Packing Company’s Sweet Deal Soured, Say Valley Farmers
With its century-old Scottish pedigree hardened by a modern drive for greater profits, the firm of Christian Salvesen rolled into the San Joaquin Valley with big plans to enrich itself on farmers’ bountiful harvests.
The formula was simple. Growers would grant Christian Salvesen exclusive rights to package their nectarines, grapes, plums and other fruit at its top-of-the-line packing plant here. Christian Salvesen, in turn, would get farmers top dollar for their crops in the nation’s produce markets.
To sweeten the deal for growers, the company spent money on boozy junkets and $800 bottles of brandy. Farmers accustomed to toiling in the 100-degree Central Valley heat enjoyed ski trips to Tahoe and golfing trips to exclusive Pebble Beach, courtesy of the firm from Edinburgh, Scotland.
But after just three harvest seasons, it all turned sour. Christian Salvesen folded its packinghouse subsidiary and sold the Sanger operation, leaving behind investigations by the U.S. attorney, Fresno County district attorney, and state Department of Food and Agriculture, plus suits by growers outraged that while their fruit may have fetched premium prices at chains like Lucky and Safeway, their pay was more fit for culls.
As the investigation proceeds, the story emerging is one more likely found on the seedier side of Wall Street than on Main Street, San Joaquin Valley. It’s one of duplicity, back-stabbing and what the company’s lawyer acknowledges involved “monstrous” bad business judgment.
It was brought to light by a packinghouse accountant who discovered a scheme that involved phony invoices and stolen fruit. He blew the whistle then found himself fighting his superiors’ attempts to blame and defame him.
This summer, the first criminal charges were lodged. Mark E. Thomas, 33, who was general manager of the Christian Salvesen packinghouse here, was indicted on federal conspiracy and fraud charges.
No one individual at Christian Salvesen Packing and Marketing, the Sanger subsidiary, is accused of profiting from the scheme. In a trial set for December, Gerald Lewis, Thomas’ lawyer, plans to build his defense around a contention that his client had “no specific intent to cheat” growers.
Rather, Thomas, a Liverpool native who started working for the company in Britain in 1980, and perhaps other executives at the packinghouse evidently were motivated by a desire to see Christian Salvesen’s new venture succeed, and add to the bottom line of a corporation that cultivated a reputation for aggressive pursuit of profit, according to interviews and court records.
While corporate headquarters may not have helped conceive the scheme, top executives of Christian Salvesen USA joined in the effort to conceal knowledge of it, according to the court files.
Based on the allegations, the scheme went like this: Christian Salvesen would sell a 23-pound lug of grapes for perhaps $12 to Safeway. The firm would send the invoice for the actual sales price to the grocer, but keep it secret from the grower. The grower would get a second invoice that indicated a sales price of a dollar or two less.
One Fresno area grower, asking that he not be named, said he shipped 427,000 cartons of fruit to the packinghouse in 1988, and fears he lost a dollar on each carton. Such a loss can affect a farmer’s fragile budget for years to come.
“You (need to) to borrow more next year,” he said. “You could have paid more bills. Money like that is hard to make in this business.”
Another allegation, contained in a civil suit by a grower, contends that the Sanger operation engaged in fruit skimming--telling growers they delivered less fruit than actually arrived at the packinghouse. Christian Salvesen sold the “missing” fruit and pocketed the proceeds, the suit charged.
Named for its Norwegian founder, Christian Salvesen began as a shipping and whaling company in Scotland in 1872 and grew into a conglomerate with holdings in food processing, cold storage and home building.
In 1985 the company went public, trading its stock on the London exchange. Flush with millions in capital raised by the stock sale, the firm launched an ambitious move into the lucrative food packing industry in 1986 by buying the packinghouse in Sanger, a farm town a dozen miles southeast of Fresno.
Armed with spare-no-expense accounts, Christian Salvesen salesmen set out to recruit growers, traversing the Central Valley in top-of-the-line pickups and four-wheel drive trucks. In promotional brochures, the firm emphasized its integrity and wealth, promised to lend growers money to finance their crops, and vowed to get them top prices at market.
At its peak, 80 growers were delivering fruit to the plant, and upward of $40 million in produce was packed, sources said.
But underneath the success lay a foundation of broken promises. Christian Salvesen could not always get growers the top dollar they sought. So the company began looking for shortcuts, according to the allegations made in interviews and court records.
One grower affected was Frank Logoluso, who did business with Christian Salvesen in 1987 on the condition that his table grapes would sell for a minimum of about $10 for each 23-pound carton.
From their orchards and vineyards in rural California, growers such as Logoluso traditionally have been easy marks. They have no way of verifying what happens to their crop once it leaves the valley, to be marketed by fruit merchandisers in places like Los Angeles and New York.
“We don’t know who they’re selling to, how much they’re selling for,” said Steve Rudd, controller for Logoluso. “Something like a dummy-up invoice is very easy to get away with.”
