The Escalating Tuna Price Fixing Scandal

As the US canned tuna price fixing case swells in significance, discussions are beginning to be centered on whether the Big 3 and the entire US tuna industry can recover from this potentially major reputational blow, especially as the scandalous news begins to hit leading mainstream press.

It’s fact that one firm can’t act alone to conspire, and with three guilty pleas in the bag, all from Bumble Bee’s direction, many are left waiting to see who might step up in admission next.

The Breaking News

First gaining major publicity in August 2015, tuna price fixing activity, alleged to be conducted by the US Big 3 canned tuna brands, was brought fully to attention due to the first civil complaint. Olean Wholesale Grocery Cooperative, a US wholesaler, claimed that the “oligopolistic structure” of the US’ top tuna names, Bumble Bee, StarKist and Chicken of the Sea (COS), allowed them to fix tuna prices artificially high. Together these three strong household brands command around an 80 percent share of the canned tuna market.

It’s believed that the conspiracy activity was brought to light through the attempted buyout of Bumble Bee, by COS owner, Thai Union. The sheer size and dominance of both of these brands, and the potential for them to be under one ownership, sparked antitrust concerns from the US Department of Justice (DOJ).

Already in August 2014, TU, then TUF, confirmed its interest in buying Bumble Bee, and late that year came a bid from the canned tuna giant, to purchase the firm for USD 1.5 billion. Thai Union had thirst to enhance its portfolio of seafood products in both the US and Canada, and expected to be able to grow its turnover by a bullish 25 percent by having both big brands under its umbrella.

However, the high profile nature of the planned acquisition sparked an antitrust probe from the DOJ, and as lawsuits from retailers, consumers and wholesalers added up, more attention was focused on the allegations.

Reports circulated that an involved party or individual may have confessed price fixing collusion to US authorities in order to gain immunity in the case, and avoid such a strong punishment, which had the potential to destroy both reputation and business, if the allegations were indeed true.

With intensifying publicity on the case, in December 2015, Thai Union announced that it was dropping the Bumble Bee deal, having reached an agreement with its private equity owner, Lion Capital, to terminate the acquisition, effective immediately. At the time, Thai Union CEO, Thiraphong Chansiri said: “We have put a lot of efforts to get this deal approved. However, we also recognize that the clearance is now unlikely due to a higher level of complexity in the process.”

The Piling Papers

Civil lawsuits continued to pile up, reaching a considerable number, with plaintiffs accusing the Big 3 and other tuna firms of conspiring to fix tuna prices, however with no public emergence of sure fire evidence.

By this time, there were four groups of claimants that were already part of the case, and still are today. The first are purchasers, mostly made up of retailers, using the Sherman Act to sue. The second group consists of consumers, who are using state law, and third are commercial end users like delis and restaurants. The fourth and final group is made up of direct purchasers, who are outside of the overarching case, and use their own counsel to prosecute individually.

At the same time, the DOJ continued its investigation into the packaged seafood sector in the US as a whole, and in reaction to the increasing number of individual lawsuits, in July 2016 the government department placed civil cases on hold. This action was taken while it was investigated whether there was enough evidence to launch criminal proceedings against leading US tuna companies and their executives.

More Defendants?

As well as the US Big 3 tuna brands, and their parent companies, Dongwon (StarKist), and Thai Union/Tri Union (Chicken of the Sea), other names were pulled into the price fixing firing line. Del Monte, the previous owner of StarKist, and Tri Marine, one of the largest traders of raw material tuna globally, were named within court filings as having a role in the conspiracy, not long after cases started to mount.

With US retailers like Winn-Dixie Foods and Giant Eagle having also filed lawsuits, Tri Marine was named as an alleged co-conspirator in a cartel accused of fixing prices artificially high, having worked in close cooperation with the Big 3. An amended complaint from Olean Wholesale also stated that “Tri Marine, which dealt with and/or partnered with Bumble Bee, COS and StarKist throughout this period, provided an excellent conduit for the exchange of price information.”

