–
Calculation
of
A
Federal
Sentence
The
base
offense
level
was
12,
it
was
increased
by
one
for
submitting
non-­‐competitive
bids
,
by
three
for
my
role,
by
two
for
my
attempted
obstruction
of
justice,
and
by
14
because
of
the
volume
of
commerce
attributed
to
my
actions.
The
DOJ
maintained
that
the
impacted
commerce
was
$1B
which
equates
to
the
total
SSL
revenue
during
the
dates
of
the
conspiracy.
We
had
tried
to
dispute
the
$1B
number
as
it
was
very
arbitrary.
I
went
thru
all
of
the
SSL
revenue
data
at
my
disposal
and
by
my
calculations
the
impacted
commerce
was
significantly
less
than
$1B.
I
looked
at
customers
that
were
never
part
of
any
discussions
with
competitors
and
other
factors
such
as
contractual
relationships
and
ramp-­‐up
timing
of
the
conspiracy.
As
far
as
the
DOJ
was
concerned
there
would
be
no
discounting
of
this
number.
They
basically
said
if
we
prevailed
on
this
issue
they
would
simply
add
another
charge
such
as
mail
fraud
to
make
the
prison
time
equate
to
what
they
wanted
to
achieve.
Under
the
plea
agreement
the
minimum
amount
of
time
I
would
serve
would
be
57
months.
This
was
a
“type
C”
plea
agreement
which
basically
presents
the
terms
to
the
Judge
as
a
‘take
it
or
leave
it”
deal.
The
Judge
has
very
little
opportunity
to
change
the
terms
of
the
sentence.
Base
Level
Offense
12
Participation
in
an
agreement
to
submit
non-­‐competitive
bids
+1
Volume
of
Commerce
Attributable
to
Baci
was
over
$1
billion
+14
Defendant’s
leadership
role
+3
Obstruction
of
justice
+2
Acceptance
of
responsibility
-­‐2
Timely
Acceptance
of
responsibility
-­‐1
Substantial
Assistance
-­‐4
The
government
recommended
an
offense
level
of
25
on
the
Federal
Sentencing
Guidelines.
This
took
into
account
Peter’s
assistance
to
the
government
and
his
acceptance
of
responsibility.
The
prison
sentence
for
a
person
in
this
range,
with
no
previous
criminal
history
(Criminal
History
Category
I
),
is
57-­‐
71
months
in
prison
(see
Table
on
following
page).
One
driving
factor
in
the
government’s
recommendation
was
the
amount
of
money
involved
in
the
conspiracy,
which
they
pegged
at
$1
billion
(the
total
sales
of
SSL
over
the
entire
period
of
the
conspiracy).

21. ©
Copyright
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August
1,
2012
21
SENTENCING TABLE
(in months of imprisonment)
Criminal History Category (Criminal History Points)
Offense
Level
I
(0 or 1)
II
(2 or 3)
III
(4, 5, 6)
IV
(7, 8, 9)
V
(10, 11, 12)
VI
(13 or more)
Zone A
1 0-6 0-6 0-6 0-6 0-6 0-6
2 0-6 0-6 0-6 0-6 0-6 1-7
3 0-6 0-6 0-6 0-6 2-8 3-9
4 0-6 0-6 0-6 2-8 4-10 6-12
5 0-6 0-6 1-7 4-10 6-12 9-15
6 0-6 1-7 2-8 6-12 9-15 12-18
7 0-6 2-8 4-10 8-14 12-18 15-21
8 0-6 4-10 6-12 10-16 15-21 18-24
Zone B
9 4-10 6-12 8-14 12-18 18-24 21-27
10 6-12 8-14 10-16 15-21 21-27 24-30
Zone C
11 8-14 10-16 12-18 18-24 24-30 27-33
12 10-16 12-18 15-21 21-27 27-33 30-37
Zone D
13 12-18 15-21 18-24 24-30 30-37 33-41
14 15-21 18-24 21-27 27-33 33-41 37-46
15 18-24 21-27 24-30 30-37 37-46 41-51
16 21-27 24-30 27-33 33-41 41-51 46-57
17 24-30 27-33 30-37 37-46 46-57 51-63
18 27-33 30-37 33-41 41-51 51-63 57-71
19 30-37 33-41 37-46 46-57 57-71 63-78
20 33-41 37-46 41-51 51-63 63-78 70-87
21 37-46 41-51 46-57 57-71 70-87 77-96
22 41-51 46-57 51-63 63-78 77-96 84-105
23 46-57 51-63 57-71 70-87 84-105 92-115
24 51-63 57-71 63-78 77-96 92-115 100-125
25 57-71 63-78 70-87 84-105 100-125 110-137
26 63-78 70-87 78-97 92-115 110-137 120-150
27 70-87 78-97 87-108 100-125 120-150 130-162
28 78-97 87-108 97-121 110-137 130-162 140-175
29 87-108 97-121 108-135 121-151 140-175 151-188
30 97-121 108-135 121-151 135-168 151-188 168-210
31 108-135 121-151 135-168 151-188 168-210 188-235
32 121-151 135-168 151-188 168-210 188-235 210-262
33 135-168 151-188 168-210 188-235 210-262 235-293
34 151-188 168-210 188-235 210-262 235-293 262-327
35 168-210 188-235 210-262 235-293 262-327 292-365
36 188-235 210-262 235-293 262-327 292-365 324-405
37 210-262 235-293 262-327 292-365 324-405 360-life
38 235-293 262-327 292-365 324-405 360-life 360-life
39 262-327 292-365 324-405 360-life 360-life 360-life
40 292-365 324-405 360-life 360-life 360-life 360-life
41 324-405 360-life 360-life 360-life 360-life 360-life
42 360-life 360-life 360-life 360-life 360-life 360-life
43 life life life life life life
November 1, 2011