In Logoluso’s case, his grapes went from his Madera vineyards a few miles away to the Christian Salvesen plant. The grapes then were shipped to Cal Fruit, a Los Angeles produce broker. As it turned out, Cal Fruit could not find grocery chains willing to pay the minimum price for Logoluso’s lower-quality grapes.
Court records allege that executives hit upon a solution: his lower-grade grapes would be sold below Logoluso’s price, while Logoluso’s premium grapes would be sold for several dollars more than the minimum. Then, invoices would be created to mislead Logoluso into believing that all of his grapes sold at the minimum price.
The same system of invoices was used on other growers, court records say. In theory, the varying prices could balance out and growers would get all the money due them. But in practice, when Christian Salvesen bettered the growers’ minimum prices, the extra money went not to the growers, as state and federal law demands, but to Christian Salvesen Packing and Marketing.
Once the scheme unraveled, audits found that Logoluso, for example, was underpaid by about $60,000, Rudd said. Estimates of the total amount taken from growers range up to $1 million, though Christian Salvesen lawyers place the number at $110,000. An audit of each sale--10,000 in all--by the Agriculture Department is trying to determine the final amount.
Based on the known facts, it’s not clear who came up with the scheme. Thomas blames Cal Fruit, the broker who sold all Christian Salvesen fruit in 1987 and 1988. As part of the investigation, FBI agents seized Cal Fruit records in Los Angeles. The produce broker’s lawyers insist that Cal Fruit was a victim of the underpayments just like the growers.
Loyd McCormick, Salvesen’s lawyer, acknowledged that dual invoices were used but he said the corporation never meant to steal from growers. He blamed inexperienced managers at the plant in Sanger, and said that once top executives at the firm’s American headquarters in New Jersey realized what had happened, they repaid growers in full.
“The (packinghouse) business was totally destroyed,” McCormick said, portraying Christian Salvesen as a victim. “They (the corporation) lost all credibility among growers. They were forced to sell. That cost them a lot of money. It cost them a fortune.”
The scheme might never have been discovered except that Richard Jones, a financial officer for Christian Salvesen, discovered inconsistencies in the billing. Realizing that the company could have serious legal problems, Jones confronted Thomas in June, 1988, and, unable to resolve the discrepancies, reported to his superiors.
Part of their solution, however, was to pressure Jones.
Shunned by fellow workers, Jones began taking precautions. He secured files as evidence and secretly recorded himself warning Thomas that the executive was being set up to “take the fall” for top Christian Salvesen officials.
“Somebody should have stopped you, and said, wait a minute, for $60,000 or $70,000, it ain’t worth it,” Jones told Thomas on the tape.
Jones’ fear grew in December, 1988, when he picked up his office phone and eavesdropped on a conference call in which some top Christian Salvesen executives--including Ronald Irving, president of Christian Salvesen USA--discussed what he described later in testimony as a cover-up. Jones scribbled notes, now part of the court cases, that depict his bosses cursing him and trying to figure out how to blame him.
According to Jones’ notes, Irving said “a script should be prepared to cover our steps.” The notes say company lawyer Samuel Hinkle directed that executives “start a file” on Jones, evidently in an effort to fire him.
Based on Jones’ notes, the script discussed for repairing the firm’s image would have Ardell Barnes, president of Christian Salvesen’s Sanger plant, pay visits on growers and tell them that accounting errors had taken place “under the direction of Richard Jones.”
“If we beat him to the call, he will be defending himself,” Thomas was quoted as saying. “It will be my word and Ardell’s against his.”
By January, 1989, Jones had cleaned out his desk and quit Christian Salvesen. He also sued for wrongful termination, and told his story to the FBI.
In New Jersey, a Salvesen spokeswoman refused to discuss the affair and hung up when The Times attempted to pose questions.
In June, Thomas--who now works for another Christian Salvesen subsidiary--was indicted on 29 counts of mail fraud and conspiracy. Authorities continue to look at Cal Fruit’s role, and at the possibility that there was an attempt to derail the Agriculture Department audit of Christian Salvesen.
Most Christian Salvesen growers weathered the scandal and remain in business. But Bob Paul recently sat in a Madera coffee shop, with little to do at a time when others were busy with the summer harvest.
In 1986, Paul had 1,100 acres of grapes and tree fruit--and lots of debt. He signed on with Christian Salvesen because the firm loaned him money to grow crops for another year. Paul was impressed by Christian Salvesen’s largess. A member of the Salvesen family from Scotland even took him to dinner.
Recalling the accent unfamiliar to these parts, Paul said he didn’t pick up half of what his host said. But Paul said he thinks he knows what the firm was up to: “Any pickpocket wants to get close to you and pat you on the back.”
Today, bankers own his land, and he owes money to people he has known for years. He doesn’t blame Christian Salvesen for it all. “But they sure pushed me over the edge,” he said.
