By Guest Blogger Jay Eckhardt
On April 29, the Department of Justice (DOJ) announced that it had obtained a criminal indictment against the former CEO of SK Foods, Scott Salyer, for his participation in a conspiracy to fix prices and rig bids in the market for tomato paste. (SK Foods is now owned by Olam International, of Singapore.) This followed on the heels of a prior indictment against Mr. Salyer, obtained in February, for fraud, obstruction of justice, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Mr. Salyer was arrested by the FBI in February and has been held in federal custody since his arrest.
While entering a guilty plea is frequently the most prudent tactic for executives charged in criminal antitrust cases, when the stakes are high it may make more sense to fight back. In this case, Mr. Salyer has challenged the indictments against him and pleaded not guilty to the price fixing and bid rigging charges this week.
Government lawyers generally tend to prefer to shoot their fish in a barrel – which is to say, they seek cases that they think they will win. Of course juries didn’t agree with DOJ lawyers in 2008, when a hung jury refused to convict executive Gary Swanson for his role in a conspiracy to fix prices for dynamic random access memory chips (DRAM), and in 2007, when a jury found that the Stora Enso company did not conspire to fix prices for coated magazine paper. Mr. Salyer apparently hopes to join the successful minority that has avoided prosecution.
But what about the tomato processing industry? The LA Times reports that DOJ has been focused on bid rigging, corruption, and bribery investigations in the industry since 2007. With only five companies processing 95% of the tomatoes grown in the U.S., the industry is fertile ground for federal prosecutors, as the concentrated group of close competitors has turned out to be too friendly. Who are the victims? They are actually some of the largest American food companies: Kraft, Safeway, Frito-Lay, B&G Foods, and others. Government investigations have shown that these companies purchased tomato paste and other processed tomato products at inflated prices. In some cases, processors also lied about the contents of their products, mislabeling products at higher “grades” in order to get higher prices.
In the tomato investigation, Mr. Salyer is the first to fight his conviction. The first big conviction came from a broker for SK Foods who pleaded guilty in December 2008. According to the LA Times, DOJ has secured guilty pleas from at least nine individuals in the tomato processing industry. The same pattern emerged in the DOJ’s DRAM investigation. While Mr. Swanson avoided his prosecution, 14 others involved in the DRAM price fixing conspiracy pleaded guilty, and the DOJ secured fines and penalties of over $700 million from individuals and the corporations they worked for. With a little luck (and perhaps a misstep by the prosecution) Mr. Salyer may evade conviction. It appears that the industry as a whole will not be so lucky. The government, and the tomato processors’ customers, will likely pursue claims for some time.