Industry News

[May 09, 2007]

Whistle-blower's taped conversations led to search warrants

(Indianapolis Star, The (KRT) Via Thomson Dialog NewsEdge) May 6--The Justice Department's biggest domestic price-fixing investigation started with a phone call in the fall of 2003.

Gary Matney, then in charge of Indiana operations for Prairie Material Sales, a Chicago-area company, had been approached several times over the years about colluding on prices.

Prairie's low pricing in the Indianapolis area had drawn the ire of Gus "Butch" Nuckols III, president of Builder's Concrete & Supply Co. in Fishers, and other competitors, because it was driving down industry profits.

Matney wouldn't budge.

So Nuckols and rival Fred "Pete" Irving, then president and chairman of Irving Materials Inc. in Greenfield, went above Matney's head. They drove to a Chicago suburb and complained to his boss, Alan Oremus, Prairie Material's president and chief executive.

Angry and fearing reprisals, Matney called the Justice Department's Antitrust Division, which prosecutes price fixing, bid rigging and other anti-competitive practices.

At first, Matney told Michael Boomgarden, a DOJ trial attorney, that he wanted to report concerns about a joint venture in the aggregate industry. Aggregate is loose stone that's mixed with cement and other materials to make ready-mix concrete.

But when he met with Boomgarden at a Cracker Barrel in Lafayette, Matney instead told what he knew about the price-fixing conspiracy.

He mentioned that a Builder's Concrete executive working for Nuckols had invited him to a Big Boy restaurant in 2001 to discuss prices. And he recounted similar talks he'd had with Scott Hughey, president of Carmel Concrete Products.

The ready-mix industry lends itself to price fixing because a small number of companies that have invested in concrete mixing plants and trucks typically compete on prices to sell a nearly identical product within a limited geographic area. The concrete business is seasonal and is predicated on making a little bit of money on each load many times over, with $19-an-hour drivers hauling $900 loads in $180,000 trucks.

Matney told authorities he had never fixed prices. He did not request immunity or any other favorable treatment and was never charged. The Antitrust Division arranged for him to be interviewed by Steven Schlobohm, a member of the FBI's white-collar crime unit in Indianapolis, who would lead the investigation.

On Oct. 9, 2003, Matney told the FBI he had been contacted by Hughey about meetings his competitors had staged at Nuckols' party barn in Fishers.

During the first meeting with Hughey, at a Westside Cracker Barrel, Hughey had asked Matney to help illegally fix prices that Matney's company, Prairie Material; Hughey's firm, Carmel Concrete; and competitor Irving Materials Inc. were charging F.A. Wilhelm Construction Co., a large general contractor.

In a later meeting, Hughey told him the conspiracy included:

-- Irving Materials, the industry leader, with more than twice the sales of its nearest competitor.

-- Builder's Concrete, the No. 2 company in the market, whose profits were eroding despite work on projects such as the widening of Allisonville Road.

-- Beaver Materials in Noblesville, a smaller company then providing concrete to C.P. Morgan and other suburban homebuilders.

-- Shelby Materials in Shelbyville, a company doing business in Indianapolis and to the southeast on projects such as improving I-74.

Matney said Hughey had told him an effort was under way to recruit financially ailing American Concrete Co. in Indianapolis. The goal was to limit discounting on bid work to no more than $5.50 per yard of concrete. If that were successful, they would aim for $3.50.

A typical concrete mix that could withstand 4,000 pounds per square inch of crushing pressure was listed for sale at about $75 per cubic yard. But competitive market discounts were shaving $8 to $20 per yard off that.

The FBI persuaded Matney to begin taping his conversations with Hughey, setting the stage for obtaining search warrants.

On Nov. 14, 2003, the FBI monitored a breakfast meeting between Matney and Hughey at the Westside Cracker Barrel. Hughey encouraged Matney to join forces with his competitors against customers who were trying to beat down prices by pitting firms against one another.

