In June, former Bumble Bee Foods CEO Chris Lischewski was sentenced to more than three years in prison for conspiring to fix prices for canned tuna.
The U.S. Department of Justice is trying to send a message with the lengthy jail time, which is more than double the average range of 14 to 18 months, Scott Wagner, a partner at Bilzin Sumberg, told Food Dive.
"Nobody likes to go to jail. Business executives going to jail for 10 minutes would be a deterrent," Wagner said. "You have to think that people in other industries, particularly if the government is already investigating, are looking at a three-year sentence and really reevaluating their positions and people who had not cut deals with the government may be reconsidering that now."
The hefty sentence comes amid a flurry of antitrust action from the DOJ aimed at the food industry. In the last month, several executives were indicted for conspiracy to fix chicken prices and four major meatpackers were subpoenaed after anti-competitive accusations. Soon after, Tyson Foods announced it was fully cooperating with the DOJ's investigation into the chicken industry.
Legal analysts told Food Dive that the DOJ’s antitrust division has focused more on prosecuting executives because it is a more effective disincentive in these cases and that allegations in the food industry are piling up now as more seek leniency and deals to avoid charges.
Leniency program can have a chain effect
In antitrust cases, Wagner said there are often collections of cases in particular sectors. In the last decade, for example, he said there were a lot of price fixing conspiracies on electronics. Wagner said one case can lead to another because if someone is caught in one case and they likely won't obtain amnesty since they aren't the first to expose it, they may say, "Well let me tell you about this other case."
"Cases sort of build that way, and I think that's why you're starting to see this increased focus in the food industry [as] one case just sort of leads to another," he said.
The Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA) statute, passed in 2004 and recently renewed, built on the DOJ’s Corporate Leniency Policy. The leniency program allows for a company who comes forward to avoid criminal convictions, criminal fines and prison time if they admit to a criminal violation of antitrust laws and cooperate fully. That company can also get limits on monetary damages it may need to pay in civil court.
Wagner said that statute has helped lead to longer prison sentences because they are able to build stronger cases with a cooperating witness. This policy brings documentation and "someone to tell you where the bodies are buried," which are valuable in understanding how the conspiracy worked, he said.
Philip Giordano, an antitrust partner at Hughes Hubbard who previously served as a prosecutor in the antitrust division of the DOJ, told Food Dive that the leniency program essentially offers a free pass for the first one in the door to not be criminally prosecuted in exchange for cooperation.
"It's a bit of game theory. The idea is that if you're second in, you might get some discount, but you're not going to get a free pass for prosecution," he said. "So it creates a race to the DOJ."
The policy shifted slightly last year to also allow those who are not first to be eligible for deferred prosecution agreements (DPA) if they self-report and take remedial action. Giordano said the availability of DPA for second-in cooperators is significant but the division still has discretion over whether to offer DPA to a defendant.
Current and former top executives at Pilgrim’s Pride and Claxton Poultry Farms were indicted last month for conspiring to fix prices for chickens sold to grocers and restaurants from 2012 to 2017. If convicted, those four executives face a statutory maximum penalty of 10 years in prison and a $1 million fine. They pleaded not guilty on the charges and the jury trial is predicted to start in August.
After the indictment of Pilgrim’s Pride and Claxton Poultry Farm on price-fixing allegations, Tyson Foods publicly announced its cooperation with the DOJ's price-fixing investigation into the chicken industry under the antitrust division's Corporate Leniency Program.
The investigation was publicly disclosed last year when the DOJ intervened in a lawsuit filed in 2016, which accused companies, including Pilgrim's Pride, Perdue Farms, Tyson Foods and Sanderson Farms, of colluding to inflate broiler chicken prices.
The idea is that if the company can't trust the co-conspirators, then they may not engage in the conduct in the first place, Giordano said.
"It's supposed to destabilize cartels," he said. "It's been a very successful program."
Giordano said he doesn’t see any reason to think that there's some initiative to go specifically after price fixing in the food industry; instead, he said it's more happenstance — meaning it's "just what came in the door." However, some cases can be linked together in "leniency plus," he said.
He explains that in leniency or amnesty plus, if a conglomerate is tagged for price fixing in one product area, typically corporations cooperate because they know the evidence is usually pretty strong, and it's unlikely for a company to beat DOJ in court. Then if they get onto the plea track, many look around their company to see if there's anything else going on in another product line because if they report a separate conspiracy, they can apply for leniency, Giordano said.
Plea agreements for an antitrust investigation into the auto parts industry in 2013 showed the success of DOJ's "amnesty plus" policy because it started with an investigation into just one product — wire harnesses — and then expanded into more than 30 different products, according to Mondaq.
"If you are successful in bringing in this new conspiracy that needs to be investigated, you get leniency. You'll also get a greater discount for the cooperation in the first conspiracy," he said. "Sometimes you get sort of a daisy chain effect where an investigation in one industry will lead to an investigation in a related industry or related line of products, and that could very well happen."
One year of antitrust action in the food industry
A stronger deterrent
When the 40-month sentence for Bumble Bee’s CEO came down, the DOJ praised the verdict.
Assistant Attorney General Makan Delrahim of the Justice Department’s antitrust division said in a statement that the sentence reflects the serious harm that resulted from the multi-year conspiracy. Federal prosecutors originally recommended Lischewski serve eight to 10 years in prison, while his lawyers requested 12 months of home confinement. DOJ didn't return Food Dive's request to comment for this story.
"Executives who cheat American consumers out of the benefits of competition will be brought to justice, particularly when their antitrust crimes affect the most basic necessity, food," Delrahim said.
The DOJ said the court found that the conspiracy impacted hundreds of millions of dollars in canned tuna sales during that time period. Bumble Bee pleaded guilty and was ordered to pay a $25 million fine, while StarKist Co. was fined $100 million. Chicken of the Sea was given amnesty for blowing the whistle on the other companies.
John F. Bennett, special agent in charge of the San Francisco division of the FBI, said in a statement that the case brings them closer to its goal of "allowing our citizens to be able to purchase food in an unbiased market within an efficient and fair economy, free of corporate greed."
Giordano said there has been a shift toward the DOJ going after individuals and not just companies. He said originally the program focused on corporations and substantial fines, and sometimes individuals just wouldn't be fully investigated by the time the five-year statute of limitations expired.
"It wasn't until executives started getting jail sentences for people to start taking these laws much more seriously."
Antitrust partner, Hughes Hubbard
"But more and more, the program seems to be emphasizing going after individuals and seeking jail time. I think the idea, basically, is that it's a more effective deterrent when you put executives in jail for white-collar crimes," Giordano said. "It wasn't until executives started getting jail sentences for people to start taking these laws much more seriously."
With subpoenas out in the beef industry and indictments against executives filed in the chicken industry, DOJ action will continue.
In the indictment of chicken executives, the Justice Department said the leaders and employees discussed details about their pricing over the phone and with text messages for years while they were simultaneously negotiating deals with retailers and restaurants, The Wall Street Journal reported. Wagner said he suspects there will be more to see out of this case going forward, such as people agreeing to plead guilty.
"These indictments are the beginning, not the end, of what we're going to see in the chicken industry," Wagner said.