ADM: WHO'S NEXT?
OCTOBER 15, 1996
In what has amounted to the largest anti-trust fine in US history, the Archer Daniels Midland Company has agreed to pay $100 million dollars for fixing the price of two corn based products. The company, now immune from further investigation, plans to help the Department of Justice with other inquiries, which may include investigations into the practices at other firms. A background report follows a discussion with a legal expert, and a reporter who has been closely following the case.
CHARLAYNE HUNTER-GAULT: Archer Daniels Midland, one of the nation's largest agricultural producers pleaded guilty to price fixing, and agreed to pay $100 million in fines, the largest criminal antitrust penalty ever. ADM, which calls itself the supermarket to the world, is a $13 billion grain company which produces corn syrup, corn-based fuel, and food and animal feed supplements used in thousands of products. ADM has more processing capacity than any other company in the world. As part of the plea agreement, ADM admitted to price fixing in two of its major products, Lysine used in livestock feed, and citric acid found in soft drinks and detergents.
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The federal investigation of ADM began four years ago and was aided by an executive who provided agents with audio and videotapes of meetings where price fixing was allegedly discussed. Justice Department and law enforcement officials briefed reporters about the case at a Washington news conference today.
JOEL KLEIN, Assistant Attorney General: This is not simply the largest fine in the history of antitrust enforcement. It is a whole different order of magnitude. This is close to seven times the previous high fine that we have ever achieved. That's why we think this is a very big and important day for us in the antitrust enforcement field. Now, we insisted on this fine for one reason. We thought it was commensurate with the crimes that we had discovered that Archer Daniels Midland committed here, and based on the cooperation that they have pledged to give us.
Taking those factors into account, we decided that $100 million was the appropriate number. Now let me say what happened was essentially Archer Daniels Midland illegally overcharged its customers millions and millions of dollars by entering agreements with competitors designed to inflate prices. In essence, greed, simple greed, replaced any sense of corporate decency or integrity. This is shameful behavior that goes to the very essence of a competitive, open free market. And we will not tolerate it.
CHARLAYNE HUNTER-GAULT: Attorneys for ADM officially entered the plea agreement in a Chicago court today. Yesterday, the company issued a press release saying, "This agreement constitutes a global resolution of all matters between the Department of Justice and ADM and is in the best interest of ADM's shareholders and the company."
CHARLAYNE HUNTER-GAULT: For the record, ADM is one of the NewsHour's underwriters. Now for more on this case, we're joined by Harvey Goldschmid, an antitrust expert at Columbia University's School of Law, and Nancy Millman, a business reporter for the “Chicago Tribune.” Thank you both for being with us. And starting with you, Ms. Millman, what can you add to what happened in court today between ADM and the Justice Department?
NANCY MILLMAN, Chicago Tribune: (Chicago) One of the very important things that was in the plea agreement that wasn't really disclosed until today was that ADM agreed to cooperate fully with the Justice Department in the continuing investigations. So although the investigations appear to be closed against the company in these areas of Lysine, citric acid, and another product in which it was being investigated, high-fructose corn syrup, it doesn't mean that the investigations are closed totally. In fact, there are two executives at the company, the son of the chairman and a president of another division, who still could be indicted on price fixing charges as individuals.
CHARLAYNE HUNTER-GAULT: The chairman being Dwayne Andreas.
MS. MILLMAN: Right.
CHARLAYNE HUNTER-GAULT: And his--
MS. MILLMAN: And his son, Michael.
CHARLAYNE HUNTER-GAULT: Mm-hmm. And the other person is--
MS. MILLMAN: Terry Wilson, Terence Wilson. He's the president of the corn processing division. And these two individuals have been told by the Justice Department and the company has admitted this in their, um, financial statements that they have been told that they are targets of the investigation.
CHARLAYNE HUNTER-GAULT: Mm-hmm. All right. Let's just back up a minute and tell me exactly what--how they entered into this plea agreement. I mean, what led--what were the specifics that led to it?
MS. MILLMAN: Well, um--up until--
CHARLAYNE HUNTER-GAULT: Briefly, I'm sorry.
MS. MILLMAN: Okay. Up until this time, um, the Justice Department had been--and the FBI had been gathering evidence with the help, as you said earlier, of a previous executive, Mark Whitaker, who had been--worked undercover for two and a half years for the FBI. And since that time, the investigation has been continuing. There are four grand juries that were impaneled. Um, recently in August, three co-conspirators with ADM--two Japanese companies and one Korean company--agreed to cooperate with the government and to plead guilty or no contest to charges of price fixing in Lysine. So they have agreed to provide information to the government. Obviously, the information that they provided was so powerful that ADM realized that it had to start negotiating a plea of its own.
CHARLAYNE HUNTER-GAULT: Mm-hmm. Mr. Goldschmid, could you help us understand price fixing and ADM's role in this case.
HARVEY GOLDSCHMID, Columbia Law School: (New York) Sure. Price fixing has been a crime since 1890. Fundamentally, it involves a group getting together, selling a product--originally making a competitive product--and deciding it would be much better and more fun to have 15--they get together, they set a price at 15, the market moves up, consumers are gouged in that way. Some number of consumers find substitutes or don't buy, and in that sense, we have a misallocation of resources. So society loses because we're misusing our resources, consumers pay more than they should in the competitive market.
