DOJ Warns That AI and Algorithmic Pricing Tools Can Trigger Criminal Antitrust Liability

DOJ Warns That AI and Algorithmic Pricing Tools Can Trigger Criminal Antitrust Liability

On May 14, Acting Deputy Assistant Attorney General (AG) for Criminal Enforcement Daniel Glad delivered remarks at the Antitrust West Coast Conference in San Francisco, California, addressing the intersection of artificial intelligence (AI)-driven pricing tools and criminal antitrust enforcement. Glad emphasized that software “does not change the rule” against collusion and “does not soften the consequences when the rule is broken.” He outlined the US Department of Justice’s (DOJ) position that where competitors feed non-public pricing data into a shared algorithm or large language model and rely on its outputs, the arrangement may constitute a horizontal price-fixing conspiracy subject to per se criminal liability.

Glad pointed to the RealPage consent judgment, recent case law distinguishing hub-and-spoke arrangements from vertical software contracts, and the Antitrust Division’s existing investigative infrastructure — including the Procurement Collusion Strike Force and the Whistleblower Rewards Program — as evidence that detection capabilities grow, not diminish, as conduct migrates to automated systems.

Glad closed with a direct message to in-house counsel: companies deploying AI or algorithmic tools in pricing, procurement, or revenue management must conduct rigorous antitrust risk assessments — not merely privacy or cybersecurity reviews — before deployment. “[I]f your company is deploying AI or algorithmic tools in competitively sensitive areas, then antitrust review cannot be ceremonial. It must be real.” He noted that the Antitrust Division’s updated Evaluation of Corporate Compliance Programs now includes questions specifically directed at AI and algorithmic tools, and he warned that “the model did it” is not a compliance defense. 

For companies operating in concentrated industries or using shared pricing software, this speech signals that the DOJ views algorithmic coordination as squarely within the reach of criminal enforcement and expects compliance programs to address these risks proactively.

Acting Deputy AG Glad’s remarks are here. 

First Circuit Denies Emergency Injunction to Block Production of Children’s Gender-Affirming Care Records to Texas Court

On May 19, the First Circuit declined to grant an emergency injunction that would have prevented Rhode Island Hospital from turning over sensitive medical records of children who received gender-affirming care. The case arose from a July 2025 administrative subpoena issued by the DOJ as part of an investigation into potential violations of the Federal Food, Drug, and Cosmetic Act. After the hospital’s limited compliance, the DOJ moved ex parte to enforce the subpoena in the Northern District of Texas, which ordered the hospital to comply. The District of Rhode Island subsequently granted a motion by the Child Advocate for the State of Rhode Island to quash the subpoena, finding that it lacked a congressionally authorized purpose, was issued for an improper purpose, and violated the Fourteenth Amendment privacy rights of the hospital’s child patients. The DOJ appealed that order to the First Circuit. In response to the conflicting orders, the Northern District of Texas directed the hospital to submit all responsive records to that court for in camera safekeeping pending the outcome of the appeals, prompting the Child Advocate to seek an emergency injunction from the First Circuit.

The First Circuit denied the injunction pending appeal because the Child Advocate failed to demonstrate the irreparable harm required for such “extraordinary” relief. The court noted that the Northern District of Texas had assured the parties that the documents would be held in camera and would be provided to the DOJ only if the courts of appeals ultimately ruled against the hospital. The court found that the Child Advocate cited no authority for the proposition that providing anonymized records to a court — particularly one that assured the parties the records would not be disseminated unless and until the appeals were resolved — could constitute irreparable harm. 

The case is captioned In re: Motion to Quash Administrative Subpoena to Rhode Island Hospital, No. 26-1568 (1st Cir.).

For additional insights about the DOJ’s use of subpoenas to investigate gender-affirming care providers, read a previous client alert published by our colleagues, available here. 

Texas Children’s Hospital Pays $10 Million to Settle Allegations Related to Pediatric Gender-Affirming Care Despite Denying Liability 

On May 15, the DOJ and Texas AG Ken Paxton announced that Texas Children’s Hospital (TCH) agreed to pay $10 million to resolve allegations that it violated the False Claims Act (FCA), the Federal Food, Drug, and Cosmetic Act, and federal fraud and conspiracy laws in connection with the provision of gender-affirming care. 

The government and Texas alleged that TCH submitted false billings to public and private payors — including Texas Medicaid — to secure insurance coverage for pediatric gender-affirming care procedures, including through the use of false diagnosis codes. Under the terms of the settlement, TCH has committed to ceasing all such procedures on minors, including the administration of puberty blockers and hormone replacement therapy. TCH has also agreed to establish the first-of-its-kind clinic dedicated to providing medical care to patients who previously received gender-affirming care with all services funded by TCH and provided free of charge to patients for the first five years. Additionally, the settlement requires the termination and permanent revocation of privileges of multiple physicians involved in performing the procedures.

