Cartel to Pay $725 Million in Vitamin Price Fixing
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 charges 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.
