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Tomato bribery probe just the beginning, prosecutors say

Amid concerns about corrupt practices in the food industry, nine people have pleaded guilty to charges including racketeering, money laundering and bid-rigging in a federal probe of SK Foods.

February 08, 2010|By P.J. Huffstutter

Reporting from Sacramento — To his friends, Randall Lee Rahal was just a food salesman, someone who routinely left his home on Shadyside Road in Ramsey, N.J., to crisscross the country hawking California tomatoes.

The 61-year-old sold them pureed. He sold them crushed. He sold them roasted and mashed into paste. His clients were food manufacturers, supermarket chains and other commercial buyers who turned his products into soup, ketchup and salsa.

But in the eyes of the Justice Department, Rahal was Tomato Enemy No. 1 -- a produce scofflaw who allegedly peeled off $100 bills and carried cash-stuffed envelopes to bribe buyers from leading food companies in a decade-long racketeering scheme that may have led to higher prices for consumers at the grocery store.

In a series of court filings starting in 2008, federal prosecutors in Sacramento allege that Rahal, nine others and SK Foods of Monterey, Calif., used more than $330,000 in bribes from 1998 to 2008 to subvert competition and nail down deals to sell the company's tomato paste, peppers and other products to Kraft Foods Inc., Safeway Inc., Frito-Lay North America and B&G Foods, among others.

All but one of the individuals have pleaded guilty to offenses typically associated with organized crime: racketeering, collusion, bribery, money laundering and bid-rigging. Five of the people worked for SK Foods; four were employed by its customers. SK Foods' sales plummeted as the case unfolded and it was sold out of Bankruptcy Court last year to a Singapore firm.

Rahal -- who pleaded guilty to racketeering, money laundering and conspiring to eliminate competition -- faces up to 20 years in prison at his scheduled sentencing in May. Neither Rahal, who was a sales broker and a director of the company, nor his attorney could be reached for comment.

Federal prosecutors, however, say the investigation into SK Foods is just the beginning as the government ramps up its scrutiny of the food sector.

Behind the push are growing concerns that, as the industry becomes increasingly consolidated, the public's grocery bills are getting bigger in part from corrupt or monopolistic practices among food processors, distributors or farmers.

Step into a grocery store these days and on almost every aisle there's an item tied to a federal investigation: dairy distributors, egg producers, citrus firms and seed developers are all the targets of federal lawsuits or investigations. Starting next month, the Justice Department and the U.S. Department of Agriculture will hold meetings to gather complaints and hear concerns over lack of competition in the dairy, grain, livestock and poultry sectors.

"Agriculture will be a priority of mine," Christine Varney, who leads the Obama administration's antitrust team at the Justice Department, said during her congressional confirmation hearings last year.

The government's latest move came last week, when FBI agents arrested the former owner and chief executive of SK Foods, Frederick Scott Salyer, as he stepped off a flight from London at New York's John F. Kennedy International Airport.

U.S. Magistrate Judge Steven Gold denied Salyer bail at a court appearance in Brooklyn on Friday. Salyer, 54, did not enter a plea.

Salyer is charged with 20 counts of mail fraud and wire fraud as part of the alleged scheme to dominate the market for tomato paste and other processed vegetables, and overcharging for food products that, while safe for consumption, sometimes fell short of Food and Drug Administration and U.S. Department of Agriculture standards.

Now detained in New York, Salyer is expected to be transferred in the coming weeks to Sacramento, where he will face a preliminary hearing to enter his plea.

"The charges are unfounded," said Malcolm Segal, Salyer's defense attorney. Segal said his client has been living in France and works as an agricultural consultant. Salyer was returning to the U.S. to wrap up some business dealings and has been cooperating with investigators, Segal said.

But federal investigators said in the complaint thatSalyer has spent months trying to shelter millions of dollars from his tomato and farming empire in the Caribbean and Liechtenstein banks, and was weighing whether to flee to South America or elsewhere where he could avoid extradition.

"This would have to be the biggest case involving fraud within the agriculture industry that we've had in many years," said Benjamin B. Wagner, the U.S. attorney in Sacramento. His office along with the Justice Department antitrust unit in San Francisco are spearheading the case.

Nearly 95% of all tomatoes grown in the U.S. are processed by four companies in California. SK Foods, with its two Central Valley plants, was one of these tomato giants. The company bought much of its produce from farmers in the state, as well as from a vegetable growing and shipping firm controlled by Salyer.

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