Federal fines, indictments hit major processors

Pilgrim’s Pride Corp., Koch Foods Inc. and Claxton Poultry Farms are among major poultry companies that were allegedly involved in a scheme to limit competition in the broiler market.

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(weyo | BigStockPhoto.com)
(weyo | BigStockPhoto.com)

Pilgrim’s Pride Corp., Koch Foods Inc. and Claxton Poultry Farms are among major poultry companies that were allegedly involved in a scheme to limit competition in the broiler market.

In February 2021, Pilgrim's pled guilty and was sentenced to pay a $107 million fine for its participation in the conspiracy. As of early October 2021, the case – USA vs. Penn et al. – is headed to a jury trial in the U.S. District Court for the District of Colorado in Denver with pre-trial conferences beginning October 8, 2021.

Federal scrutiny

This prosecution comes during a high-profile period for the poultry industry. The COVID-19 pandemic shone a rare spotlight on the industry in 2020. The following year, major purchases signaled further consolidation at the top of the industry.

In a speech to the National Farmers Union delivered in Washington in September 2021, Associate Attorney General Vanita Gupta said the Biden Administration believes “consolidation in the agricultural industry is making it too hard for small family farms to survive.”


Vanita GuptaAssociate Attorney General Vanita Gupta (Matthew T. Nichols)

 

Gupta said concentration of power and criminal collusion shifts power to large corporations from local communities.

“Fixing the price of commodities like chicken robs farms and consumers of the benefits of a competitive economy,” Gupta said. “It means farmers get less, consumers pay more and criminals profit.”

Richard Kottmeyer, the global food, agriculture and beverage leader at FTI Consulting Inc., said this litigation is just the beginning and the industry is largely unprepared. He said the best defense against litigation is documentation of decisions and implementation of rigorous programs of compliance, especially in regards to intra-industry communication.

"Few are aggressively building up programs that keep them from being the next headline, regardless of whether they would ultimately prevail or not." Kottmeyer said. "This goes beyond a conversation with legal counsel on one’s exposure or whether you would ultimately win a similar claim. That needs to change."  

Richard KottmeyerRichard Kottmeyer, FTI Consulting Inc. 

 

Anticompetitive actions

According to the U.S. Department of Justice (DOJ) Antitrust Division, price fixing and bid rigging are forms of collusion where competitors inflate prices to cheat the customer during a competitive bidding process.

The Sherman Act of 1890 prohibits agreement among competitors to fix prices, rig bids, or engage in other anticompetitive activity. Violation of the act is a felony punishable by, for corporations, a fine of up to $100 million, and for individuals, a fine of up to $1 million or 10 years’ imprisonment (or both). Victims of such conspiracies may also seek civil recovery of up to three times the amount of damages suffered.

The DOJ said market conditions like a small pool of sellers, a standardized product, repetitive purchasing and existing relationships among competitors through legitimate business, trade associations or prior employment, make an industry more favorable to collusion.

Indictments against individuals

In June 2020, a federal grand jury in the U.S. District Court in Denver returned a one-count indictment against four industry executives for their role in a conspiracy to restrain trade running from as early as 2012 until at least 2017.

In October 2020, the same body returned a three-count superseding indictment charging six additional executives in the same scheme. The indictments charged the executives and employees with participation in the conspiracy from 2012 until at least 2019. The superseding indictment charged one defendant, Jimmie Little, with making false statements and obstruction of justice.


Jayson PennJayson Penn (Courtesy Pilgrim’s Pride Corp.)


An indictment is a formal allegation. All defendants are presumed innocent until proven guilty in a court of law.

The first indictment said the parties, “participated in a continuing network of suppliers and co-conspirators, an understood purpose of which was to suppress and eliminate competition through rigging bids and fixing prices and price-related terms for broiler chicken products.”

It further alleges the parties: reached agreements to submit aligned, though not necessarily identical, bids, prices and price-related terms, including discount levels; participated in conversations about nonpublic information on bids, prices and price-related terms and monitored bids submitted by, and prices and price-related terms, including discount levels, offered by suppliers and co-conspirators.

Evidence presented included records from 2014 to 2017 of numerous meetings, emails, phone calls and text messages between the conspirators related to protecting the purpose and effectiveness of the conspiracy.

