This Diamond Case Had Too Many Flaws

A cloud has hung over General Electric Co. since mid-1992, when former executive Edward J. Russell raised charges that GE had conspired with rival DeBeers Centenary to boost prices of industrial diamonds. Now, the cloud has lifted. On Dec. 5, U.S. District Court Judge George C. Smith threw out the government's criminal antitrust action, saying the Justice Dept. had failed to prove its case. Says a pleased GE Chairman John F. Welch Jr. : "It's a vindication of our people."

Judge Smith clearly didn't give much credence to Justice's arguments: He let the Columbus (Ohio) jury go home before they had even heard most of GE's defense. "I think everyone is quite surprised that the antitrust department wasn't able to get further with the case," says John DeQ. Briggs, chair-elect of the American Bar Assn.'s antitrust section. Indeed, the case may make "companies far more ready to take their differences to court," says Washington antitrust attorney Caswell O. Hobbs III. If that happens--and other defendants win--it would prove a blow to the drive by Anne K. Bingaman, Justice's antitrust czar, to clamp down on anticompetitive practices.

PAPER TRAIL. GE's early victory shows just how hard it is for the Feds to win a big international case where much of the evidence is overseas. But Bingaman vows to stay the course. "This in no way deters our approach in prosecuting complex international criminal cases," she insists, adding that "there will be more of these [major price-fixing cases]."

The government had a hard row to hoe partly because its case was based on circumstantial evidence. Justice claimed that GE and DeBeers worked together to fix prices during 1991 and 1992 by trading information through Philippe Liotier, the managing director of a Brussels-based GE customer called Diamant Boart, in which DeBeers has an indirect interest. But Welch fought back tooth and nail. "We knew there was nothing wrong here at all," he says. "It was a pure case of a customer relationship. The government was not able to change that despite [its use of] innuendo."

From the beginning, the U.S. case rested heavily on a raft of documents, including faxes from GE's European industrial-diamond chief, Peter Frenz, mentioning his meetings with Liotier. Citing 10 private meetings between the two and a "continuous flow between Liotier and Frenz of both DeBeers' and GE's future pricing plans," among other things, the government maintained Liotier was a go-between to fix prices with GE on behalf of DeBeers.

GE acknowledged the communication between Frenz and Liotier, but said the information exchange was the sort a big customer might reasonably receive. Judge Smith found that plausible. And he decided Justice had never proved

Liotier had acted on behalf of DeBeers.

ABSENT WITNESSES. A chief difficulty for the government was that it often found itself trying to prove a negative--for instance, that Liotier didn't share information with others at Diamant Boart. Another problem was that some key foreign witnesses couldn't be compelled to come to the U.S. Frenz, Liotier, and DeBeers were indicted as co-defendants, but only Frenz testified--on videotape and for the defense.

GE's attorney, Dan K. Webb, with his straightforward, easy-to-understand style, also proved an effective court performer. Webb says the U.S. shot itself in the foot by using Russell as a leadoff witness. Russell, fired by GE in 1991 for poor performance, settled his own civil case with GE earlier, agreeing that he had no "personal knowledge" of wrong-

doing. At the trial, he claimed he had heard of an attempt to get price-fixing going--but GE countered him in three days of cross-examination. "The government then started in a hole," says Webb.

Welch, though, notes that victory cost GE "tens of millions of dollars," adding that "I wouldn't have wanted to be a small company" facing Justice. Fortunately for Welch, GE can afford it.