In the movie ‘The Informant,’ Matt Damon stars as Mark Whitacre, an executive at a Fortune 500 company in Decatur, Illinois that produces lysine, a corn based derivative used in almost all manufactured foods.
To mask his failings at work, Whitacre fabricates a mole in his company from a foreign competitor that introduced a virus into the lysine. When the FBI comes to investigate, he tells them that his company, along with competitors in Asia, has been price-fixing lysine. He agrees to become an informant for the FBI and wears a wire to gather evidence about the illegal scheme. He even dubs himself Agent 0014, because he’s twice as smart as James Bonds’ 007.
According to the Federal Trade Commission, price fixing is an agreement between competitors to raise, lower, or stabilize prices or other competitive terms. The practice is illegal under antitrust laws, which require businesses to establish prices on their own. The law is designed to maintain a free marketplace, where consumers can expect that prices for goods or services are based on supply and demand – not collusion by vendors.
Because it is illegal, price-fixing is done as clandestinely as possible, so discovering it, proving it, and prosecuting offenders is extremely difficult. While circumstantial evidence, such as patterns of price mimicking among competitors, can be used to build a case, actual proof makes it much easier. That’s why informants, like Whitacre, are so valuable.
If price-fixing is proven, perpetrators can offer no defense. Arguing that prices were still reasonable or fair to consumers is no justification for their actions.
International competitors setting prices for something as mundane as a corn byproduct, along with Whitacre’s delusions of grandeur, make for a comical movie. But in yet another case of life imitating art, last week, the U.S. Department of Justice announced that it peeled the lid off a global price-fixing scheme involving the canned tuna industry.
The DOJ’s investigation revealed that the industry’s three largest companies, StarKist, Chicken of the Sea, and Bumble Bee, conspired between 2010 and 2013 to keep prices artificially high. Like in ‘The Informant,’ the feds only learned of the scam after an insider tipped them off. In 2015, Thai Union Group, which owns Chicken of the Sea, made a bid to purchase San Diego-based Bumble Bee. When the deal fell through, Chicken of the Sea executives told federal investigators about the price-fixing and agreed to cooperate with the investigation in exchange for immunity from prosecution.
Last year, Bumble Bee Foods pled guilty to a felony price-fixing charge and agreed to pay a $25 million fine, which was over $100 million less than prosecutors initially requested. They lowered the amount and allowed Bumble Bee to make interest-free payments over five years out of fear they would bankrupt the company. Earlier this month, StarKist Co., owned by South Korean company Dongwon Industries, pled guilty to the same charge and could also face a $100 million fine.
A former executive at StarKist and two from Bumble Bee have also pled guilty to price-fixing charges, but have yet to be sentenced. A third Bumble Bee executive, Christopher Lischewski, pled not guilty.
While the DOJ may be done with them, the three companies still face numerous civil lawsuits from wholesalers, food service companies and retailers, such as Walmart and Target.