Hughey: "My meeting today is to say, 'Hey, are you with us or not?' . . . I can't look you in the eye and say I guarantee all these guys are going to do what they say they're going to do. But I think we've all had it up to maybe here, and I would hope we will. Everybody's willing to give that a try."

Matney: "If I don't go along with it, I mean, what's the . . . what do I have to look forward to here? You know, a big gang-bang at my expense?"

Hughey: "There's no plan like that."

Three days later, they met again at Cracker Barrel. Matney brought up his competitors' trip to the Chicago area to complain to his boss, Oremus.

Hughey said the others were not trying to gang up on him, but he acknowledged Matney's lonely position.

Hughey: "What you've said about everybody's on board but you at this point, that is a fact. I can't help that."

Their final in-person meeting was taped Feb. 4, 2004, at the Mountain Jack's restaurant on West 38th Street.

Hughey told Matney the conspirators were getting ready to come out with a price increase for spring 2004. Matney responded that he was glad he had stayed away from the meetings in Nuckols' party barn.

"I'd rather be on the outside," Matney said.

"I understand," Hughey replied. "I'm not real comfortable with that, either, and, uh, people just don't want to get too easy, too bold, too lackadaisical."

On March 12, 2004, the FBI taped a phone call in which Hughey asked Matney whether Prairie Material would go along with the spring price increase. With permission from the FBI, Matney agreed.

Nine days after the FBI taped that phone call, agents interviewed Jason Mann, American Concrete's president, at his Greenwood home. Mann, whose company was failing after the death of his father, Dennis Mann, told the FBI that Pete Irving of Irving Materials was the "driving force" behind the scheme. Mann had not attended the meetings and was never charged.

The Raids

The somber men flashed their federal credentials.

As industry executives awoke on May 25, 2004, FBI agents, Indiana State Police investigators and Justice Department attorneys fanned out to conduct interviews and search the premises of six concrete companies.

Butch Nuckols of Builder's Concrete, interviewed in his home, was among participants who initially lied to investigators, denying knowledge of meetings in his barn and at other locations to fix prices.

After hastily finishing breakfast with an Irving Materials executive, Scott Hughey of Carmel Concrete met with the FBI and told agents he could not talk until he had spoken with an attorney. Hughey went back to his office and found agents searching it. He stayed for 30 to 40 minutes, then went home and destroyed more incriminating notes.

In Noblesville, Chris Beaver, operations manager at Beaver Materials, invited investigators in and offered them refreshments. He was calm and talkative, but he repeatedly denied any involvement. His wife was getting their children ready for school. Beaver, who was being groomed by his father to lead the company, later said he had hoped authorities would leave without hauling him away in handcuffs as his children watched from atop the staircase.

At the Noblesville company's offices, Ricky Beaver, Chris' cousin and the company's commercial sales manager, was coy with investigators as FBI agents seized records of company transactions. Both men had attended price-fixing meetings, but neither viewed himself as a participant.

"There were a lot of things racing through my mind -- everything but the truth," Ricky Beaver recalled.

A few miles away, as John Blatzheim returned home from a morning run, two men in suits emerged from a dark sedan parked near his house in a Hamilton County suburb. Blatzheim, executive vice president of Nuckols' company, later said he thought the strangers might be Jehovah's Witnesses -- until the somber men flashed their federal credentials.

Blatzheim, who had been uneasy about the price-fixing meetings since learning of them, led investigators through his house to a screened porch. He shut the sliding-glass door to avoid alarming his wife.

As Blatzheim sat in his running shorts and T-shirt at a round patio table across from Justice Department attorney Frank Vondrak and an FBI agent, the minister in training lied about his knowledge of the illegal meetings. The interview was punctuated by the frequent ringing of his home phone and a vibrating cell phone signaling incoming calls.

He checked the cell phone when it shook and clipped it back on his belt. Word was spreading.

When Blatzheim dared to interrupt the interview to answer a call outside their presence, a Builder's employee blurted: "The FBI are here."

