Blue Bell Ice Cream’s Fraud and Conspiracy from Improper Disclosure

Purpose: 

Explaining how a CEO’s neglect led to Blue Bell Ice Cream’s Fraud and Conspiracy from Improper Disclosure.

Learning Objectives:

1. Understand certain elements of fraud.
2. Describe potential penalties for forging documents.
3. Understand how deceit by one individual can negatively affect the reputation of an entire company.
4. Identify ways employees can defend themselves against fraudulent upper management.
5. Explain how taking accountability can prevent growth of a problem. 

Intended Audience:

Employees and executives who provide goods and services.

Key terms:

Fraud, Contamination, Listeria, White-collar, Blue-Bell, Safety.

Current 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 published guidelines companies must follow to comply with regulations. The chief concern of the FDA is Public Health. When FDA tests reveal that food contains harmful substances, the agency expects the manufacturer to comply with the appropriate guidelines to protect public safety.  Ideally, FDA wants manufacturers to produce products that are safe for human consumption. The agency wants to prevent food with toxic chemicals to reach consumers. Manufacturers have a public duty to ensure safety for the consumer. When a company discovers a problem, it should respond with a commitment to safety first. Unfortunately, some employees try to hide their mistakes. They hope that concealing problems may shield the company from negative consequences. Such decisions can lead to government investigations, sanctions, and even criminal charges. 

Future State of the Industry:

Business leaders and employees should understand how business decisions can lead to problems with government agencies. The more team members understand the consequences of “willful blindness,” the more all team members will work together to hold each other accountable. Good compliance training and policies can shield companies from the costly consequences of government investigations. We can also help people avoid charges for white-collar crimes.

Situation: 

The president of a well-known Ice Cream company found himself in a quandary. He discovered a problem with the manufacturing process of his ice cream. Rather than responding appropriately, he attempted to deceive his partners, his employees, and consumers. By his response, he exposed many members of his team the complications of a government investigation and the possibility of imprisonment. 

Background: 

Paul Kruse served as the president of Blue Bell Creameries, a popular ice cream company. Consumers can purchase Blue-Bell ice cream on grocery shelves nationwide. Over decades, Blue-Bell became a household name and the first choice ice cream for many Americans. The company branded its ice cream as being a premium brand. Blue-Bell’s mission statement that the company is “committed to producing safe, high-quality ice cream” and that the company “maintains high standards for production processes and cleanliness.” 

Blue Bell became aware of potential contamination of a batch of ice cream at one of its ice cream production plants. The company responded by eliminating 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. It chose not to make a public announcement, fearing that news of the contamination might destroy the company’s hard-earned reputation.      

In March 2015, the Food and Drug Administration (FDA) began to evaluate several Blue-Bell products. The results came back positive for Listeria.

Listeria, a foodborne bacterial illness, can cause serious problems for pregnant women, for people older than 65, and for people with weakened immune systems. Listeria can cause serious physical issues, sometimes fatal. Many consumers of Blue Bell Ice Cream products suffered. The bacteria resulted in them being admitted to hospitals.

Mr. Kruse had knowledge beforehand of the potential for these contaminants within the ice cream products. Rather than addressing the problem appropriately, he refused to warn the public about the error. 

Kruse tried to hide the contamination 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 did not have any idea why the company removed its products from the grocery store shelves. Kruse never issued a public statement or warning about the possible listeria contamination found in the Blue-Bell products. 

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. 

Analysis: 

According to the information presented in the press release, Paul Kruse knew certain Blue Bell products tested positive for Listeria. Then, instead of announcing a recall and consulting grocery that shelved Blue Bell items, Kruse deceived people, hoping to cover up the company’s mistakes. Kruse informed workers to take down the Listeria contaminated products without reason. 

State officials in Texas advised Mr. Kruse that some of the company’s products contained dangerous bacteria. The bacteria could cause detrimental health issues for any person who digested the ice cream. Rather than aggressively responding to this health concern, Kruse fabricated his response. He used deception to inhibit public knowledge of the outbreak. 

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. They should ensure that a company only sells safe and secure products to the public.  If a company discovers a flaw in the manufacturing process, it should act immediately to stop the harm. Besides pulling products from a shelf, the company should notify the public. The goal should be to minimize the risk of public harm, not to deceive consumers into believing the company offers safe products.  

Kruse failed in his role as a leader of Blue Bell Creameries. Once alerted to the problem, he should made the hard decisions to protect consumers. As a result of his failure, Kruse faced charges for several white-collar crimes. Those crimes included conspiracy and wire fraud. Blue Bell, as a company, pled guilty to similar charges related to food violation and safety hazards. It had to pay $19 million in fines. 

Recommendations:

The FDA’s mandate serves to keep companies from harming the public. Its regulations should 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, employees may not have clear guidance on how to respond when they find a problem. Hoping that harm will not come to the public does not serve as a plan. An effective compliance program in place would foster a more responsible corporate culture. Without good compliance training, a company exposes team members, stakeholders, and consumers to higher levels of risk. 

Poor decision-making can cost employees their jobs and possibly their freedom. The president of Blue Bell chose to avoid disclosure. He hoped to protect the company’s reputation. Instead, he exposed the company to a criminal charge, he exposed his team members to the stress of a government investigation, and he exposed himself to criminal charges.   

Compliance programs should teach employees the consequences they may face when neglecting to do the right thing. Compliance programs can lower the risk of lawsuits and problems with government regulators. Training should help team members make better decisions. Their decisions should align with agency regulations and make a commitment to consumer safety, and law-abiding behavior. 

Sources: 

1. https://www.justice.gov/opa/pr/former-blue-bell-creameries-president-charged-connection-2015-ice-cream-listeria
2. https://www.investopedia.com/terms/c/compliance-program.asp#:~:text=A%20compliance%20program%20is%20a,or%20to%20uphold%20business%20reputation. 
3. https://www.mayoclinic.org/diseases-conditions/listeria-infection/symptoms-causes/syc-20355269