CHARLAYNE HUNTER-GAULT: Ms. Millman, how did--did ADM indicate in any way in court today why it agreed to enter into this plea agreement?
MS. MILLMAN: Well, it was clear they didn't indicate anything. They just indicated that, um, they did not disagree with the charges that were, um, filed against them. In the plea agreement there were details of the evidence that the government had assembled, details about meetings that the company had had or executives had had with co-conspirators, meetings where they talked about price levels and, um, quantities of product that they would sell. And it was clear that the government had this evidence, and there wasn't much they could do about it. However, the one category in which they did not plead was high fructose corn syrup, which is a $3 billion product category, which is much bigger than Lysine or citric acid. So if the company were to plead guilty or to have been found guilty in this area, the damages and the fines would have been much higher.
CHARLAYNE HUNTER-GAULT: Mm-hmm.
MS. MILLMAN: Also
CHARLAYNE HUNTER-GAULT: But as it was, the way--this plea agreement, as I understand it, uh, there will be no more investigation now of--
MS. MILLMAN: Of ADM.
CHARLAYNE HUNTER-GAULT: --of the high fructose sugar situation.
MS. MILLMAN: That investigation will continue, but ADM will have immunity in the investigation for its cooperation with the government. So although the government didn't say that other companies are targets, it's possible that companies with whom ADM met may be targeted. And also individuals who conducted these meetings may be targets.
CHARLAYNE HUNTER-GAULT: All right. Mr. Goldschmid, Ms. Millman referred a moment ago to the $100 million fine. How--how--the Justice Department, as you just heard, made quite an issue of the size of this agreement. How unusual is this?
MR. GOLDSCHMID: Oh, it's quite unusual, but it's high, as the Justice Department indicated. It's roughly seven times the magnitude higher than any other. But the important message the Department of Justice is trying to send is a worldwide deterrence message, that it will go vigorously after price fixing, that it will use its criminal powers, that it will use its fine powers and augment them. In order to get up this high, they had to use a special provision. And the other shoe may well drop, which is the criminal indictments and trials of individuals.
CHARLAYNE HUNTER-GAULT: Mm-hmm. Well, is--was this a criminal, uh, situation with ADM today? I mean--
MR. GOLDSCHMID: Oh, yes. It was a criminal situation, with a criminal fine, and the individuals out there still are subject to criminal penalties, which means as much as three years in prison.
CHARLAYNE HUNTER-GAULT: Mm-hmm. How unusual is this case itself?
MR. GOLDSCHMID: Well, in terms of doctrine, there's nothing new. As I said, price fixing has been a crime since 1890 and the key doctrinal precedents have been out there for a long time. But the high profile here, the dollar magnitude, and the fact that senior executives are involved is what makes this so intriguing and frightening in a way. One issue is how much more price fixing among major firms there is out in the economy. It's frightening to see senior executives being involved and quite unusual in recent years to find it. One would have thought the message would have gotten through that criminal fines, criminal imprisonment was being used. But clearly it hasn't quite gotten out there clearly enough.
CHARLAYNE HUNTER-GAULT: And you see more vigorous efforts on the part of law enforcement officials now than, than in the past?
MR. GOLDSCHMID: Well, they've been going hard after price fixing for 40 years, and criminal penalties, imprisonment had been used relatively heavily for the last 20 years. The sentences aren't that high. But one thing they've been trying to teach is that if you indulge in a crime that hurts consumers so much we will put you individually in prison, and that's why that's the other shoe that dropped. The dollar magnitude here is meant to indicate to the financial community and shareholders and everyone at ADM how seriously the government takes this kind of activity.
CHARLAYNE HUNTER-GAULT: Ms. Millman, is there any indication how soon these other investigations might come to fruition or how soon any of these other developments might get into any kind of process?
MS. MILLMAN: No. The government didn't give any indication of that today, and it's clear that they do have a lot of evidence. So what is surprising to people who have followed the case for a long time is why there haven't been any indictments up until this time. They had notified these individuals a while ago that they were targets. One of the things that makes this case so unusual is that they did have the cooperation of the president of the division that makes Lysine. Mark Whitaker was the president of Vial Products. He was the one who wore the wire. He was the one who tape-recorded all these meetings, and that is fairly unprecedented in investigative history.
CHARLAYNE HUNTER-GAULT: And he is now exonerated because of his cooperation?
MS. MILLMAN: Well, he's exonerated as far as the FBI is concerned I think but he also there was an interesting twist in this case in that once ADM learned that he was the mole, they fired him and publicly accused him of embezzlement of as much as $9 million, and Whitaker contends that this money although he deposited in foreign bank accounts and didn't pay taxes on it was actually given to him as part of an off-the-books bonus plan that he contends that was a widespread practice at ADM. These charges have--are about to see their way into court.
CHARLAYNE HUNTER-GAULT: All right.
MS. MILLMAN: So his credibility has been called into question by the company that used to employ him.
CHARLAYNE HUNTER-GAULT: All right. Well, Ms. Millman and Mr. Goldschmid, thank you for joining us.
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