Blue Bell Ice Cream’s Fraud and Conspiracy from Improper Disclosure
Paul Kruse, the president of Blue Bell Ice Cream, found himself in a quandary as he tried to get his hands around a potential quality control issue at the company.
He knew the problem could be dangerous to people’s health but would also cause the company a significant financial loss and reputational damage if they publicly disclosed the problem. Instead, he instructed employees around the country to pull the products from shelves, without explanation, hoping the problem had been contained to just that small batch. That turned out not to be the case, risking the lives of many consumers by failing to disclose the problem and alert the public.
The government brought criminal charges against Mr. Kruse due to his neglect and deceitful thinking. The charges included numerous counts of wire fraud and conspiracy for his attempt to cover up the impure ice cream products that infected hundreds of customers.
The information in this case study comes from the DOJ Press Release.
State of the Industry
The Food and Drug Administration is responsible for protecting people from any hazardous product that is made for human consumption. The FDA created laws and guidelines companies must follow before the product is approved. Public health is of chief concern for the FDA. When the agency tests food found to contain harmful substances, the agency may put a ban on the production of those goods. With this type of regulatory enforcement, the FDA can find toxic chemicals in items before they go on shelves for purchase.
Food manufacturers have a public duty to ensure safety for the consumer. When an item is found to be harmful companies can be held liable both for damages and potential damages that could have been caused by the tainted product. Unfortunately, some employees try to hide their mistakes, hoping to avoid consequences, by concealing them. They may not understand the legal ramifications they can face for their actions.
Background and Analysis
Paul Kruse served as the President of Blue Bell Creameries, a popular ice cream company. Blue-Bell ice cream is found in freezers across grocery stores nationwide. Over decades, Blue-Bell became a household name and first choice ice cream for many Americans, known for its high-end quality. Blue-Bell’s mission statement notes they are “committed to producing safe, high-quality ice cream” and that they “maintain high standards for production processes and cleanliness.”
Blue Bell became aware of the potential contamination of a batch of ice cream at one of its ice cream production plants. They eliminated the dangerous batch and suspected the issue may have been going on for some time prior to discovery. The company then began pulling the products from shelves across the country, just in case. They failed to make a major public announcement, fearing that it might destroy the company’s hard-earned reputation.
In March 2015, several Blue-Bell products were evaluated by the Food and Drug Administration (FDA). The results came back positive for Listeria, a foodborne bacterial illness that can be serious for pregnant women, people older than 65, and people with weakened immune systems. Listeria, if consumed, can cause serious physical issues, sometimes fatal. Many consumers were affected by this bacteria and were admitted to hospitals.
According to the information presented in the press release, Mr. Kruse had knowledge beforehand that certain Blue Bell products tested positive for Listeria, yet he refused to warn the public about the error. instead of announcing a recall and consulting with grocers that shelved Blue Bell items, Kruse used deception and lies in an attempt to cover up the company’s mistakes. He tried to hide the contamination problem by instructing his employees to pull the products from the shelves. Kruse believed that this action served as an extra level of precaution, wrongly hoping that the Listeria issue had been contained to just one batch.
The employees and grocery stores had no idea why the Blue-Bell products were taken down. Kruse never issued a public statement or warning about the possible listeria contamination found in the Blue-Bell products.
Consumers have a right to be protected from contaminated food products. Congress created the Food and Drug Administration to serve this very important function in society. The agency’s mandate is to protect the health of Americans by ensuring that only safe and secure products be sold to the public. Any item discovered to be harmful must be pulled from shelves immediately and disclosed to the general public, with the goal of collecting all potentially dangerous products that may have already been sold prior to the discovery of the issue.
Kruse failed to do his job as leader of Blue Bell Creameries once alerted to the problem. As a result, Kruse faced charges for several white-collar crimes including conspiracy and wire fraud. Blue Bell, as a company, pled guilty to similar charges related to food violation and safety hazards, and paid $19 million in fines.
Business leaders and employees should make decisions with a full understanding of how government investigations work. Deception and fraud have no place within a company’s infrastructure, to begin with, let alone in the face of our nation’s growing prosecutorial infrastructure. Deceiving customers and forging documents can lead to investigations and terminations. More importantly, the health and well-being of customers should be paramount. Manipulating employees and records to cover up a mistake could risk the lives of people, civil fines and even loss of liberty. Recognizing the consequences that follow for these actions may deter people from committing fraud and other white-collar crimes.
The FDA’s mandate serves to keep companies from harming the public and to educate and protect consumers. Oftentimes, companies and employees face issues pitting disclosure of a problem against potential financial loss. For companies without a compliance program in place, deciding on how to address these issues can be confusing and unnerving. Hoping that harm will not come to the public does not serve as a plan. With an effective compliance program in place, however, a company’s responsible corporate culture will be held inviolate, even rising to hold the company president accountable. Without one, both consumers and employees of a company can come to great harm.
Poor decision making can cost employees their jobs and possibly their freedom. The president of Blue Bell chose to avoid disclosure, hoping the problem would resolve unnoticed, as he tried to protect the company’s reputation. Instead, he ended up facing serious criminal charges and causing significantly greater harm to the company’s stellar reputation, than had he effected a recall and got out in front of the problem. The public can understand and forgive production mistakes. They cannot, however, forgive purposeful disregard for their health and safety.
Compliance programs can help educate employees on the consequences they may face when neglecting to do the right thing. These programs will assist employees to make better decisions by reevaluating thinking patterns that do not align with the company’s values. Compliance programs will decrease the likelihood of government investigations occurring against a company.