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SK Foods founder pleads guilty in fraud case
March 23, 2012 / 8:56 PM / in 6 years

SK Foods founder pleads guilty in fraud case

(Reuters) - The founder of tomato processor SK Foods in California on Friday pleaded guilty to racketeering and price fixing in a criminal case over a scheme to sell tomato paste and other products at inflated prices that ultimately forced up U.S. grocery bills. Frederick Scott Salyer pleaded guilty to two counts of a 12-count indictment before Judge Lawrence K. Karlton at the U.S. District Court for the Eastern District of California.

Salyer’s prison sentence has yet to be determined, as well as any fines and restitution he would pay to companies that bought mislabeled organic tomato products and other food items whose quality was poorer than advertised.

Salyer, 56, and his defense attorneys declined to comment to Reuters after the hearing. Salyer remained free on a $6 million bond, and will continue to be electronically monitored while under house arrest at his home in Pebble Beach, Calif. Salyer’s family, well-known in the Golden State for its cotton empire, once controlled farmland nearly three times the size of San Francisco. His indictment in 2010 rocked the California agricultural world.

The plea avoids a criminal trial that had been scheduled for April and was expected to last for months. Federal investigators dubbed the case “Operation Rotten Tomato” and charged Salyer and some of his associates with inflating prices on millions of pounds of processed tomatoes sold to 55 companies in 22 states.

A sentencing hearing before Karlton was scheduled for July 10. According to the plea agreement presented to the court, the government and defendant agreed Salyer would serve between four and seven years in prison.

If the judge sentences him to more than seven years, Salyer may move to withdraw his plea, said assistant U.S. attorney Matthew Segal.

Salyer also agreed to forfeit all funds in accounts held at financial institutions in Lichtenstein and Andorra, including $3.25 million that were in overseas accounts while he was under investigation by federal prosecutors in 2010. The plea agreement does not state a specific amount of restitution or fines.

The bulk of any restitution Salyer is ordered to pay would go to food product manufacturers that paid inflated prices for tomato products that failed to meet promised specifications, said U.S. Attorney Benjamin B. Wagner at a news conference Friday.

Wagner said the case reflected the importance of prosecutors fighting corporate corruption in the state’s agricultural industry, given that “food grown in California’s Central Valley feeds people all over the United States.” California accounts for the production of more than 90 percent of all U.S. tomato products, Wagner said.

A grand jury indicted Salyer in 2010 on a dozen charges - including racketeering, conspiracy, obstruction of justice, wire fraud and violating antitrust laws.

Herbert M. Brown, special agent in charge of the Sacramento field office of the Federal Bureau of Investigation, described Salyer’s actions as typical of the “festering greed” at the core of white-collar crime.

“Scott Salyer put greed ahead of concern for his employees and consumers worldwide,” Brown said at a news conference Friday.

SK Foods, with its headquarters in Monterey and processing facilities in the Central Valley, sought bankruptcy protection in 2009. It was later sold to a company based in Singapore. Salyer was charged with organizing and leading a conspiracy to use more than $330,000 in bribes from 1998 to 2008 to eliminate competition in the tomato processing world and secure deals to sell his company’s tomato paste, peppers and other products to Kraft Foods Inc.KFT.N, B&G Foods(BGS.N) and Frito-Lay North America Inc., among others, according to court documents. During that time, according to court documents, Salyer and some SK Foods officials tricked some food manufacturers into buying tomato paste mislabeled to appear of a better quality. Salyer was charged with directing company officials to bribe some employees of SK Foods’ customers to take orders. That, in turn, and allowed the company to sell tomato products at a 30 percent premium or more, according to court documents.

Some customers have applied to recover their losses through the bankruptcy case, Wagner said. After creditors forced SK Foods into bankruptcy protection in 2009, the bankruptcy trustee discovered that SK Foods monies were used to buy a $1.5-million lot in Maui, a $2.6-million condo and operate a $1.5-million jet. Salyer is the 11th person to have pled guilty in connection to the investigation.

The case in U.S. District Court, Eastern District of California is United States of America v. Frederick Scott Salyer, 10-cr-061.

Reporting by P.J. Huffstutter. Additional reporting by Adam Weintraub; Editing by David Gregorio

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