The Continuing Saga: One Man's Family's "Supermarkup to the World"

***Bulletin***

Attorneys for the U.S. Department of Justice allowed Archer-Daniels-Midland to listen to some 150 hours or near 60% of the conversations recorded by ADM executive Mark Whitacre, who was acting as a government mole, PRIOR to the company's indictment on price fixing charges in the corn derivative market, according to a September 22 CORPORATE CRIME REPORTER story. As DofJ attorneys would themselves later admit (see below) the sharing of such a large volume of evidence during the course of plea negotiations pre-indictment is highly unusual. While the Justice Department did not return the CRIME REPORTER's calls for comment, one attorney who asked not to be named, but familiar with the case, remarked "they gave away the store. It must have taken days for the prosecutors to let ADM's lawyers listen to more than 100 hours of tape."


Forgotten, yet not gone, but continuing, can best summarize the still unfolding saga of what has been correctly called "the best documented corporate crime in U.S. history" --- price fixing in the corn derivative market by a variety of individuals and corporations led by Archer Daniels Midland (ADM), now known to many in the words of one droll headline writer as "Supermarkup to the World."

Yet, in tracking recent events in the story it is apparent that ADM remains undeterred as it continues to increase in size and stay diligent in its efforts to further dominate world markets in the food processing industry, while at the same time generally managing to escape public scrutiny and corporate accountability. Most readers of the daily press and viewers of the evening newscasts have seen nary a word on such activities which really shouldn't be a surprise to anyone when, for example, we learn that ADM gives $3.8 million alone to the Lehrer News Hour on PBS, and $600,000 to NPR.

Such a timely review of ADM's activities also shows not only the true nature of corporate agribusiness, but how such transnational monoliths like ADM treat their own stock holders, farmers, rival businesses, customers and the government.


Earlier Federal Judge Michael H. Mihm had ruled that the DofJ must turn over the tapes documenting ADM's price fixing schemes to attorneys presently litigating victims claims against ADM and other corporate price-fixers in the high fructose corn syrup market. He did not specific the number of tapes. The tapes were those made by Mark Whitacre, the ADM executive who for months acted as an FBI informant within the ADM organization.

Lawyers for Michael Andreas and Terrance Wilson, the two ADM executives along with Whitacre who have been indicted on price fixing charges, argued that if the DofJ released the tapes to the victim's attorneys their contents would eventually be leaked to the media and pollute the jury pool in the upcoming criminal trials.

Judge Mihm warned, however, that if anyone in the cases leaked confidential information from the tapes before the trial "they will be sorry they were born when they come before me."

In appealing Judge Mihm's ruling to the Court of Appeals the DofJ asserted law enforcement investigatory privilege, arguing that to release the tapes to the plaintiff's attorneys they would also have to be made available to the defendants in the civil action. The DofJ pointed out that to encourage ADM to enter a guilty plea they played "some of the tapes for counsel" for outside directors of the company.

The government further argued that if the tapes were released to the plaintiffs attorneys, they would also have to be made available to the defendants in the civil action and that the defendants "with the exception of ADM are subjects of the high fructose corn syrup and citric acid investigation."

"The subjects would then be able potentially to ascertain the scope of the government's current knowledge of the relevant evidence " the DofJ contended, "assess any weaknesses in the investigation, discern the possible focus of investigations, and make reasonable predictions about the future course of investigation. The integrity of the investigation could thereby be harmed."


While the government claims there was no misconduct Whitacre himself alleges that FBI agent Brian Shepard, who handled his assignment, ordered him to confiscate damaging tapes and that in fact some tapes were made and destroyed and that the FBI knew about them.

John Bray an attorney from the law firm of Schwalb, Donnenfeld, Bray & Silbert, representing Michael Andreas, contends that given the FBI guidelines on undercover operations the ADM investigation reveal "dramatic violations of procedure that call into question exactly what was done, why it was done, how any of these tapes could ever be shown to be authentic."

U.S. District Court Judge Blanche Manning, however, denied a defense motion to dismiss the indictments because of what the defense claimed was the government's alleged "outrageous misconduct." She also postponed a decision on exactly what evidence the government has to turn over before trial. May 1, 1998 has been set as the trial date in the case.

In an ironic footnote, during the recent airing of a "Nightline" special report on ABC-TV featuring David Burnham's exhaustive investigation of how well the FBI performs its crime-fighting mission while safeguarding civil liberties, which in turn was based on his August 11\18, 1997 Nation essay, one of the late- night program's sponsors was none other than the "Super Market to the World."


Hoech in fact was questioned for over an hour on that date, however, citing his Fifth Amendment privileges against self- incrimination, he refused to answer any of the questions posed by the attorneys from Williams & Connelly even though a court approved reporter was allowed to be present during the deposition taking.