However, later, in mid-2016, Tri Marine was dropped as a defendant in the case, after further evidence emerged. With Tri Marine out of the firing line, the attention was back on the Big 3 and their parent firms. However, the Department of Justice’s order in July 2016 for civil lawsuits to be put on hold kept court proceedings from moving forward. At this time, plaintiffs and defendants agreed not to reveal any liabilities until at least January 2017.

FAD-Free Collusion?

The Department of Justice instead accelerated forward with its criminal investigation into antitrust, but largely out of the public eye.

Despite civil proceedings being put on the backburner it didn’t stop more plaintiffs from coming forward to sue. This is when it was revealed that top tuna firms weren’t only being accused of price fixing conspiracy, but also for collusion on refraining to sell free school caught tuna products labelled as FAD-free.

In several amended complaints in mid-2016, it was claimed that the Big 3 consulted each other via e-mails as far back as May 2011, on whether launching FAD-free products was part of their agenda. Accusations went on to state that in February 2012, it was agreed by teleconference that none of them “would launch a branded FAD-free canned tuna product in the US.”

Complaints added that this collusion came at a time when plaintiffs, or the affected parties, were increasing their demand for more sustainable tuna products.

Lack Of Evidence?

As accusations swelled, but still little evidence had been revealed, a call came from the two of the Big 3 brands, filing motions to be removed from proceedings. Thai Union, Chicken of the Sea owner, and StarKist’s parent firm, Dongwon Industries sought to dismiss a number of the lawsuits, on the grounds that the prosecution had not produced enough evidence to warrant their inclusion.

In their filings it was stated: “Allegedly similar price increases do not suggest conspiracy. It is common sense that competitive market forces will tend to drive the prices of like goods to the same level, so like prices on like products are not, standing alone, sufficient to implicate price fixing.”

Speaking further of the civil lawsuits, the joint-motion also said that “repeated references to an investigation by the DOJ do not support a plausible inference of a price fixing conspiracy.”

The next hearing was due to take place in November 2016. Just a month before two more retailers stepped forward to sue, making similar accusations against the US tuna market leaders, and these were Fairway Stores and Woodman’s Food Market. Taking the allegations to a broader level, their complaints addressed violations of the Sherman Act, alleging “conspiracy to raise, fix, stabilize, or maintain prices in the market for shelf-stable packaged seafood, including tuna, clams, crab, mackerel, oysters, salmon, sardines and shrimp.”

These complaints were also not shy to name names, expressing that “during the relevant period, it was commonplace for former executives of one defendant to later become executives at their former competitors.” Giving some examples they cited, among others, Chris Lischewski and Jan Tharp’s move from StarKist to Bumble Bee in 1999 and 2010 respectively.

“The fluid movement of executives among defendants results in a web of personal and professional relationships that facilitated anticompetitive agreements and frequent exchanges of confidential and future price information,” the papers outlined.

Walmart’s Big Entrance

Having already snowballed significantly, the price fixing case took a big leap in terms of notoriety and publicity in November 2016. Walmart, the US’ and world’s largest retailer, joined the list of companies and individuals alleging that the Big 3 tuna brands conspired to fix prices.

The supermarket chain, the biggest buyer of canned tuna in the US, claimed that price fixing activity had begun between 2008 and 2010, and lasted until July 2015. Walmart’s entrance into the case came 15 months after it first had become public that the DOJ was investigating the Big 3 on allegations of anti-competitive conduct.

It alleged that defendants “possessed significant market power to raise prices for packaged tuna above competitive levels in the US, with a combined market share of 80-85 percent during 2003-2015, and they conspired to ensure they would stabilize and maintain their market share…despite declining demand.”

At the time, a spokesperson for Walmart said that the firm believed there was strong evidence that suppliers of canned tuna colluded to artificially inflate and wrongfully fix prices in order to increase their own profits at the expense of consumers. By this point, (November 2016) the count of civil lawsuits had reached a resounding total of 53, with more expected to emerge.

Case Delayed

The end to the DOJ’s pause on civil proceedings edged closer, and in November last year, this caused movement in the lawsuits to be delayed once again, this time with the “stay of discovery” being issued until March 31st.

This agreement between the civil and criminal litigation was designed so as not to compromise the DOJ’s investigation, and meant that information “that refers or relates to any understandings, agreements, meetings, or communications relating to the sale of packaged seafood” could not be shared or revealed.