"Well, they are at my house. I can't talk to you," Blatzheim replied before hanging up.

By late morning, the raids were over.

The large gatherings signaled a seismic shift.

Before the fines and the convictions, which have laid the groundwork for tens of millions in additional civil penalties, came the race to the Antitrust Division's offices in downtown Chicago. The first company to help the government make its case would avoid criminal prosecution and fines.

Attorneys for the conspirators dispute who won the race. Shelby Materials received amnesty through the Antitrust Division's Corporate Leniency Program, a system of incentives intended to encourage whistle-blowing.

Irving Materials was close behind, the Justice Department says, allowing it to claim amnesty in markets other than Indianapolis. Shelby reported involvement in price fixing in the Seymour and Columbus markets, and Irving Materials told investigators it also had fixed prices in Bloomington, Marion and Muncie.

After that, the door slammed shut.

The Justice Department's policy is to offer amnesty only to the first company in each market that requests it. Amnesty is a powerful antitrust tool because it provides prosecutors with ready-made testimony from witnesses who, in exchange for immunity, are willing to admit they broke the law.

Shelby Materials' executives told the Justice Department they had entered the Indianapolis market in 1999 with a Beech Grove plant. Not long after, Butch Nuckols of Builder's Concrete met with Richard Haehl, Shelby Materials' vice president, at the Oaken Barrel microbrewery in Greenwood to talk about buying the Shelbyville company.

Failing that, Justice Department attorneys say, Nuckols encouraged Haehl and his brother, Shelby Materials President Philip E. Haehl, to keep their prices up because they could charge more in the Indianapolis market than they were used to getting southeast of Marion County.

In addition to providing details of meetings at Nuckols' barn and a spring 2002 gathering at the Signature Inn in Castleton, the Haehls told the FBI they had colluded with Larry L. Lee, 49, then president of Lees Ready Mix & Trucking, a Southern Indiana company affiliated with Lees Inns of America.

Lees Ready Mix and Shelby Materials fixed prices in the Columbus and Seymour markets, selling about $7 million of concrete at inflated prices.

To the disappointment of Lee's father, an ex-Marine who had built the company, Lee pleaded guilty to price fixing after federal authorities taped a phone call in June 2004 with Shelby Materials in which Lee had agreed to set prices. He received eight months in prison.

Lester L. Lee took the company back and fired his son, stripping him of all company holdings.

"He got nothing," Lester Lee told a federal judge.

Larry Lee's prosecution and word of the amnesty deals with Shelby Materials and Irving Materials prompted the Indianapolis conspiracy's leaders, Nuckols and Carmel Concrete's Scott Hughey, to come forward in hope of receiving leniency.

In a series of interviews, federal authorities were told price-fixing conversations had gone on in the Indianapolis ready-mix industry for as long as anyone could remember.

Concrete executives had policed their agreements by making phone calls to check competitors' quotes. When violations occurred, concrete executives would issue threats.

Nonetheless, rivals had cheated often on the agreements by pricing competitively when it was in their individual interest. Each time cheating or threats to the agreements surfaced, executives had assembled in smaller numbers to regroup at locations as diverse as a local Hardee's, Loon Lake Lodge, a Shell station and a Colts stadium suite.

Antitrust investigators say the large gatherings that began in July 2000 signaled a seismic shift. Nuckols, 47, and Hughey, 52, had not been content to advance the conspiracy in the hushed, one-on-one conversations of the past.

Concrete executives were responding to competitors who had stormed the Indianapolis market in the late 1990s. Because of heavy discounting to capture market share by Prairie Material and by Shelby Materials, the price per cubic yard of concrete to make everything from bridges and highways to residential basements had slipped by more than 10 percent.

Profits had fallen or, for some, disappeared entirely amid the 2001 recession and its aftermath. Labor and fuel costs had risen. So, too, had the price of cement, a key ingredient in concrete.

