Former Owner and CEO of SK Foods Sentenced to Six Years in Prison for Racketeering and Price Fixing

SACRAMENTO—United States District Judge Lawrence K. Karlton sentenced Frederick Scott Salyer, 57, of Pebble Beach, California, today to six years in prison, to be followed three years of supervised release, for racketeering and price fixing, United States Attorney Benjamin B. Wagner announced. Judge Karlton also ordered a forfeiture of $3.45 million. A restitution hearing is set for March 9, 2013. Salyer is scheduled to self-surrender on April 9, 2013.

According to court documents, between 1990 and 2009, Salyer was the CEO and owner of SK Foods LP, a grower, processor, and international seller of tomato paste and other processed agricultural products with facilities in Monterey, Lemoore, Williams, and Ripon, California. In his plea, Salyer admitted that he operated SK Foods as a racketeering organization. From January 2004 to April 2008, Salyer encouraged food broker Randall Rahal to pay bribes and kickbacks to purchasing officers employed by SK Foods’ customers Kraft Foods, Frito-Lay, and B&G Foods. The intent was to induce Kraft’s Robert Watson, Frito-Lay’s Richard Wahl, and B&G’s Robert Turner to promote the interests of SK Foods over their employers’ interests.

At Salyer’s direction, SK Foods routinely falsified the lab test results for its tomato paste. Salyer ordered former employees Alan Huey and Jennifer Dahlman to falsify tomato paste grading factors, and SK Foods lied about its product’s percentage of natural tomato soluble solids, mold count, production date, and whether the tomato paste qualified as organic. Salyer discussed an illegal target price agreement with other sellers of tomato paste and, when another co-conspirator offered a lower price, Salyer got the co-conspirator to agree to withdraw that offer to a customer.

U.S. Attorney Wagner said: “Scott Salyer used bribery and fraud to deceive his customers about SK Foods’ products in order to maximize his profits. Over a period of years, he turned his company into a machine of corruption and economic crime. This case is ending, but our efforts to ensure the integrity of the agriculture and food processing industry in this region will continue.”

“This case is a prime example where public trust was breeched by corporate greed,” said Herbert M. Brown, Special Agent in Charge of the Sacramento Division of the FBI. “Salyer’s business practices knowingly defrauded consumers for financial gain and he attempted to use the cloak of an agribusiness giant to insulate himself. The FBI is dedicated to combating such egregious corporate fraud by identifying and investigating cases that directly affect unsuspecting Americans.”

“Mr. Salyer and his co-conspirators ripped off consumers and reaped big profits by manipulating prices on millions of pounds of processed tomatoes,” said Internal Revenue Service-Criminal Investigation (IRS-CI) Special Agent in Charge Jose M. Martinez. “These crimes touched the lives of many unsuspecting citizens and the public should know that we will hold accountable those individuals who put personal financial gain above the safety and well-being of the general public.”

“Protecting the health and safety of the public is the Office of Criminal Investigations top priority. OCI supports the prosecution of those who threaten the public’s health and safety and commends the U.S. Attorney’s Office in the Eastern District of California for their diligence,” said Lisa Malinowski, Special Agent in Charge, U.S. Food and Drug Administration’s Office of Criminal Investigations, Los Angeles Field Office.

According to court documents, the investigation began in August 2006, when federal agents executed a search warrant at the home of Anthony Manuel, an SK Foods employee. Manuel had embezzled approximately $1 million from his former employer, a competitor of SK Foods. Manuel promptly confessed to the embezzlement and later told agents about the crimes to which Salyer and others have now pleaded guilty. In 2007 and 2008, Manuel recorded conversations with SK Foods executives (including Salyer) and provided documents corroborating his account of the crimes being committed at SK Foods. Wiretaps of Rahal’s telephones revealed that Rahal was discussing bribery and food mislabeling with Salyer and other senior officers of SK Foods. The wiretap also confirmed that Rahal was bribing Watson, Wahl, Turner, and Safeway employee Michael Chavez. On April 18, 2008, agents of the FBI, IRS-CI, and FDA Office of Criminal Investigations executed search warrants at the offices of SK Foods and at Salyer’s residence in Pebble Beach, seizing documents and copying SK Foods’s computer servers.

In 2009, the bribe recipients and many of Salyer’s subordinates at SK Foods pleaded guilty before Judge Karlton. Also that year, creditors forced SK Foods into bankruptcy. According to court documents, in late 2009, Salyer moved more than $3 million to Andorra and made a $50,000 deposit on a condominium there. Andorra is a small principality in the Pyrenees Mountains between France and Spain and has no extradition treaty with the United States. When agents learned of Salyer’s plans, they obtained an arrest warrant for him, which was executed on February 4, 2010 when Salyer made what was to have been a short visit back to the United States. Salyer was jailed as a flight risk until September 3, 2010 when he was released to house arrest after posting a $6 million bond.

Salyer was indicted by a federal grand jury on February 18, 2010 with a superseding indictment brought against him on April 29, 2010. According to court documents, several issues have been litigated, such as whether the evidence against Salyer had been obtained lawfully. Judge Karlton ultimately rejected Salyer’s efforts to suppress the evidence gathered by Manuel. Judge Karlton also upheld the wiretap and search warrant applications.

Salyer pleaded guilty on March 23, 2012. Ten other defendants have pleaded guilty, two have been sentenced, and the remaining eight are scheduled to be sentenced on February 26, 2013.

This case is the product of an investigation by the FBI, IRS-CI, FDA Office of Criminal Investigations, and the Antitrust Division of the U.S. Department of Justice. The case is currently being prosecuted by Assistant United States Attorneys Matthew D. Segal, R. Steven Lapham, Jared C. Dolan, and Kevin Khasigian and Antitrust Division Trial Attorneys Anna T. Pletcher and Tai Milder.