Sunday, November 22, 2015

American Express: Anti-trust Controversy: (2014-2015)

American Express Company logo

American Express, one of the world's largest credit card companies, has been caught up in a recent scandal regarding an anti-trust lawsuit between merchants and the three major credit card companies: American Express, Visa, and MasterCard. The controversy started to come out after 12/22/14, when Keila Ravelo was arrested on charges that she conspired to defraud two law firms and a client of millions of dollars. Her former partners at Wilkie launched an internal review of her work and found certain documents that pertained to the case In re AmEx Anti-steering Rules Antitrust Litigation on 2/16/15. They reported their findings of the communications and the two lawyers' collusion was exposed. In fact, Gary Friedman, who was supposed to be representing the merchants involved in the case, told Attorney Keila Ravelo, who represented MasterCard, in one of his communications with her, to "Burn after reading."
The two lawyers who were basically setting up an outcome that would heavily favor American Express, initially got the outcome they wanted in the case, but when things about their illegal communications came to light, the approving decision was undone by a federal judge. In his final ruling, Judge Nicholas G Garoufis disapproved of the settlement between American Express, MasterCard, Visa, and the Merchants. What it comes down to after parsing the legal document is this; any merchant that accepts American Express may not impose differential surcharges on the use of any Visa, MasterCard, or American Express card unless and until American Express permits such surcharges. Any merchant that accepts American Express can't impost parity surcharges on the use of all credit cards unless American Express permits it.
As Gary Friedman put it, "AmEx's fantasy resolution of all this litigation is a world where merchants are free to surcharge AmEx cards, but only if the merchants surcharge Visa and/or MasterCard at the same level." This seems kind of strange coming from a lawyer who is supposed to be representing the merchants in the lawsuit. It looks like American Express and the two lawyers were in collusion to get the best deal out of the case and leave everyone else out in the cold, especially the merchants.

Kenneth I. Chenault, CEO of American Express since 2001

The Stakeholders in this are the Upper Management of American Express, Kenneth I. Chenault: Chairman and CEO. James P Bush: Executive Vice President and CFO. Mark D. Gordon: Executive Vice President and Chief Information Officer. Douglass E Buckminster: President, Global Network and International Card Services. L. Kevin Cox: Chief Human Resources Officer. Ashwini Gupta: Chief Risk Officer and President, Risk & Information Management. Other Stakeholders are the merchants in general and the merchants who brought suit against AmEx in particular. They would have had to pay a larger swipe fee. The consumers who would have to pay higher surcharge fees to offset the expense to the merchants. And of course, competing credit card companies Visa and MasterCard, who were left out in the cold by the collusion between AmEx and the two lawyers Gary Friedman and Keila Ravelo..

Maximize profits for the company shareholders above all else; spending money on things like charity, or employee bonuses, or anything that does not increase company profits is considered stealing by the Individualist. However, one must act within the constraints of the law. For the most part, the Individualist would approve of American Express's efforts to get the best possible deal for themselves and therefore maintain and even boost company profits. As their methods were entirely illegal, however, the Individualist would ultimately reject the conclusion that American Express is an ethical company.

Visa, MasterCard, and American Express logos
Maximizing the most happiness across the maximum proportion of the population, including your happiness. Also, strive to maximize the happiness for the maximum amount of time. Ten years down the road rather than ten months, in example. While there is partial success for American Express for the Utilitarian, in that they were working to maximize happiness for themselves, their stake holders, and probably those consumers who only have an American Express card, the company fails to meet all the guidelines for being ethical according to Utilitarianism due to the fact they did not act to maximize happiness for the merchants or those consumers who don't hold an American Express card.

Actions that are sprung from the Good Will (right choice for the right reasons), rationality, and the autonomy of the individual. The Formula of Humanity states that the individual should always be treated as an end, and never just the means. Because of the way American Express colluded with the two lawyers Friedman and Ravelo, and because they were acting only to benefit themselves, the Kantian would not view American Express as ethical. Because information about what the case settlement would mean for consumers who would have to pay larger surcharge fees to offset merchant swipe fees was not made available to the general public to ensure rational decision making, the autonomy of the individual is not respected here and so, again, the Kantian would view them as unethical.

Virtue Theory
The functionality and good virtues that make up a person also help them to relate and flourish within a community and with people in particular. The good virtues such as courage, honesty, justice, compassion, fairness, and kindness are what help the individual flourish within a society. Vices such as greed, dishonesty, and selfishness are the anti-thesis of these virtues. The Virtue Theorist would not find American Express to be ethical. The actions of American Express, which broke laws put in place to protect the national market place within our society, serves to undercut and undermine the good virtues within us to flourish within this society. If those who seek dishonest and illegal methods of obtaining what they want succeed, why should I then be honest and just? This does not help society, or the people within society, maintain an optimum level of good virtues, ergo, they are unethical.

Ethics Justification
In summation, my thinking is much along the Virtue Theorist's. You cannot lie, break laws, and make backroom deals in order to make yourselves more profitable, but turn around and condemn people who, by dint of birth and socio-economics aren't able to do similar things that break the law and get away with it, I hope one of them has the wit to say, "Why are you so surprised? I thought I'd try following in your footsteps." You are not helping society flourish, you are not helping to make the nation a better place through business. You are just in it for the money, and nothing degrades the health of a society than those who by their actions show they believe themselves to be better than others.

The New York Times, August 4th 2015, by Rachel Abrams, “Judge Rejects Settlement in American Express Case”

The Wall Street Journal, Aug. 30th, 2015, By Robin Sidel, “A Bentley, Secret Emails and a Credit-Card Antitrust Case. The Strange Life of Lawyer Keila Ravelo”, September 1st, by Dow Jones Business News, by Robin Sidel, “Lawyer in Visa-MasterCard Antitrust Pact Got Confidential Information from Rival”, AmEx Opinion [legal document pdf] filed February 19th 2015 “Case 1:10-cv-04496-NGG-RER Document 619”

Business Travel News, August 10th 2015, by Elizabeth West, “Attorney Misconduct Derails Amex-Merchant Settlement”

Schlam Stone & Dolan LLP, Ruling of Nicholas G Garoufis, [Legal PDF Document] filed August 4th 2015, “Case 1:11-md-02221-NGG-RER Document 658 ; In re Am. Express Anti-Steering Rules Antitrust Litigation, 11-MD-2221”

Business Insider, August 31st 2015, by Jacob Shamsian, “A lawyer's alleged double life could screw up one of the biggest antitrust settlements in US history”

Business insider, September 2nd 2015, by Jacob Shamsian, “One of the biggest antitrust settlements in US history just got one step closer to collapse”

Bloomberg Business, February 19th, 2015, by Christie Smythe, “American Express Loses Anti-Trust Suit Over Merchant Card Rules”

Reuters, September 29th, by Alison Frankel, “Disgraced plaintiffs’ lawyer Gary Friedman on why his leaks shouldn’t topple the largest antitrust settlement in U.S. history”


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