When the roll call is sounded of business deals that looked like a good idea at the time but went massively wrong, special notice should go to the merger of the tuna packagers Bumble Bee and Chicken of the Sea, announced in late 2014.
The $1.5 billion deal would have created a canned tuna powerhouse commanding nearly half of the U.S. market, swamping StarKist, which at the time was the No. 1 brand with 34.6 percent.
The deal never happened.
In conducting a routine antitrust review of the proposed deal, the Department of Justice unearthed what looked like a massive conspiracy among the three companies to fix canned tuna prices.
The parent of Chicken of the Sea, a Thai company named Thai Union Group, promptly bailed out of the merger and fessed up to the Justice Department in return for amnesty from prosecution. Its deal requires it to cooperate with the government’s investigation of the other two companies.
Two top executives of San Diego-based Bumble Bee and an executive of StarKist pleaded guilty to federal price-fixing charges in 2016 and 2017 and turned state’s evidence; their sentencings have been deferred at least to Sept. 26, when their cooperation can be assessed. Bumble Bee pleaded guilty to price fixing last year and agreed to pay a fine of at least $25 million and as much as $81.5 million (the higher amount if the company is eventually sold).
So far, 78 civil lawsuits have been filed against the three tuna companies and consolidated into a single proceeding before federal Judge Janis Sammartino in San Diego. They fall into four categories: three class actions for groceries and wholesalers, consumers, and food preparers such as delicatessens; and a fourth group of big tuna buyers such as Walmart and Sysco.
The Justice Department says the alleged collusion lasted from 2011 at least through 2013; some civil plaintiffs say it continues to this day. The lawsuits don’t specify how much the companies allegedly squeezed from consumers by colluding. U.S. canned tuna sales, however, come to between $1.7 billion and $2 billion a year.
Then, on May 16, came the federal indictment of Bumble Bee’s longtime chief executive, Christopher Lischewski.
The Lischewski indictment is what elevates the Bumble Bee investigation into a special category of white-collar crime cases, for he’s one of the rare CEOs to be brought to book in recent years for corporate wrongdoing.
Lawyers were monitoring the local prosecution of Starkey Technologies former executives for the same reason — a change in policy during the Obama administration making it easier to prosecute individual company officials.
Before, the Justice Department had moved away from prosecuting individual executives in favor of extracting criminal pleas, fines and civil settlements from their corporations. That policy reached its climax in the aftermath of the 2008 financial crisis, when top executives of big banks seen to have defrauded investors and customers averted prosecution.
Presumably responding to criticism about executives going free, the Obama-era Justice Department issued a new policy in 2015 over the signature of then-Deputy Attorney General Sally Yates. The “Yates memo” stated that it would henceforth be a priority in corporate misconduct cases to seek “accountability from the individuals who perpetrated the wrongdoing.”
Investigations should focus on individuals from the start, the memo said, and corporations wouldn’t get credit for cooperating with the government unless they fingered individual wrongdoers.
That was proper, because “almost invariably, white-collar crime comes from the top,” said William K. Black, a former bank regulator who brought cases in the 1980s against numerous individual executives in the wake of the savings and loan crisis.
But it did complicate prosecutions. That’s because “individual responsibility in huge corporations can be very diffuse,” says Henry Pontell, a white-collar crime expert at John Jay College of Criminal Justice and UC Irvine. “It’s possible in a large organization that a CEO may not know who’s doing what.”
Moreover, “going after individuals is harder — they will put up a defense because they face real consequences,” Anello said in an interview. By contrast, “companies look for ways to resolve cases.”
It took two years to build the cases against former Starkey President Jerry Ruzicka, who along with a business associate, was found guilty of fraud.
The number of white-collar cases as a whole has been decreasing since 2011, and the Trump administration has signaled a shift from corporate prosecutions to immigration cases in the federal system, making it likely that fewer of these types of cases will see the courtroom, according to an article in the New York Law Journal last February by white-collar defense attorneys Robert J. Anello and Richard F. Albert. Immigration charges have accounted for 53 percent of all federal prosecutions so far this year, according to TRAC, and drug charges an additional 32 percent.
The individual guilty pleas in the tuna cases, experts said, suggest that the government must really have the goods. Certainly the circumstantial evidence is strong. According to the indictments and civil lawsuits, the three big processors had emerged from an era of ferocious competition for market share from 1985 to 1999, when more than half the canned tuna sold in the U.S. was subject to promotions that discounted prices by as much as 31 percent.