Tomato processing, egg products industries probed

SAN FRANCISCO (AP) - September 23, 2008

Rahal would drop a $100 bill and then pick it up and ask the potential bribe recipient: "Is it yours?" If the agent said yes, Rahal knew they were open to a "business offer," he would boast, according to an FBI search warrant affidavit filed last month in Sacramento federal court as part of a bribery and fraud inquiry that also involves Rahal's client, tomato processor SK Foods of Lemoore, Calif.

That investigation was launched in August 2005 and has since expanded into a price-fixing probe of tomatoes, 95 percent of which are processed in California.

At the same time, Justice Department spokeswoman Gina Talamona said Tuesday that investigators also were looking into price-fixing allegations in the egg industry.

Federal prosecutors already had been looking at possible price-fixing in the citrus industry as food companies wrestle with increasing costs of key food ingredients. Prices for vital ingredients such as corn and oil are soaring as demand rises around the world. And the cost pressures aren't expected to abate anytime soon.

Although federal law bars competitors from collaborating when setting their prices, Congress has created antitrust exemptions intended to help small farm groups and cooperatives bargain with large food processors. There are also exemptions for exports.

Inquiries into whether food producers overstepped those limits are being run by federal prosecutors in Sacramento and an antitrust division of the Justice Department based in Philadelphia.

In Sacramento, FBI agents tapped Rahal's telephones late last year and allege to have uncovered buyers at six food companies taking payments from him. Federal investigators also raided SK Foods on April 16. Investigators say they subsequently coaxed admissions from purchasers receiving payments at Agusa Inc., Kraft Foods Inc., Safeway Inc. and Frito-Lay, which is a division of Pepsico Inc.

Kraft Foods declined comment about the investigation.

Frito-Lay spokeswoman Aurora Gonzalez said the buyer who admitted taking payments no longer works for the company.

"We have been working with federal authorities since we first became aware of the investigation," Gonzalez said.

Investigators also say they have bank records and other evidence that buyers at B&G Foods Inc. and ConAgra Foods Inc. also took payments from Rahal, allegedly to ensure that the companies bought tomato products from SK Foods.

ConAgra spokeswoman Stephanie Childs said the company was not a target of the investigation and that the employee suspected of taking bribes was placed on administrative leave in April. Safeway spokesman Brian Dowling said the purchaser there accused of taking bribes is no longer employed by the grocery chain.

Investigators also allege that Rahal paid the bribes in exchange for bid information submitted to the companies by SK's competitors.

Rahal owns Westwood, N.J.-based Intramark USA. He could not be reached for comment because the company's telephones appear to have been disconnected.

Brian Maschler, an attorney for SK, confirmed the company was being investigated for possible price-fixing practices. He denied that SK was involved in any bribery scheme and fired Rahal in April. FBI agents allege in a court filing that they eavesdropped on telephone conversation in which SK founder and chief executive Scott Salyer encouraged Rahal's behavior.

No charges have been filed in the tomato investigation.

Two egg producers in Minnesota - Golden Oval Eggs and Michael Foods - noted in filings with the SEC this spring that they had been subpoenaed by the U.S. attorney's office in the Eastern district of Pennsylvania.

The subpoenas requested documents for the period between Jan. 1, 2002, through March 27, 2008, relating "primarily to the pricing, marketing and sales of our egg products," both companies wrote in their 10-Q filings.

Both companies said in the SEC filings that they intended to cooperate.

Sandie Wohlman, executive assistant of Golden Oval Eggs of Renville, Minn., referred questions on Tuesday to an attorney, who did not immediately respond to an e-mail seeking an interview.

Mark Witmer, treasurer and secretary of Michael Foods Inc. in Minnetonka, Minn., said: "We have fully responded to the request for information."

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