Since the outset of this scandal Hoech has been a persistent critic of both ADM and the Department of Justice. He has dispatched numerous ADM Shareholder Watch Committee (ADSWC) letters detailing alleged wrongdoing within the company to ADM board members, reporters and prosecuting attorneys. He also contends that the DofJ has badly bungled the investigation and prosecution of the criminal anti-trust case against ADM and that high ADM executives, including Dwayne O. Andreas, long-time chairman and CEO of the company, ought to be brought to justice.

Hoech has also expressed outrage over what he terms the " harassing" tactics of ADM's lawyers through "vague, overly broad burdensome, oppressive, harassing and annoying" subpoenas and discovery requests issued not only aimed at Hoech, but also his wife and ex-wife. He contends that the goal of Williams & Connelly is not so much to defend the interests of ADM, but to defend the interests of Dwayne Andreas.


But the settlement earmarks 49 percent -- or nearly $4 million -- in fees for the plaintiff's attorneys and requires only minor modifications to ADM's existing corporate governance principles.

Calling it a classic case of lawyer greed and nothing more than a watered-down attempt to improve corporate governance practices CalPERS President William D. Crist charges that "this deal does not even come close to recovering the estimated $190 million loss suffered by the company and its shareholders. It puts money in lawyers' pockets for efforts that represent a lack of true corporate governance change."

The corporate governance principles identified in the settlement are primarily reiterations of the findings of ADM's Corporate Governance Committee that were first articulated in early 1996. The most disturbing element of the principles to CalPERS is a departure from CalPERS' definition of an "independent director" so as to include persons with business relationships with the company.

"In our view, the settlement not only dilutes a definition that has been relied upon by CalPERS and the institutional investor community for over a decade," explained Charles P. Valdes, Chair of CalPERS Investment Committee, "but is also extremely dangerous to apply to a company that has demonstrated a past willingness to use these relationships to circumvent federal laws." CalPERS has long attempted to persuade ADM to adopt rules for an independent board believing that the company's board is too heavily dominated by insiders, family and friends.

ADM will pay $35 million; Haarman & Reimer Corp. $38 million; Swiss-based Hoffman-LaRoche Inc. $5.7 million, and Austria-based Jungbunzlauer Inc. $7.5 million. A fifth defendant, Cargill Inc., is continuing to fight the suit.

The bottlers and processors suit contended that companies fixed U.S. prices and divided U.S. market share of the chemical, which is essential in extending the shelf life of soft drinks and canned fruits and vegetables. The worldwide industry has annual revenues of $1.2 billion.

The action stems from ADM's admitted guilt in an international conspiracy to fix the prices of the two corn derivatives --- lysine and citric acid. Neither trading company -- both registered with the CFTC as futures commission merchants -- can hire for the next four years any individual who is also employed by ADM, with the exception of ADM Investor Services' current president.

The action is in response to the 1996 conviction of ADM for violating the Sherman Antitrust Act. The CFTC also said the trading companies have agreed to each designate an employee to monitor the weekly trading conducted on behalf of ADM for the next four years. The government agency may also suspend or further restrict the trading companies' registrations if the two trading units or ADM doesn't abide by the terms of a similar disciplinary action taken by the USDA in January in connection with the price-fixing scheme.

 


The dropping of the Swiss lawsuit and other actions by ADM in recent months has promoted recent rumors, according to farm columnist Alan Guebert, that Whitacre, ADM and the Department of Justice are now negotiating a triangular settlement "to end the blood feud between all parties."



Igene Biotechnology Inc. has filed a $300 million federal lawsuit accusing ADM of stealing its secret formula for making a natural compound that turns pale-fleshed farm-raised salmon bright pink.

The Columbia, Maryland firm in an August suit contends that a former employee, who was arrested in July on theft charges, copied hundreds of pages of the company's trade secrets and gave the documents to ADM. Such secrets are worth millions, the lawsuit claims, because Igene has developed a new, cheaper method of producing a chemical needed to give the flesh of farm- raised salmon the same pink color as wild fish.

According to the lawsuit, Igene has been working since the early 1980s to develop a more efficient method of producing the chemical needed to make farm-raised salmon pink. Called "astraxanthin," the compound is extracted from a yeast.

Igene is a tiny company, with fewer than a dozen employees. It has lost so much money pursuing the elusive salmon-coloring chemical that its stock now sells for only 13 cents a share.

But, as the Washington Post's Jerry Knight reports, Igene not only discovered how to make a stronger form of the compound, it also found a way to make salmon absorb it more readily. In July, the company signed a contract with a Mexican chemical company, Fermic SA, to begin full-scale production of the product.

Previously, Igene negotiated for production of the chemical by ADM, but talks ran into a snag in July 1995 when the Justice Department disclosed that it was conducting its criminal antitrust investigation of ADM's bio-products division. The Igene lawsuit said the company was dealing with Mark E. Whitacre.

