Cartel to Pay $725 Million in Vitamin Price Fixing
Antitrust: Two European companies face record fines for manipulating U.S.,
world markets in '90s.
By ERIC LICHTBLAU, Times Staff Writer
WASHINGTON--Two European giants in the vitamin industry
agreed Thursday to plead guilty to criminal charges and pay a
record $725 million in fines for conspiring to fix and inflate
vitamin prices around the world in the 1990s.
The scheme, said Justice Department officials, reached into
virtually every American household through the artificial inflation of
prices for over-the-counter dietary supplements and fortified products
such as cereal and cattle nutrients.
In terms usually reserved for drug lords, Assistant Atty. Gen. Joel
I. Klein said that "the vitamin cartel is the most pervasive and harmful
criminal antitrust conspiracy ever uncovered."
Its illegal manipulation of world markets cost American
businesses and consumers hundreds of millions of dollars, said Klein,
the Justice Department's top antitrust official.
Advocates for a wide range of groups that buy and rely on
vitamins--including the elderly, nutritional centers and farming
associations--said they were shocked by the disclosures. The case
should serve as a wake-up call to Americans about the unseen
influence exerted by a small cadre of multinational corporations, they
said.
"These are vitamins that older Americans in particular need to
lead healthy lives," said Greg Marchildon, a spokesman for the
American Assn. of Retired Persons. "Now to learn that [the vitamin
wholesalers] were caught up in a massive conspiracy certainly is
disturbing. This wasn't even on our radar screen."
He and other consumer advocates said the Justice Department's
crackdown could mean a drop in prices of vitamins for Americans, as
the market is opened up to competitive forces.
Swiss drug maker F. Hoffman-LaRoche Ltd. agreed to pay a
half-billion dollars in fines--the largest ever levied in a criminal case
by the Justice Department. The firm, said to have earned $3.3 billion
on vitamins since the conspiracy began in 1990, entered a guilty plea
Monday in U.S. District Court in Dallas.
A second company, BASF of Germany, agreed to pay a fine of
$225 million, with a plea expected in coming weeks. It allegedly
earned $1.6 billion on its vitamins during the conspiracy.
A third European company, Rhone-Poulenc of France, was also
active in the cartel but avoided criminal prosecution by agreeing to aid
the Justice Department in its two-year investigation, authorities said.
The three firms--which together control about 75% of the $3
billion-a-year human and animal vitamin market--still face civil
class-action suits from firms that bought their products. And federal
officials said they are continuing to investigate possible criminal
carges against other companies that were smaller players in the
conspiracy.
One former executive was also charged. Dr. Kuno Sommer,
former marketing director for Hoffman-LaRoche's vitamins and
chemicals division, agreed to serve a four-month prison term and pay
a $100,000 fine for participating in the cartel and lying to Justice
Department investigators in 1997. Other executives also face possible
prosecution, authorities said.
According to prosecutors, Hoffman-LaRoche and BASF led a
cartel that manipulated the sale of the vitamins most commonly used
as nutritional supplements to enrich human food and animal feed: A,
B2, B5, C, E and beta carotene.
The cartel seized control of virtually every facet of the vitamins'
sales, meeting annually to fix prices, carve up world markets, set
supply levels and divide contracts to supply vitamin premixes to
customers in the United States by rigging their bids, Justice said.
Justice Department officials said wholesale distribution of three
types of vitamins were affected by the scheme: over-the-counter
vitamins sold as dietary supplements, "premixed" vitamins sold in
spray or mix form to food manufacturers to fortify cereal or other
products, and animal nutrients used in feed to breed healthier
livestock.
Both Hoffman-LaRoche and BASF said Thursday that they have
removed executives involved in the wrongdoing and are taking steps
to prevent a recurrence.
"We regret the circumstances involved," said John Gilardi, a
spokesman for BASF. "A new management team is now in place for
our worldwide vitamin business to give it a new beginning."
David Schardt, a nutritionist with the Center for Science in the
Public Interest, a Washington-based nonprofit group, said the
allegations reflect the wide disparity in what consumers pay for
vitamins: anywhere from a few cents a day to a few dollars.
"We always knew that the supply was controlled by a small group
of multinational corporations," he said. "But it was still surprising to
see the extent of the problem and the size of these fines."
But agriculture officials said they doubt there will be much of an
impact on produce and meat costs.
Vitamins and nutrient supplements in cattle feed represent only a
negligible portion of farmers' overall costs, said Joe Miller, livestock
policy analyst for the American Farm Bureau Federation.
Even so, said Julie Bousman, a spokeswoman for the National Cattlemen's Beef Assn., "something like this is always a concern. The fact that companies are price fixing, that in and of itself is a big deal to us."
The fines collected from the firms will go into the Crime Victims
Fund, a U.S. program used to provide compensation and services to
crime victims and to train victims advocates and law enforcement
officials.
Copyright Los Angeles Times
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