A federal district court judge in Colorado has rejected a proposed settlement between the U.S. Department of Justice (DOJ) and two independent producers over alleged rigged bidding in a government lease sale, saying the punishment did not fit the crime.

Judge Richard Matsch of the U.S. District Court for the District of Colorado made it clear that he did not feel the $550,000 fine was adequate, calling it a “slap on the wrist” for the two companies and noting in an that in an earlier, separate case an environmental activist convicted of falsifying bids in a federal lease auction was sentenced to two years in prison.

The settlement reached in February, between DOJ and Gunnison Energy Corp. and two SG Interests Ltd (SGI) entities (I and VII) required the companies to pay $550,000 for antitrust and False Claims Act violations related to an alleged noncompete agreement among the companies for a 2005 lease sale by the federal Bureau of Land Management (BLM) in Colorado.

In refusing to approve the settlement, Matsch was critical of the companies, saying they gamed the BLM leasing process and accusing them of exhibiting “unrepentant arrogance” in a statement filed with the court. Thus, he concluded, “it is not in the public interest to approve a final judgment that permits a defendant to leave its civil action in such a smirking, self-righteous attitude.

“There is no basis for saying that the approval of these settlements would act as a deterrence to these defendants and others in the industry, particularly as [Gunnison Energy] considers ‘joint bidding’ to be common in the industry.”

Nevada E&P company Buccaneer Energy Corp. had filed a complaint against Gunnison and SGI alleging it was blocked from getting the takeaway capacity it needed in western Colorado by the companies’ control of gas pipelines in the area. Gunnison and SGI tried to get the complaint dismissed, but Matsch denied their motion and refused to approve the settlement.

Two days later, on Dec. 14, Matsch denied the motion from Gunnison and SGI to toss out the Buccaneer lawsuit. That case continues.

The antitrust case goes back to a 2005 BLM auction in which SGI and Gunnison allegedly colluded in bidding, winning four leases in the Ragged Mountain area. Only one of the companies bid as a means of keeping the price down. Another 18 leases that went to the two companies in the same lease sale were left out of the antitrust case.

The settlement proposed by DOJ was supposed to make up for the difference between the low-ball prices paid for the four leases and what the companies would have had to pay if they had competed, calculating they would have each had to pay at least $275,000. Doubling that created the proposed $550,000 deal.

Those filing comments in the Gunnison case were troubled by the perceived disparity in comparing the DOJ settlement with earlier cases, Matsch said in his ruling.

An environmental activist who submitted false bids in a 2008 BLM auction in Salt Lake City as a protest to oil and gas drilling was sentenced to 24 months in prison and another three years of supervised release, along with a $10,000 fine. That conviction was upheld on appeal.

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