The DOJ noted that the settlement reflects credit given to TCH for its cooperation during the investigation, observing that TCH remained cooperative, proactive, and solution-driven throughout. TCH has also agreed to implement compliance and ethics measures and to amend its bylaws to trigger automatic relinquishment of privileges for any physician who violates Texas’ prohibition on medical interventions for minors. 

TCH has denied the allegations. According to multiple news outlets including the USA Today coverage linked below, TCH gave a statement that it has been “compliant with all laws” and made the “difficult decision” to settle the case that was “wrought with falsehoods and distractions.” TCH asserted that it was “settling to protect our resources from endless and costly litigation. This settlement will allow us to redirect those precious resources to focus on the life-saving care and groundbreaking discoveries of our exceptional clinicians and scientists.” 

The DOJ’s press release states that “The claims resolved by the United States in the settlements are allegations only and there has been no determination of liability. [TCH has] denied all allegations.”

Read the DOJ’s press release here and USA Today’s coverage here.

Canadian Steel Companies Pay $19 Million to Settle FCA Allegations Over Evaded Customs Duties

On May 20, the DOJ announced that two Canada-based steel companies, Farjess Inc. and Royal Canadian Steel Inc., along with their part-owner and president, Feroz Jessani, agreed to pay $19 million to resolve allegations that they violated the FCA. The companies and Jessani were alleged to have knowingly evaded customs duties owed on flat-rolled steel imported into the United States. The government alleged that, from May 2019 through January 2025, the defendants knowingly misrepresented to US Customs and Border Protection that the country of origin of certain flat-rolled steel was Canada or the United States, when in fact they knew the true country of origin was China, Indonesia, Italy, Turkey, or Vietnam. By misrepresenting the country of origin, the defendants avoided paying duties assessed under Section 232 of the Trade Expansion Act of 1962, Section 301 of the Trade Act of 1974, and applicable antidumping and countervailing duty orders. 

The matter originated as a qui tam action filed by Shamsh Dhala, a broker who worked with Farjess Inc. As part of the resolution, Dhala will receive approximately $3,610,000 of the settlement proceeds. The settlement agreement provides that the defendants will pay an initial installment of approximately $3.17 million of the overall settlement amount within 30 days of the effective date, with the remaining balance paid over five years, with interest. The DOJ noted that this resolution was coordinated through the DOJ’s Trade Fraud Task Force. 

The case is captioned United States ex rel. Dhala v. Royal Canadian Steel Inc. et al., No. 2:23-cv-12097 (E.D. Mich.).

The claims resolved by the settlement are allegations only and there has been no determination of liability.

Read the DOJ’s press release here.

Operators of Children’s Day Treatment Program Agree to $15.2 Million Civil Judgment to Resolve Medicaid Fraud Allegations

On May 15, the US Attorney’s Office for the Eastern District of Kentucky announced that the operators of a day treatment program for children with behavioral and mental health needs agreed to a civil judgment of $15,248,240 to resolve allegations that they defrauded the Kentucky and Ohio Medicaid programs. The civil judgment and settlement agreement resolve a lawsuit brought by private citizens under the qui tam provisions of the FCA.

According to the agreement, Recovery Center of Kentucky, LLC, Recovery Center of Ohio, LLC, Recovery Center of Maryland, LLC, their parent company, Recovery Center of USA, and CEO Dr. Warrick Stewart allegedly violated the FCA. The settlement alleges that the operators fraudulently billed Kentucky and Ohio Medicaid for time children spent on education, recreation, and lunch breaks rather than covered behavioral health services between August 2022 and June 2025. The government also alleged that Recovery Center of Kentucky falsely represented the qualifications of clinicians on claims submitted to Kentucky Medicaid to receive higher reimbursements. 

The civil judgment will be satisfied based on the defendants’ limited ability to pay, including payments from future distributions and the termination of ownership rights to some of Dr. Stewart’s property. And the Recovery Center has entered into a five-year Corporate Integrity Agreement with the US Department of Health and Human Services Office of Inspector General.

The case is captioned United States ex rel. Harned, et al. v. Aspire Day School, LLC, et al., Case No. 3:23-cv-41-GFVT (E.D. Ky.). 

The claims resolved by the settlement are allegations only and there has been no determination of liability.

Read the US Attorney’s Office for the Eastern District of Kentucky press release here.

Former Cosmetics Company CEO Charged With Securities Fraud in Connection With Channel-Stuffing Scheme

On May 18, the US Attorney’s Office for the Southern District of New York announced the unsealing of an indictment against Jaime Castle, the former CEO of Obagi Cosmeceuticals LLC. Castle is alleged to have orchestrated a multi-year scheme to fraudulently inflate Obagi’s revenue and financial performance in order to defraud Waldencast Plc, a public company that acquired Obagi in July 2022, and its shareholders. According to the indictment, from at least 2021 through at least 2023, Castle directed a channel-stuffing scheme in which she caused Obagi to ship large quantities of cosmetic products to a Vietnamese distributor that she knew could not pay for — and in many cases did not need — the products, generating the false appearance of revenue growth. Castle is also alleged to have directed employees to use a fraudulent “gross-up” accounting method to further inflate recognized revenue. When Waldencast ultimately discovered the scheme, it restated over $50 million in fraudulently reported revenue for 2021 and 2022.