Federal investigators say they had expected the largest company, Irving Materials, to be spearheading the conspiracy. The company, with 10 to 15 plants in and around Marion County, sold $225 million of concrete in Indianapolis during the conspiracy.

Instead, the Justice Department found that Nuckols and Hughey had emerged as the industry's new guard, replacing longtime leaders such as Pete Irving, 66, who had begun spending more time at his Naples, Fla., home after a 1999 heart attack.

In addition, John Huggins, 67, Irving Materials' former executive vice president, had retired in December 2001. He had gone to the first barn meeting and had been replaced by Dan Butler, 57, who preferred a lower profile.

Irving told the FBI that Butler had taken his son, Price C. Irving, 44, to meetings "as a hood ornament" to imply the Irvings were on board. Irving told his son to go -- the meetings would be little more than industry carping.

'I knew it was wrong. I knew it was illegal.'

To help his company, his son and his former employees, Pete Irving, who had not attended any of the barn meetings or the Signature Inn meeting, had to step forward and incriminate himself beyond what the government could have proved.

The story he told spanned more than 40 years.

In a meeting in an Ice Miller conference room, Pete Irving told the FBI that, like many others in the conspiracy, he'd spent summers as a teenager working for the family-owned ready-mix business and had joined the business full time after leaving school.

Irving said the first price-fixing discussions in Indianapolis he could recall had occurred in the 1960s. Resulting agreements had ended abruptly after the Justice Department opened an antitrust investigation. A grand jury heard testimony in 1971, but nothing had come of it.

Irving told authorities he'd had regular pricing discussions with Carmel Concrete's Scott Hughey in the 1970s and 1980s. Irving also said he knew that Huggins, his right-hand man, had met with competitors from 1984 to 1990.

During the 1990s, Pete Irving said, he had met with Butch Nuckols of Builder's Concrete and with Alan Oremus of Prairie Material and had talked about pricing with the Haehls of Shelby Materials. Irving said his company had become less concerned about competitors' pricing as it had grown in size, doubling in 1993 with purchases of E&B Paving and Rogers Ready Mix Group.

Inevitably, Irving told the FBI, efforts to "stabilize prices" would break down, sparking more price-fixing meetings. When Irving first heard about the meetings at Nuckols' barn, he told investigators, he had not attached much importance to them.

Nuckols told investigators that the first meeting, on July 12, 2000, was called not long after Huggins complained that Builder's Concrete had undercut Irving Materials by $2.20 a yard on a large paving job at I-69 and 96th Street.

"I said to John that he and I could talk about it all day, but there was nothing we could do unless everybody wanted to get on board," Nuckols testified. "So we decided to get together as a group."

Nuckols and Hughey led the meeting, which lasted a couple of hours. Most present say they agreed to inflate the price of concrete by limiting discounts to $5.50 off the list price per yard quoted for prompt payment.

"Nobody objected, nobody disagreed, nobody walked away," Richard Haehl testified. "I knew it was wrong. I knew it was illegal."

In spring 2002, Nuckols and Hughey called another meeting to address cheating. They met at the Signature Inn on Allisonville Road near I-465. Hughey paid cash for the meeting room to avoid leaving a paper trail.

There were a lot of familiar faces -- and some new ones.

Price Irving said Dan Butler, Irving Materials' new executive vice president, invited him. Irving said he went despite misgivings because it was clear that Butler and his father had met with competitors in the past.

"I didn't like it," he testified. "I thought it was probably sharing too much information with our competitors."

After that meeting, Irving, who got his start in 1988 as a common laborer at the company's Pendleton stone quarry, spoke with Hughey "at least once a week" for several months about pricing.

"The basic problem with the agreement is that no one wanted to give up their customers," Irving said. "I guess all the competitors were too selfish or too greedy to lose our accounts."

But the companies were getting enough out of the pact to keep trying. Smaller meetings to monitor the agreement were called at various restaurants in the city.