The executives named in the indictments were:

  • Jayson Penn, at the time President and CEO of Pilgrim’s.
  • Roger Austin, a former vice president at Pilgrim’s.
  • Mikell Fries, president and member of the board at Claxton Poultry.
  • Scott Brady, vice president of national accounts at Claxton Poultry.
  • Timothy Mulrenin, a sales executive at Perdue Farms and previously a sales executive at Tyson Foods Inc.
  • William Kantola, sales executive at Koch Foods.
  • Jimmie Little, sales director at Pilgrim’s.
  • William Lovette, a former president and CEO of Pilgrim’s
  • Gary Roberts, an employee at a chicken supplier based in North Carolina and a manager at Tyson.
  • Rickie Blake, director and manager at Tyson.

Fries and Brady entered a plea of not guilty. A June 2020 release from Claxton Poultry said the allegations are without merit and it intends to vigorously defend the company.

Perdue Foods declined to comment on this article citing its policy not to comment on an active legal matter.

In July 2021, a federal grand jury in Denver returned an indictment in a new case, USA vs. McGuire et al., charging four executives for their role in the same conspiracy lasting from as early as 2012 until at least 2019. That case is currently scheduled for a 15-day jury trial in July 2022.

The four Pilgrim’s Pride executives are:

  • Jason McGuire, former executive vice president of sales for prepared foods.
  • Timothy Stiller, a former general manager of fresh food services and small bird debone.
  • Wesley “Scott” Tucker, a former national accounts sales executive.
  • Justin Gay, a former director of fresh foodservice sales.

The role of Pilgrim’s and Tyson

In June 2020, Tyson Foods Inc. issued a statement saying it was served a grand jury subpoena by the DOJ in April 2019.

“Tyson uncovered information in connection with that investigation, which we immediately self-reported to the DOJ,” the statement said. “Tyson took appropriate actions to address the internal issues and has been fully cooperating with the DOJ as part of its application for leniency.”

Penn was placed on a paid leave of absence in June 2020 and replaced by then Chief Financial Officer Fabio Sandri as interim president and CEO of Pilgrim’s Pride. Sandri’s interim role was made permanent in September 2020.


Packaged Chicken At StoreTyson Foods said it is cooperating with the Department of Justice. (Andrea Gantz)

 

In January 2021, Pilgrim’s announced a $75 million payment to its buyers to settle claims that the company colluded with other poultry producers. In February 2021, Pilgrim’s pled guilty and was sentenced to pay about $107 million in criminal fines for its participation in a conspiracy to fix prices and rig bids for broiler chicken products.

The plea agreement Pilgrim’s entered in the U.S. District Court in Denver said Pilgrim’s participated in a conspiracy to suppress and eliminate competition affecting at least $361 million in Pilgrim’s sales.

Indictment against Claxton Farms

In May 2021, a federal grand jury in Denver returned a one-count indictment charging Norman W. Fries Inc., doing business as Claxton Poultry Farms, with participating in a nationwide conspiracy to restrain trade by fixing prices and rigging bids for broiler chicken products.

That indictment in the case USA v. Norman W. Fries Inc. et al charged Claxton and others with participating in a conspiracy from at least as early as 2012 until at least 2019, to suppress and eliminate competition for sales of broiler chicken products. The language of the indictment tied the case heavily to USA v. Penn et al.

In May 2021, Claxton pled not guilty and a 15-day jury trial was scheduled to begin on August 2, 2021. In June 2021, the case was declared complex and trial times were vacated. A current trial time is not set.

In a May 2021 statement Claxton Poultry said the allegations are nearly identical to those in existing cases against Fries and Brady.

"The company has been investigating these matters extensively for two years and is confident it did not participate in price-fixing or bid rigging conspiracies of broiler chicken products," the statement said. "Claxton Poultry continues to believe that the allegations in the indictment are without merit and it intends to vigorously defend these charges and its good name."

Indictment against Koch Foods

In July 2021, a federal grand jury in Denver returned an indictment charging Koch Foods with participating in a nationwide conspiracy to fix prices and rig bids for broiler chicken products. The indictment added Koch Foods to the existing case USA v. Norman W. Fries Inc. et al.

In statement released in July 2021, Koch Foods said it, “steadfastly denies that it or any of its employees engaged in price fixing.” The same statement said the DOJ pressured Koch to plead guilty in order to receive a lesser punishment, but it has “carefully considered this option and in good conscience cannot agree.”

“Koch has seen no evidence to date that it or any of its employees have committed any crime. Pleading guilty, then, is more than a matter of paying a fine or admitting a violation of the law—it is an admission of a violation of Koch’s integrity and core values,” the statement said. “We do not take this lightly. While it will require extraordinary resources to have our day in court, Koch feels that it must vigorously defend itself against DOJ’s allegations.”


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