At this stage, on the heels of the US Presidential election, there were questions over whether Trump’s win could have an impact on the case. Changes were due at the top of the DOJ, and the pro-business attitude of the new President was throwing doubt on to whether he’d put prosecution in this case at the top of the priority list.

BREAKING: First Guilty Plea

In a massive shake up in the case, in December 2016 came the breaking news that Walter Scott Cameron, Bumble Bee Senior Vice President of Sales, agreed to plead guilty to one felony charge for fixing prices of packaged seafood from 2011 to 2013. He agreed to pay a criminal fine and cooperate in the investigation.

The plea marked the first formal action taken in the joint criminal antitrust investigation by the DOJ and the FBI. There was no indication made over how much consumers may have been overcharged by the alleged price fixing activity.

Cameron’s admission sparked broader speculation over the massive consequences a guilty plea could bring, not just for Bumble Bee, but for the other top tuna firms caught up in the investigation. The potential of fines to reach hundreds of million dollars was mooted by some lawyers close to the case.

With a guilty plea signaling firm evidence in the investigation, more allegations arose around this time that tuna price fixing activity had not just impacted the primary product, canned tuna, but had also pushed up the price of other packaged seafood, according to plaintiffs.

Strike 2

In the space of not even weeks, the second guilty plea emerged, again from a Bumble Bee executive. Kenneth Worsham, the firm’s Senior Vice President of Marketing, admitted to the role he played in fixing prices between the years 2011 and 2013.

Worsham, like Cameron, was placed on leave, according to company representatives, and Bumble Bee stated that it was continuing to fully cooperate with the DOJ investigations. Worsham too agreed to pay a criminal fine, but the amount was not disclosed at the time.

Behind the scenes, as the signs of sure fire evidence strengthened, civil lawsuits carried on mounting, and January 2017 saw a significant court decision. Previous attempts by two of the Big 3 firms to have civil complaints dismissed were not approved, and it was ruled that there was enough factual material to allow these cases to proceed.

California Judge, Janis Sammartino, did however state that that future litigation would be limited to the tuna market only. This meant that previous claims that the price fixing also impacted other US seafood products, would be dismissed.

The judge confirmed that although the guilty pleas related to the DOJ probe had covered 2011-2013 time period, arguments in the class action filings allege that price fixing conspiracy started earlier, with dates ranging from as far back as 2003, up to early 2010.

Jail Time?

In February this year, it was stated that Walter Scott Cameron, the first Bumble Bee executive to come forward with his price fixing admission, was expected to receive a prison sentence of between 10 and 16 months and pay a USD 25,000 fine, for his role in the conspiracy.

It was revealed that Cameron agreed to be held responsible for sales of packaged seafood affecting US customers, and amounting to at least USD 300 million from 2011 to 2013. While it was noted that his offences permit a sentence of up to 10 years and a fine of millions of dollars, it’s likely that the punishments will be mitigated in return for cooperation with the DOJ.

It didn’t take long for details to arise over what the second Bumble Bee executive, Kenneth Worsham might also face as a result of his admission of guilt. According to US sentencing guidelines, he too is likely to face a prison term of 10-16 months and the same criminal fine of USD 25,000.

He agreed that he knowingly became a member of the conspiracy, and “engaged in conversations and discussions and attended meetings with representatives of other major packaged seafood producing firms.” This statement gave a strong indication that it was only a matter of time until more guilty pleas emerged, with the potential to significantly rock the canned tuna industry in the United States as a whole.

Strike 3

In what was the biggest news to come from the case yet, in May this year Bumble Bee, as a corporation, pleaded guilty for its role in tuna industry-related conspiracy, and the admission, the most significant so far, spread quickly and brashly through the press, for the first time hitting leading and mainstream media on a large scale.

CNN, The Washington Post and Forbes, were just some of the major names to put the news out to the public, with bold headlines to go with it.

As part of its admission, Bumble Bee agreed to pay a USD 25 million criminal fine, a figure that “will increase to a maximum fine of USD 81.5 million, payable by related equity, in the event of a sale of Bumble Bee, subject to certain conditions.”

