Five cut-rate gasoline firms, their trade association, and one of its officers were convicted in federal court today of conspiring between 1967 and 1974 to fix their prices on $4 billion worth of gasoline. Two other firms were acquitted.
The firms had been accused of illegally agreeing to keep the prices they charged the consumer for gasoline no more than 2 cents below the price charged by the major oil companies. To do so, prosecutors had argued, the firms set up an intricate telephone network coordinated by their trade association, the Society of Independent Gasoline Marketers of America (SIGNA).
Some of the defendants called it "ironic" that small independent companies - who were selling gasoline at the pump cheaper than the major companies - had been made the targets of antitrust laws intended to halt abusive charging practices generally laid at the door of large corporations.
Convicted were Amerada Hess Corp., Ashland Oil Inc., Kayo Oil Co., Meadville Corp., Petroleum Marketing Corp. (PMC), SIGMA, and SIGMA executive director Robert R. Cavin, of Vienna, Va. Acquitted were Crown Central Petroleum Corp., of Baltimore, and Continental Oil Co., of Connecticut.
Attorneys and spokesmen for most of those convicted said they planned to appeal.
Judge C. Stanley Blair set Sept. 16 for sentencing. Each company, SIGMA, and Cavin face fines of up to $50,000, and Cavin could receive a year in jail as well.
The real impact of the case may come from another quarter, however. The proceedings had been followed closely in the oil industry because of the possibility that dozens of consumers and consumer groups have threatened to file millions of dollars in lawsuits charging that they were defrauded by the companies.
"That kind of civil action will break the independents and break them real quick," said SIGMA president Herbert A. Sostek. He added he was "terribly disappointed" in the verdict. "This is a sad day. These were the people who kept the competition (among gasoline companies) going . . . it's is ironical that the antitrust laws are being used against the independents."
Howard Adler, senior partner in the law firm that won acquittal for Crown Central, said he had "serious questions about the wisdom of bringing criminal charges against the corporations bringing competition into the oil industry."
Adler's colleague James H. Kelley, who defended Crown in the trial, called the charges "a bum rap to begin with for all the defenants . . . the Justice Department ought to rethink all these conspiracy ideas and take another look at their whole position on the matter."
A Justice Department spokesman, Mark Sheehan, noted that "the department's responsibility is to pursue price-fixing wherever we find it." He said an Atlanta grand jury was probing possible price-fixing by independent firms in the southeastern United States, but declined to elaborate.
Sheehan noted that a civil action filed several years ago by the Federal Trade Commission that charges most major oil companies with monopolistic practices is still pending. Since the FTC and Justice share enforcement responsibilities, the FTC case precluded Justice Department civil action against the major corporations in those areas.
The department, he noted, has formally demanded that "a number of international oil companies" produce documents and give testimony regarding pricing and supply practices on crude oil from the Persian Gulf. He said most of the firms involved were domestic ones but declined to elaborate.
There were nearly 40 mitnesses and three months of document-packed testimony in the case here, which involved alleged price-fixing on 17 billion gallons of gasoline sold in the District of Columbia and six states: Maryland, Virginia, Delaware, New Jersey, New York and Pennsylvania. The jury hearing the case deliberated for 39 hours over six days before returning a verdict.
Assistant U.S. Attorney Rodney O. Thomson argued that SIGMA acted as a clearinghouse through which the independent companies tried to coordinate their price rises so that none of then would suffer from too much competition. Independents control about 20 per cent of the national gasoline market.
Attorneys for SIGMA, which represents 197 independent firms, held that the trade association only provided detailed price information for its members to use as one factor in their own pricing decisions. Continental argued that it had no role in the organization and that its wholly owned subsidiary Kayo did not take orders from the parent firm, as the government had alleged.
Prosecutors held that several of the defendant firms were easily large enough to obtain pricing information by themselves and needed SIGMA only for price coordination. Continental Oil, an international refining corporation, is ranked 17th on the Fortune Magazine list of America's 500 largest corporations; Ashland is 43d, Hess is 48th, and Crown is 365th.
Consumers know their subsidiaries and affiliates better by other names: Ashland's RedHead, Bi-lo, Payless, Rotary and Hi-Fy; Meadville's Merit, Saveway and Martin; PMC's Scot, and Continental's Conoco.
Much of the 15,000 pages of recorded testimony concerned price wars among some of those firms along New York Avenue in Washington in 1971 and 1972, and Patapsco Road in Baltimore between 1968 and 1973. SIGMA, prosecutor Thorson declared, was "the extra arm and extra outreach . . . to round up the mavericks, get them in line."
Saveway, Scot and RedHead stations on New York Avenue tried to end the price wars, the government alleged, with a series of telephone calls among themselves, their corporate headquarters and SIGMA.
On Oct. 28, 1971, the government said, the Scot station raised its price to 31 cents a gallon after calling SIGMA and RedHead, and the other two stations followed suit the next day. In June 1972 they broke another war by a series of calls and all raised prices six cents per gallon virtually simultaneously on June 28, Thorson charged.
Defense attorneys replied that price levels would change quickly, often after only a few hours, and that there were substantial time lags between shifts. The courtroom seemed to resemble a battleground of opposing charts and diagrams tracing phone calls to sequences and price change timings.
Thorson admitted that "maverick stations" often broke rank quickly. He introduced witnesses who said they had been pressured by SIGMA into "restorations" or price rises.
"This was not a lazy man's conspiracy . . . they had to work continually," Thorson told the jury.