DOJ grants reduced fine Bumble Bee to protect it from insolvency
The U.S. Department of Justice agreed to lower the fine levied against Bumble Bee Foods for its role in a price-fixing scandal in part because a larger fine could lead to the company’s insolvency, according to court documents filed last week.
In May, Bumble Bee pleaded guilty to fixing the price of canned tuna between 2011 and 2013. In exchange for cooperating in the Department of Justice’s investigation, the company received a reduction in its fine to USD 25 million (EUR 22.8 million), down from a maximum potential fine of much as USD 272.4 million (EUR 234 million). Bumble Bee also received partial immunity from further prosecution of either the company or its current executives.
“The USD 25 million fine represents a reduction below the guidelines fine range due to Bumble Bee’s inability to pay a full criminal fine without substantially jeopardizing the continued viability of the organization,” the recently filed sentencing memorandum said.
In addition, due to Bumble Bee’s financial position, the DOJ allowed payment of its fine over a five-year timeline, with USD 2 million due within 30 days of the conclusion of the case; another 2 USD million due at the first and second anniversary; USD 4 million at the third and fourth anniversary; USD 6 million due at the fifth anniversary; and USD 7 million due after the fifth anniversary. No interest will be charged by the government.
Two financial experts – one hired by Bumble Bee and the other retained by the DOJ – both concluded in written testimony provided in the case that Bumble Bee’s current financial status is not robust enough to pay a larger fine. Mark Zmijewski of the consulting firm Charles River Associates and Dale Zuehls, a forensic accounting expert, independently evaluated the veracity of Bumble Bee’s finances, including debt covenants, leverage ratios, and financial performance. Their findings were “largely consistent,” according to court documents.
“In light of the financial information presented by Bumble Bee and its expert, the parties agree that Bumble Bee does not have the ability to pay a guidelines range fine. As a result of information presented by the company, the parties agree that USD 25 million without interest represents the fine that Bumble Bee can pay without substantially jeopardizing its continued viability,” according to the sentencing memorandum.
The DOJ also considered other factors in reducing Bumble Bee’s fine, including its cooperation into the investigation of alleged co-conspirators Chicken of the Sea and StarKist, neither of whom have yet been charged with any criminal wrongdoing. The court documents released last week reveal the investigation is ongoing and that Bumble Bee has and continues to be a key source of information in the DOJ’s inquiry.
“Bumble Bee has agreed to continue cooperating in the ongoing investigation,” the documents said.
In exchange, “The United States has agreed that it will not bring further charges against Bumble Bee; its current directors, officers, or employees; its parent companies or related funds; the current directors, officers, or employees of its parent companies.”
That agreement excludes immunity for certain company officials named in a redacted list of Bumble Bee executives previously filed by the court.
However, even in exchange for its cooperation, Bumble Bee still faced a potential fine of USD 136 million (EUR 116 million).
Bumble Bee could still end up paying a higher fine if it is sold before it pays its full fine to the government, which under the agreement, cannot be completed in fewer than five years. If it is sold, the fine balloons to USD 81.5 million (EUR 69.7 million) and transfers to Big Catch Cayman LP, Bumble Bee’s holding company.
“To prevent an unjust outcome whereby Bumble Bee receives a reduction in its criminal fine due to its inability to pay and then shortly thereafter is sold, thereby eliminating the inability to pay, the parties have agreed to an additional fine to be paid in the event of such a sale,” the documents said. “The government has an interest in preventing a defendant that has obtained a reduction in its criminal fine from reaping a windfall if the defendant is able to subsequently enter into a transaction that cures its financial infirmity.”
The agreement will be ruled upon by U.S. District Court Judge Edward M. Chen at a hearing on 2 August in San Francisco, California.
Following the termination of the criminal case, Bumble Bee still faces civil litigation brought by a number of U.S. retailers, including Walmart,Wegmans, Kroger, Albertsons, Hy-Vee, Publix, and Meijer.
Representatives of Bumble Bee did not respond to a request made by SeafoodSource on 24 July for comment on the company's financial situation.