Igene now contends that ADM reneged on a contract to use the company's method for producing the salmon food supplement. Its current lawsuit seeks $450,000 in damages for breach of contract over that dispute. The big damages being sought in the case, however, are for the alleged theft of trade secrets. Igene contends that its process is worth as much as $100 million, and contends it is entitled to triple damages under federal law.

The lawsuit, Knight reports, said that Igene officials became suspicious that company records were being leaked when an ADM official came up with copies of documents the company had not given him. In July, the company said, Igene's president left several documents spread out on his desk before quitting for the day. When he returned the next morning, the papers were all neatly stacked. At that point, Igene officials called the police.


Long recognized as one of the most powerful executives in American agribusiness Andreas has run the Decatur, Ill.-based grain processor since 1970 during which time it has become the largest grain processor and storage company in the United States making everything from sweetener to fuel from corn while ranking as the biggest miller of the nation's three largest crops: corn, soybeans and wheat.

The news of G. Allen Andreas appointment was not well received by some of ADM's largest institutional shareholders as they have long blamed the company's involvement in recent price-fixing scandals on what they alleged was poor oversight by cozy directors -- which has forced the company to reform its boardroom so that "outsiders" are in the majority.

In July U.S. District Judge Harold A. Baker in Urbana, Ill., gave final approval to ADM's offer to reshuffle its boardroom in order to settle lawsuits filed by shareholders angry over its price-fixing scandal.

The settlement requires ADM to overhaul its boardroom so that only outside directors who weren't on the board before the price- fixing scandal was publicly first revealed in June 1995 will nominate the next slate of directors. That action will mean that director Robert Strauss, the long-time politically influential Washington attorney and close friend of Dwayne O. Andreas, will no longer serve as chairman of the nominating committee. The company also agreed that only outside directors will serve for the next three years on its audit committee, which is also seeing its oversight responsibilities increase.

But, despite such board promises, ADM directors did not interview any candidates outside the company for the CEO post. "We're alarmed," said Patricia Macht, a spokesperson for CalPERS, which owns 3.6 million ADM shares. "ADM hasn't gone up one notch in our estimation."

In cutting back on his role in company affairs Andreas said he was willing to split his
posts, in part because he hasn't directly supervised ADM's daily operations for years, concentrating on the company's long-range strategy. In recent months, his 53-year-old nephew emerged as the top candidate to succeed him as CEO after being named to the newly created "office of chief executive," last October where he assumed more responsibility for day-to-day operations of the company.

A lawyer, G. Allen Andreas was treasurer of ADM before he was named to run ADM's large European operations, which are based in London. His prospects rose rapidly when Dwayne Andreas's son -- long thought to become the company's next CEO -- was identified as the prime target of federal antitrust investigators. Currently on a "leave of absence," Michael D. Andreas, is awaiting the May 1998 trial on price-fixing charges.

Andreas said his cousin Michael, however, continues to work for ADM as a consultant at his old annual salary of $1.3 million, although he doesn't maintain an office at ADM headquarters. The company also plans to reimburse Michael Andreas for any legal expenses, Allen Andreas told the Journal. "I will rely on Mick's advice in terms of trading operations and strategy."

The company also said its directors are increasing the number of shares to be repurchased under the company's buy back program to 45 million shares from 25 million, and extended the buy back program until October 1999.


Occasioned in 1978 by the Mideast oil shocks, the ethanol subsidy was intended as a short-term incentive for alternative fuels. Later clean-air laws were expected to boost demand and make long-term subsidies unnecessary. The subsidy gives gasoline blended with ethanol a 5.4 cents-a-gallon reduction in the federal gas tax of 18.3 cents -- equal to 54 cents per gallon of ethanol, since most gas blends contain one-tenth ethanol. Through 1995, that cost the federal highway trust fund, which receives proceeds from gas taxes, $7.1 billion. The tax break goes to blenders like ADM, but creates product demand which claim to benefit producers and farmers.

Its longevity, GOP Sen. John McCain of Arizona, told the Wall Street Journal "is a cautionary tale about what happens to quote- unquote temporary subsidies around here. They never go away."

The history of ethanol shows that supporters originally expected rising oil prices to let ethanol be priced competitively with gasoline without government help. Instead, oil prices remained low, consequently today ethanol -- available mostly in Cornbelt states because of distribution problems -- accounts for less than 1% of U.S. fuel consumption and according to the GAO that share won't increase even if the subsidy survives another two decades.

Despite the fact that early in his presidency Bill Clinton's economic advisers had opposed ethanol subsidies the president has been pro-ethanol since his 1992 Iowa campaign days. Today, his apparent heir Al Gore, trumpets the disputed environmental benefits. Not surprisingly, Gore's potential Democratic rival, House Minority Leader Richard Gephardt of Missouri, is one of ethanol's biggest cheerleaders.