Castle is charged with one count of conspiracy to commit securities fraud, to make false filings with the US Securities and Exchange Commission, to make false statements to auditors and improperly influence the conduct of audits, and to commit wire fraud; one count of securities fraud; one count of making false statements to an auditor and improperly influencing an audit; and one count of wire fraud. The indictment also includes forfeiture allegations seeking all property constituting or derived from proceeds traceable to the offenses. 

The case is captioned United States v. Castle, No. 26-CR-0177 (S.D.N.Y.).

Read the US Attorney’s Office for the Southern District of New York press release here.

An indictment is merely an allegation. The defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Four Chinese Shipping Container Manufacturers and Seven Executives Indicted for Price-Fixing Conspiracy

On May 19, the DOJ announced the unsealing of a superseding indictment in the Northern District of California charging four of the world’s largest shipping container manufacturers with conspiring to restrict the output and fix the prices of standard dry shipping containers in violation of Section 1 of the Sherman Act. The indictment charges China International Marine Containers (Group) Co., Ltd. (CIMC), Shanghai Universal Logistics Equipment Co., Ltd. (a/k/a “Dong Fang International Containers”), CXIC Group Containers Co. Ltd., and Singamas Container Holdings Ltd., along with seven current and former executives. According to the indictment, from at least November 2019 through at least January 2024, the defendants and their co-conspirators — who together manufactured approximately 95% of the world’s standard dry containers — agreed to limit production shifts and hours, refrained from building new factories, and installed video-surveillance cameras at their facilities to enforce adherence to the output restrictions. As a result of the alleged conspiracy, the prices of standard dry shipping containers roughly doubled between 2019 and 2021, and CIMC’s container manufacturing profits reportedly increased nearly one hundredfold, from approximately $19.8 million in 2019 to approximately $1.75 billion in 2021.

According to the DOJ, the conspiracy began with discussions as early as March 2019 and was formalized at a November 2019 meeting at CIMC’s headquarters in Shenzhen, where participants also agreed to establish a fund to financially penalize any company that violated the output-restriction agreement. The indictment further alleges that the conspirators took affirmative steps to conceal the conspiracy, including limiting distribution of documents, meeting in person to avoid written records, and redacting references to the conspiracy from corporate presentations. The charges carry criminal penalties of up to 10 years in prison and a $1 million fine for individuals, and up to $100 million for corporations, with fines subject to increase based on the gain derived from the crime or the loss suffered by victims. 

The case is captioned United States v. China International Marine Containers (Group) Co., Ltd., et al., No. 25-CR-00311 (YGR) (N.D. Cal.).

Read the DOJ’s press release here. 

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

US Supreme Court Declines to Review Eli Lilly’s Constitutional Challenge to FCA Qui Tam Provisions

On May 18, the US Supreme Court declined, without comment, to hear Eli Lilly & Co.’s appeal of the $183 million FCA judgment awarded to relator Ronald Streck. Streck filed suit in 2014, asserting that Eli Lilly deliberately underpaid Medicaid drug rebates by failing to include certain wholesaler price adjustments when calculating its “average manufacturer’s price,” resulting in alleged underpayments of $61 million to the government from 2005 to 2007. In 2022, a federal court in Illinois awarded Streck $61 million in damages, subsequently trebled to $183 million. In September 2025, the Seventh Circuit affirmed the verdict, concluding that the evidence supported the jury’s finding that the company knowingly shorted the government.

In its petition to the Supreme Court, Eli Lilly contended that the FCA’s qui tam mechanism runs afoul of the US Constitution’s appointments clause because it allows private individuals — characterized by the company as unaccountable bounty seekers — to prosecute claims on behalf of the United States without being appointed by or answerable to the president. This argument reflects a growing trend among FCA defendants following Justice Clarence Thomas’ 2023 dissent in US ex rel. Polansky v. Executive Health Resources Inc., in which he raised constitutional concerns about permitting relators to litigate on the government’s behalf in non-intervened cases. The Supreme Court’s decision not to grant review leaves the Seventh Circuit’s judgment in place, but parallel constitutional challenges to the qui tam framework continue in other federal circuits.

The case is captioned Eli Lilly & Co. v. United States et al., ex rel. Ronald J. Streck, No. 25-1126 (U.S.).

For additional insights about other constitutional challenges to the FCA’s qui tam provisions, read previous client alerts published by our colleagues, available here and here.