SK Foods LP Former Owner and CEO Arrested at JFK Airport

February 5, 2010 - SACRAMENTO, CA—United States Attorney Benjamin B. Wagner announced today the arrest of the former owner and chief executive officer for the Monterey-based SK Foods LP today at John F. Kennedy Airport in New York City. FREDERICK SCOTT SALYER, 54, of Pebble Beach, Calif., is charged with 20 counts of mail and wire fraud in connection with his direction of various schemes to defraud SK Foods’ corporate customers through bribery and food misbranding and adulteration. SALYER will make his initial appearance in court tomorrow afternoon before a U.S. Magistrate Judge in the Eastern District of New York.

This case is the product of a joint and extensive investigation by the Federal Bureau of Investigation, the Internal Revenue Service, Criminal Investigation, and the United States Department of Justice’s Antitrust Division.

According to Assistant United States Attorney Sean C. Flynn, who is prosecuting the case together with Barbara Nelson and Richard Cohen of the San Francisco Field Office of the Antitrust Division, a 20-count criminal complaint was signed by United States Magistrate Judge Dale A. Drozd and filed on January 5, 2010. The complaint was unsealed today. Between 1990 and 2008, SALYER was the owner and served as chief executive officer of SK Foods LP, a grower, processor, and distributor of tomato products and other food products for sale to food product manufacturers, food service distributors and marketers, and retail outlets nationwide.

The complaint alleges that over a period of at least 10 years, SALYER orchestrated a number of wide-ranging schemes whereby SK Foods regularly paid bribes to the purchasing managers of many of its customers such as Kraft Foods Inc., Frito-Lay Inc., B&G Foods Inc., and Safeway Inc. to ensure that those customers purchased processed tomato products from SK Foods rather than from its competitors, and that they purchased the product from SK Foods at elevated, above-market prices. In other instances, SK Foods’ bribes to purchasing managers were made in order to wrongfully obtain its competitors’ proprietary bid information.

As SK Foods’ leader and primary decision maker, SALYER is alleged to have directed a widespread practice of selling and shipping processed tomato product to customers that did not meet contractual specifications, and was adulterated because it contained mold levels in excess of the thresholds established by the United States Food and Drug Administration and was thus unsaleable domestically. At SALYER’s direction, various individuals at SK Foods falsified both internal and customer-bound documentation to make the product appear as if it were legal and contractually compliant when, in fact, it was not.

FBI Special Agents arrested SALYER at John F. Kennedy International Airport in New York City this afternoon. According to the complaint, SALYER left the United States in October 2009, following the guilty pleas of several employees of SK Foods and some of its customers, intending to permanently relocate abroad. SALYER had instructed a subordinate to sell many of SALYER’s belongings and had transferred millions of dollars from bank accounts formerly associated with SK Foods entities to bank accounts in the Caribbean and Liechtenstein. The complaint alleges that SALYER spoke with a former SK Foods employee about obtaining permanent residence status in Uruguay, Paraguay, Andorra, and France because he believed he would not be extradited from these countries.

U.S. Attorney Wagner said, “Mr. Salyer apparently intended to become a fugitive from justice. We are pleased that he will now have his day in court, and we commend the FBI for its excellent work in apprehending him.”

The current charges against SALYER are the latest in the government’s ongoing investigation in the domestic tomato processing industry. Between January 2008 and January 2009, four high-ranking corporate purchasing managers pleaded guilty to receiving bribes from SK Foods while working at some of the nation’s largest food companies:

MICHAEL CHAVEZ, 52, of Fremont, Calif., former purchasing manager at Safeway; ROBERT L. WATSON, 59, of White Plains, N.Y., former purchasing managers at Kraft Foods; JAMES RICHARD WAHL, 58, of Dallas, Texas, former purchasing managers at Frito-Lay; ROBERT TURNER, 59, of Randolph, N.J., former purchasing managers at B&G Foods.

They all admitted to receiving illicit payments from former SK Foods sales broker and director RANDALL LEE RAHAL, 61, of Ramsey, N.J. RAHAL pleaded guilty in December 2008 to participating in racketeering, bid rigging, and contract allocation conspiracies, among other charges. He has admitted that the hundreds of thousands of dollars in bribe payments he made to customer purchasing managers were ordered by SALYER. WATSON was sentenced on August 11, 2009 to two years and three months in prison to be followed by two years of supervised release. He was also ordered to pay $1,858,000 in restitution to his former employer, Kraft. The other defendants are awaiting sentencing.

Furthermore, on November 17, 2009, former SK Foods Vice President ALAN SCOTT HUEY pleaded guilty to participating in a conspiracy involving honest services fraud and causing the introduction and delivery for introduction of adulterated and misbranded food into interstate commerce with the intent to defraud and mislead. In his plea agreement, HUEY admitted that at the instruction and direction of SALYER, he routinely falsified, and directed other SK Foods employees to falsify, the various grading factors and data contained on Certificates of Analysis and other quality control documents that accompanied customer-bound shipments of tomato product that was produced, purchased and sold by SK Foods. HUEY admitted that the quality control documents were falsified so that they reflected mold count levels in SK Foods tomato product as being below the applicable U.S. Food and Drug Administration Food Defect Action Level in many instances when, in fact, those levels were significantly above the federal threshold. Huey also admitted that at SALYER’s direction, SK Foods intentionally falsified quality control documents so that they reflected natural tomato soluble solids levels that were higher than what the product actually contained. In other instances, they altered dates of production of the tomato product. At SALYER’s direction, SK Foods routinely shipped adulterated and misbranded tomato product to at least 55 different customers in 22 different states.

One SK Foods employee that was directed in this fashion was former Records and Business Analyst JENNIFER LOU DAHLMAN, 48, of Lemoore, Calif. DAHLMAN pleaded guilty on February 18, 2009 to causing the shipment of processed tomato products that were adulterated and unsaleable domestically due to their excessive mold content.

Former SK Foods Vice President JEFFREY SHERMAN BEASLEY pleaded guilty to participating in honest services and mislabeling conspiracies on August 25, 2009. RAHAL, HUEY, DAHLMAN, WAHL and BEASLEY are all cooperating in the government’s ongoing investigation.

In a related case, ANTHONY RAY MANUEL, 57, of Turlock, Calif., formerly an employee of Morning Star Packing Company and then of SK Foods, pleaded guilty on January 27, 2009 to embezzling approximately $975,000 from Morning Star and to filing a false tax return.

The maximum statutory penalty on the mail and wire fraud charges is twenty years in prison, and a criminal fine of $250,000. The actual sentence, however, will be determined at the discretion of the court after consideration of the Federal Sentencing Guidelines, which take into account a number of variables and any applicable statutory sentencing factors.

The charges in the complaint are only allegations and the defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.