Faced with elimination, ethanol forces went on the offense in the Senate. When the Finance Committee drafted its own tax bill, it included an amendment by Iowa Republican Senator Charles Grassley extending ethanol subsidies through 2007 at a cost of $3.8 billion. A chief supporter was Sen. Carol Moseley-Braun, a Chicago Democrat who reportedly needs votes from rural downstate Illinois -- home to ADM's Decatur headquarters -- in her tough reelection fight next year. The Journal reports that she keeps a pink hat labeled "Ethanol Queen" in her office.

In the subsequent Senate debate, Sen. McCain tried to kill the extension. He lost 69-30, thanks, he says, to the Senate's rural tilt, its back scratching ethic ("You support my subsidy and I'll support yours") and the desire "to subsidize thousands of corn growers -- and Archer-Daniels-Midland." Despite its legal problems ADM divided nearly $1 million between the two parties during the last election cycle, according to the watchdog Center for Responsive Politics.

Recently, ADM acquired the cocoa operations of W.R. Grace & Co. for $470 million and paid $258 million for a 22% stake in Gruma SA, the largest tortilla maker in Mexico. Allen Andreas helped negotiate both transactions.

By purchasing Grace's cocoa holdings and in June purchasing ED&F Man's five cocoa processing plants for $223 million ADM now becomes the world's largest cocoa processor. It's processing capacity, according to industry analysts, now exceeds 450,000 metric tonnes, some 100,000 metric tonnes more than second place Callubaut-Berry, and 200,000 metric tonnes more than third place Cargill. Those three processors now control 40% of the world's annual processing capacity.

As one European trader was quoted in a news wire story they are the earth, moon and sun in the chocolate business. As such, " Cocoa is dead as a trading commodity" be added.

ADM has also announced that it will purchase 58 owned or rented grain elevators in Brazil, two of which are port terminals, and Paraguay from a firm called Glencore Grain.


For some time ADM and MCP have been direct competitors and because of that fact ADM has played no small role in the $60 million loss alone racked up by MCP during its last fiscal year. "Now they come in as a white knight," the MCP farmer-member told Guebert, "to save us poor, dumb farmers. What could we do? MCP was headed into the tank."


United Grain will get $50 million in net new capital as part of the transaction, which it will use to continue its investment in the modernization of its grain-handling infrastructure.

T.UGG said in turn the investment in net new capital by ADM will give the latter "a significant equity interest" in United Grain through a three-part transaction. The highlights of the transaction are:

-the investment by ADM in a debenture that, when
converted at a minimum price of C$16 a limited voting common
share, would give it an interest of just under 15% in United
Grain;

- subject to shareholder and regulatory approval, ADM
would also purchase limited voting common shares from United
Grain at C$16 a share, raising its interest to 36%;

- United Grain will use part of the proceeds from these
transactions to buy back some of the same class of shares from
other shareholders, raising ADM's interest in United
Grain to 45%.


Also as part of its investment in United Grain, ADM will be entitled to nominate two representatives to United Grain's 15- member board. United Grain said western Canadian farmer- shareholders will continue to be represented by 12 directors with one independent director elected by all shareholders.

Guebert notes, however, that some observers have suggested that this "strategic alliance" now positions ADM as the No. 1 competitor of farmer-owned co-ops when --- "not if" --- the Canadian Wheat Board is dismantled. Both ADM and United Growers deny that the "alliance" was predicated on the death of the Wheat Board.

Initially, ADM made an offer for Jamaica Flour in January, but it was rejected by many shareholders. In June, ADM raised its per-share offer and agreed to grant current shareholders the right to receive 80% of an expected $11 million Hurricane Gilbert damage insurance payout that has been held up in court.

Jamaica Flour's board of directors made a case that shareholders accept the offer. It cited rules in the Caribbean Community (Caricom), of which Jamaica is a member, that may remove Jamaica's 25% duty on imported flour, possibly hurting Jamaica Flour's market share. And it noted that a foreign competitor may enter the market of 2.5 million people.

Jamaica Flour is the nation's sole flour miller and controls 95% of the market. It also manufactures flour-based foods for the local market and owns tropical fruit farms which export to the U.S. and U.K. and a shrimp farm in Panama. Opened in 1968 as a publicly traded company it was owned 47% by Pillsbury Co. When Grand Metropolitan PLC bought Pillsbury in 1991, Pillsbury sold its shares on the local market.

Jamaica Flour Mill's two largest current shareholders, PHJ Ltd, with 38% of the shares, and New Company Ltd, with 13%, have agreed to sell their shares to ADM.

ADM Milling also recently purchased flour mills in Belize and Barbados, two other English-speaking former U.K. colonies who are Caricom members.


All in all it has been a busy 1997 for a company still enmeshed in the best "documented corporate crime in American history."