In the fall of 2002, the companies rejected a price increase for the following spring. And cheating reached a level Hughey found intolerable.

He met Ricky Beaver, 44, at a Dairy Queen in Hamilton County to say he would no longer participate. Hughey also broke the news to Irving Materials executives at a Burger King.

"I told them, 'If it falls apart, we're out of it. I'll call you and tell you,' " Hughey recalled. "So I wanted to be sure I did that."

But Hughey never pulled out. His company, which filed for bankruptcy liquidation in March 2007, was failing. He, more than anyone, needed the agreement to work.

After meeting Hughey at Flowing Well Park for another gripe session, Nuckols called a meeting on Oct. 22, 2003, at his barn. There, the group reaffirmed the $5.50 discount. Price Irving suggested a winter surcharge of $3 per cubic yard. They also agreed to a $2-per-cubic-yard increase for performance concrete, effective April 1, 2004.

'You try not to pass them on the same road.'

The evidence prosecutors needed fell into place after Gary Matney, later fired by Prairie Material, helped the FBI pull off the May 2004 takedown. Matney now sells concrete in Indianapolis for Ohio-based Spurlino Materials Inc.

The fallout for local concrete executives and managers was immediate, and it has transformed the once-clubby concrete industry, especially affecting smaller companies whose top leaders have gone to prison.

The federal investigation became public in June 2005 when the Justice Department announced that Irving Materials had agreed to the record fine, and four executives would plead guilty. Company executives each received five months in prison, followed by five months on home detention.

The day after the Justice Department announcement, trial lawyers representing concrete buyers filed the first of nearly 20 lawsuits against companies in the industry to recover overcharges. Banks responded by calling some companies' debts and freezing bank accounts, forcing them to depend on concessions from the very customers they had cheated.

After the industry believed the prosecutions were over, federal prosecutors secured an indictment in April 2006 against John Blatzheim, 53, of Builder's Concrete; Beaver Materials' parent company, MA-RI-AL Corp.; and Ricky and Chris Beaver.

Blatzheim joined the conspiracy late and said he rationalized his involvement by taking some steps to enforce the agreement but not others, by keeping quiet in meetings and by privately encouraging colleagues not to get involved.

Before trial, Blatzheim pleaded guilty to price fixing and was given nine months in prison.

Only Beaver Materials and Chris and Ricky Beaver rolled the dice and took their case to a jury. The convictions of the Beavers and their company illustrated the government's overwhelming advantage in antitrust cases. Witnesses testified that the Beavers had gone to meetings and made a few phone calls to check prices but had not attended any of the dozens of side meetings to police the agreement.

Allyn Beaver, president of MA-RI-AL Corp., said he had authorized his son, Chris, to attend the last barn meeting to find out what was going on.

"I was only allowed to listen," Chris Beaver, 42, said at sentencing.

What he heard scared him.

"He told me it was almost like a fraternity," Allyn Beaver recalled. "They all knew each other's family. They knew each other's wives. I mean, they just knew an awful lot about each other. And they had been meeting all the time, a lot of places. And I thought: 'Well, that's all we need to know. We don't want nothing to do with that.' "

But jurors believed antitrust regulators, and the Beavers were convicted. Each was given 27 months in prison. Chief U.S. District Judge Larry J. McKinney, who presided over the conspiracy cases, gave ringleaders Nuckols and Hughey matching 14-month prison terms -- a reward for cooperating.

In an interview with WISH (Channel 8) before sentencing, Nuckols called the criminal investigation "a hassle." He said having pricing discussions with competitors was what any businessman would have done.

Stunned prosecutors say Nuckols only grudgingly accepted responsibility. But they were pleased to hear him say their investigation had disrupted the old way of doing business.

"It has taken a toll on everybody," Nuckols told the TV station. "It will take a long time for things to settle down. . . . I don't know if anybody's crossed paths in the last couple of years. You try not to pass them on the same road."

Star librarian Barbara Hoffman contributed to this story.

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