U.S. Says Case Sends a Message to Corporate America : Ex-Beech-Nut Officials Get Prison Terms
Two former top executives of Beech-Nut, the nation’s second-largest baby food maker, were each sentenced Thursday in federal court to a year and a day in prison and a fine of $100,000 for distributing phony apple juice for babies.
“The fraud was too extensive and involved not to be punished,” said U.S. District Judge Thomas C. Platt in sentencing Neils L. Hoyvald, 54, Beech-Nut’s former president and chief executive, and John F. Lavery, 56, a former vice president, who oversaw the Upstate New York manufacturing plant where the fake juice was made.
Government prosecutors for the case expressed their pleasure with the sentences at a press conference held outside the Brooklyn courthouse in sweltering heat.
“The message we are trying to send out to corporate America is that these kinds of cases will be given the highest priority,” said U.S. Atty. Andrew J. Maloney. “It is unusual in consumer fraud cases like this for corporate executives to do time, but this is an unusual case.”
The two men, convicted by a jury in February, asked the judge to be sentenced to a period of community service rather than jail time.
In a brief but emotional appeal, Hoyvald said on Thursday that he could not look his family members in the face without seeing their “disappointment, disgrace, despair and hurt. I ask for them and myself, please don’t send me to jail.”
Sugar Water, Caramel Coloring
In arguing that Hoyvald should not have to serve time in prison for his wrongdoing, his lawyer, Brendan V. Sullivan Jr., who defended Oliver North in last summer’s Iran-Contra hearings, said it was the “harmlessness of the product that got us here.”
“If the product was something that would have endangered one child, the red bells would have gone off,” Sullivan said.
The executives, the company and two suppliers were indicted in November, 1986, on charges that they shipped adulterated and misbranded juice in 20 states, Puerto Rico, the Bahamas and five foreign countries from 1978 to 1983. The juice was labeled “100% apple juice” but actually contained sugar water and caramel coloring, prosecutors charged.
Last November, Beech-Nut pleaded guilty to 215 counts of violating food and drug laws and agreed to pay a $2-million fine, the largest ever paid to the Food and Drug Administration.
On Thursday, the company issued a statement admitting that it had “broken a sacred trust. . . . The events concerned took place more than five years ago,” said Richard C. Theuer, now president of Beech-Nut. “Since that time, Beech-Nut has invested over $10 million to ensure the purity of our products.”
The two executives sentenced Thursday are on paid leave by Beech-Nut and will remain on the payroll pending their appeal, according to a spokesman for the company.
Beech-Nut Nutrition Corp. was founded in 1891. Based in Ft. Washington, Pa., the company was bought by Nestle SA of Switzerland in 1979 for $35 million.
In addition to the prison sentence, the judge also ordered the defendants to pay court costs, which Assistant U.S. Atty. Thomas H. Roche, who prosecuted the case, estimated would run into the tens of thousands of dollars. Finally, the executives must pay a special assessment of $50 for each of the hundreds of counts on which they were convicted.
In his final remarks at sentencing, Roche said the case was “one of the largest consumer frauds ever prosecuted by the Justice Department” and asked the judge to impose “a significant sentence of incarceration.”
Roche summarized the findings of the trial, in which he said Beech-Nut executives were shown to have attempted to hide the phony juice after Beech-Nut employees expressed concern that the juice might be fake and after investigations of fraud were under way.
Whistle-Blower
“The record of this case is literally covered with red flags that went off for Mr. Hoyvald and for Mr. Lavery,” Roche stated.
Beech-Nut’s troubles began 1977 with an agreement to buy apple juice concentrate from Interjuice Trading Corp., whose wholesale prices were about 20% below market price. At the time, products containing apple juice accounted for 30% of Beech Nut’s sales.
On August 5, 1981, Jerome LiCari, then Beech-Nut’s director of research and development, wrote a memo saying there was a “tremendous amount of circumstantial evidence” that constituted a “grave case” against the concentrate supplier. He testified at the trial that the company did not act on his warning. He resigned in 1982.
LiCari then wrote an anonymous letter to the FDA. Signing his letter “Johnny Appleseed,” he charged that its top officials had long known that the company’s apple juice was sugar water with flavoring. His letter spurred an investigation that began in 1982 and ended with the 450-count indictment. A jury heard evidence for nearly three months before convicting the two executives.