This most recent plea gives almost certainty that there is evidence to implicate other firms accused, as it’s impossible to act alone in conspiracy. According to the one-count felony charge, Bumble Bee and its co-conspirators agreed to fix the prices of shelf-stable tuna from as early as the first quarter of 2011, through to at least the fourth quarter of 2013.

On the announcement, Andrew Flinch, the DOJ’s Attorney General of the Antitrust Division, said that “the division, along with our law enforcement colleagues will continue to hold these companies and their executives accountable for conduct that targeted a staple in American households.”

Accusations Become Bolder

The deadline to file civil lawsuits in the price fixing case came the same day as Bumble Bee’s astonishing guilty plea, and with increased confidence of strong evidence, lawsuits became bolder with their claims.

Walmart’s amended class action saw the retailer attach a separate document in which 56 tuna executives were named as alleged “conspiracy players”, all working for either the brands, their parent companies, or the National Fisheries Institute (NFI). The individuals have not been named as defendants, but as part of a “conspiracy players list”, with Walmart stating that as well as price fixing conspiracy, collusion also took place to avoid selling FAD-free tuna, and to downsize tuna can sizes.

Some of those named included Thiraphong Chansiri (Thai Union CEO), Andrew Choe (CEO of StarKist), John Connelly (President of the NFI) and Susan Jackson (now head of the ISSF but a former Vice President of Del Monte).

On the same day, two new retailers joined the likes of Walmart, Kroger, Hy-Vee and more, in the legal fight, and made similar accusations, which all believe that conspiracy activity stretched over a time period of up to a decade.

Walmart believes, and has stated in its amended filing that conspiracy was facilitated partly by the fact that during the relevant period, numerous executives switched from employment with one defendant to another. According to the lawsuit, it’s believed that this “familiarity helped cultivate a culture of collusion in the packaged seafood industry.”

What Next?

With three guilty pleas in the bag within the DOJ investigation, and civil proceedings due to start moving forward soon, it’s likely that the fallout from this major case has only just begun. There’s big potential for this to have strong reputational damage for the involved brands, and possibly the entire US canned tuna market.

Only Bumble Bee has admitted guilt so far, meaning media focus has been heavily on this firm, and this could leave the name of the leading brand in a vulnerable position. A representative from a US law firm told Atuna that whenever a player within a market takes a reputational hit, it opens up a brief window of opportunity for competitors.

However, if more players come forward to state that they were in this together, there is a strong chance that US consumers could become cautious of the market as a whole, especially as each new detail brings higher potential for international press attention.

In the end it will all come down to numbers, and how quickly or slowly sales recover from the reputational hit; but additionally, to whether the brands or their parent firms can absorb the criminal and civil charges they might face. One law firm says it has seen fines in similar price fixing conspiracy cases, ranging from the hundreds of millions of dollars right down to the low millions. Some of the things considered are the length of conduct, the ability to pay, remorsefulness and cooperation.

For the role it has admitted to playing in the conspiracy to the DOJ, Bumble Bee has agreed to pay USD 25 million, however if the firm is sold this rises up to USD 81 million. As well as this, many civil cases have not yet properly begun, and these have the potential to end with significant penalties too.
Besides hitting the reputation of these tuna companies themselves, this scandal could put the role of other major groups in the tuna industry under question. The International Sustainable Seafood Foundation (ISSF), for example, which now represents around three quarters of the global tuna buying power, was first initiated by the Big 3, other players, and the WWF. The President of the National Fisheries Institute (NFI), with members consisting of most of the US canned tuna market, was also named in Walmart’s “conspiracy players” list.

Until more potential guilty pleas, evidence, or prosecution, emerge from the DOJ or even civil cases, there’s no way in knowing just how big this issue is, and what consequences the Big 3, their parent firms, or their management might face. What is sure is that each day details snowball, and additional press outlets pick up on the case, meaning more consumers catch damaging headlines.

As well as this, the retailers, the largest buyers of canned tuna in the US, and the direct link to the consumers are at the core of the civil complaints. The bigger this scandal grows, the more friction is created among vital trading relationships.