Fraud in the Food Industry

Operation Rotten Tomato
Fraud in the Food Industry

02/18/10

The former owner of one of the nation’s largest tomato processing companies was indicted today for his role in the pervasive manipulation of the industry through price fixing, bribery, and bogus product labeling that often resulted in consumers paying inflated prices for dated, moldy products.

“This has been a long time in coming,” said FBI Special Agent Paul Artley, who led the nearly five-year investigation dubbed Operation Rotten Tomato. The company owner, 54-year-old Frederick Scott Salyer, has been charged with racketeering, wire and mail fraud, money laundering, and obstruction of justice.

The former head of California-based SK Foods was arrested earlier this month at New York’s JFK airport after he got off a plane from Switzerland. Salyer left the country last fall—after some of his subordinates pled guilty to charges stemming from the investigation—and planned to permanently relocate overseas where he believed he could not be extradited, according to charging documents.

SK Foods grew, processed, and distributed tomato products to manufacturers and retail outlets nationwide. Its tomato paste was widely found in sauces, ketchups, and juices. (The company declared bankruptcy last May and was later acquired by another business.)

Over a period of at least 10 years, according to the indictment announced today in Sacramento, Salyer directed his subordinates to bribe purchasing managers of some of the nation’s most well-known food companies to guarantee SK Foods products were purchased instead of competitors’ products—even though they were sold at above-market prices. SK Foods also paid bribes to obtain competitors’ proprietary pricing information.

In addition, Salyer routinely ordered products to be mislabeled. As a result, consumers who thought they were getting organic as opposed to conventional products—and paying more for them—were being defrauded. In other cases, products with a recommended shelf life of one year were three years old when they hit the stores. And some of those products contained mold levels beyond limits established by the Food and Drug Administration.

“The mislabeling was so blatant,” said Special Agent Artley, “even the forklift operators at the plant were taking part. Many of their products went out the door with falsified documents.”

The investigation, a joint effort between the FBI, the IRS, the FDA, and the Department of Justice Anti-Trust Division, has already resulted in number of guilty pleas. An FBI source who infiltrated SK Foods was able to gather extensive evidence—including Salyer’s own recorded words.

When a subordinate expressed concerns over illegal actions, Salyer responded, “You can take the ethics book and shove it…We have always manipulated inventory and will continue to. We will lie to anyone outside the circle, but not to each other.”

After he left the country, Salyer arranged for the transfer of millions of dollars from his business to personal accounts overseas, investigators said. He also put his $7 million Pebble Beach home on the market.

A judge has denied Salyer bail, stating that his efforts constituted one of the “most elaborate schemes to flee” he had ever seen.

Artley, a CPA with 15 years in the Bureau investigating white-collar crime, said he had never seen a case as complex—or a fraud so insidious—as this one. “A case like this undermines consumer trust,” he said. “And I take it personally because I was a victim just like every other consumer. Fortunately, we were able to put a stop to it.”

Resources:
- Sacramento press release