YOU ARE HERE: LAT HomeCollections

Texas businessman settles military food mislabeling case for $15 million

Prosecutors allege that Samir Mahmoud Itani and his company American Grocers Ltd. changed the "use-by" labels on food and sold it to the U.S. military from 2003 to 2006 during the Iraq war.

November 20, 2010|By P.J. Huffstutter and Andrew Blankstein, Los Angeles Times

A Texas businessman has agreed to pay $15 million to settle federal allegations that he and his company cheated the government by selling old and potentially dangerous food to the U.S. military to supply combat troops serving in Iraq and elsewhere.

Prosecutors had alleged that Samir Mahmoud Itani and his company American Grocers Ltd. profited from the Middle East conflict by ripping off taxpayers and shortchanging U.S. soldiers in the mess hall. According to the government, Itani's firm bought deeply discounted products whose freshness dates had expired or were nearing expiration. His workers then altered those dates and resold those supplies to the government for hefty markups, prosecutors alleged.

On Friday, Department of Justice officials announced that Itani, his wife, Suzanne, his brother Ziad and the company agreed to pay the penalty to settle the false-claim charges in this federal whistle-blower case.

Suzanne Itani, chief executive of American Grocers, said in a statement that the company denied any wrongdoing and that the settlement was a way to avoid lengthy litigation. She said that the company was "proud of the service and products it delivers to its customers" and that company officials "look forward to returning our full attention to serving our many loyal customers throughout the world."

Samir Itani could not be reached for comment. According to property records, he owns a $2.2-million, 9,931-square-foot mansion with two elevators in an upscale Houston neighborhood.

Prosecutors said that Samir Itani, 51, and a tightknit group of family and business acquaintances sold at least $36 million worth of mislabeled food products to the government.

The shopping list was long and included potato flakes, salad dressing, produce, peanut butter, lobster and hamburger patties, according to the federal complaint. The supplies flowed out of Texas and to bases across the Middle East from about 2003 to 2006 during the Iraq war.

As the U.S. military presence grew in the Middle East, Itani's business boomed. American Grocers shipped so much stale merchandise that the company bought paint solvent by the barrel and set up assembly lines to wipe out the old labels to make room for the phony dates, according to the complaint.

The Justice Department did not say whether any troops were sickened by the food supplied by American Grocers, or whether any of the food companies that sold items to Itani knew of any wrongdoing.

The civil settlement offers a window into the complex logistics used to get supplies to combat troops, and shows, according to investigators, how easy it is to exploit that system. The case is connected to a broader, ongoing inquiry by the Justice Department into the nation's network of military food suppliers.

Last year, Itani pleaded guilty to criminal conspiracy to defraud the government by overcharging for bogus transportation fees to ship the food. He is scheduled to be sentence in that case in U.S. District Court in Houston next month.

Prosecutors may have opted to pursue civil charges in the labeling case because the burden of proof is lower than in a criminal proceeding, legal experts said. The government has barred Itani, his wife and American Grocers from receiving any future federal contracts.

According to the civil complaint, Itani's privately held American Grocers purchased staples nearing or past their "use by" dates from some of the country's leading food manufacturers, including Kraft Foods International Inc. and ConAgra Foodservice.

After trucks unloaded the goods at the company's warehouse, an assembly line of as many as 30 employees used buckets of acetone — a key ingredient in paint thinner and nail polish remover — black spray paint or a small tool to erase the expiration dates, according to court documents and the whistle-blower.

New dates were then printed out or stamped onto new stickers showing that the food had an additional nine to 18 months of shelf life, prosecutors alleged. The food was then packed into air freight or sea containers and sent overseas.

So much acetone was used inside the firm's Houston warehouse that it "smelled strong" like being inside a nail salon, recalled Delma Pallares, a former sales manager and the whistle-blower in the civil case.

One invoice, filed as an exhibit in the case, appeared to show instructions to employees to alter the labels on 750 pounds of frozen trout, giving the fish another nine months of shelf life. As much as 2,500 pounds of frozen Jennie-O brand boneless turkey breasts appeared to have been given another year.

One order of Kraft cheese arrived already months past its use-by date, according to Pallares. New labels were put on the boxes, she said, before the cheese was shipped out.

"We are feeling very satisfied … that the filing has been unsealed and the public can view what we've been investigating for the past five years," said Joel Androphy, Pallares' attorney.

Los Angeles Times Articles