This case study profiles Greeley, Colorado-based chicken producer Pilgrim’s Pride Corporation (PPC).
Ten executives at two leading United States broiled chicken producers conspired to keep prices of their products artificially high. Multiple federal agencies investigated Pilgrim’s Pride and found it sold more than $360 million in broiled chicken products during the period reviewed. Those sales violated the Sherman Act because of the artificially high pricing. In this case study, we see the repercussions to Pilgrim’s Pride and its former president and CEO, Jayson Penn.
The information discussed here comes from Department of Justice (DOJ) and USDA press releases, the Plea Agreement between PPC and the DOJ, and one news article.
State of the Industry
According to industry reports, approximately 505 million broiler chickens are raised in the United States annually. Americans consume roughly 111 pounds of chicken per year. According to the U.S. Department of Agriculture, the broiler chicken industry accounts for the most successful agricultural farming business in the United States. With this framework, schemers can take advantage of the demand by keeping prices artificially high, thereby increasing their profits. Federal regulators, like the Department of Agriculture, are tasked with enforcing federal laws.
Background and Analysis
According to PPC’s website, Pilgrim’s Pride purports to have the second-largest chicken growing operation in the United States. PPC employs more than 58,000 people and sells broiler chicken products across North America and Europe. Chickens raised explicitly for their meat are called broiler chickens.
In a formal press release, the U.S. Department of Justice (DOJ) announced fines levied against PPC for antitrust violations, including price-fixing. PPC pled guilty to conspiring to fix the prices of broiler chickens. PPC agreed to pay penalties of $108 million. PPC’s plea agreement constitutes the first conviction related to a larger industry-wide conspiracy. The conspiracy includes numerous chicken producers and ten corporate executives. Prosecutors obtained indictments against these defendants in 2020.
Federal authorities investigate allegations of wrongdoing. Investigators eventually turn the results of their investigation over to federal prosecutors. Federal prosecutors then review the information and seek a criminal indictment against the defendant if they believe the defendant committed a crime. A criminal indictment requires the empaneling of a grand jury. Prosecutors introduce evidence to the grand jury outlining the case against the defendant. The grand jury puts the case to a formal vote for or against indictment regarding whether probable cause exists that a crime occurred.
Price Fixing means a written, verbal, or inferred agreement among business competitors to raise, lower, or stabilize prices of products in a manner to negatively affect commerce in the United States. The Sherman Act prohibits illegal acts like Price Fixing. Congress passed the Sherman Act in 1890. Generally, the Sherman Act outlaws every conspiracy to restrain trade in the United States, including price-fixing.
According to the DOJ, PPC employees participated in the price-fixing conspiracy to eliminate or otherwise suppress competition in broiler chicken sales. The DOJ believed that PPC benefitted from the conspiracy with at least $361 million in broiler chicken sales between 2012 through 2017. Costco and Kentucky Fried Chicken are PPC’s most prominent corporate clients affected by the conspiracy to fix prices.
As a result of the plea agreement, PPC agreed to pay criminal fines of $107,923,572 to the United States government. In a related but separate civil class action, PPC agreed to pay $75 million to settle a lawsuit with other non-law enforcement plaintiffs.
In addition to the charges against PPC, federal prosecutors also formally indicted former PPC president and CEO Jayson Penn for his involvement in the conspiracy. According to the indictment, Penn and the other co-conspirators agreed to control the prices of dark chicken meat and chicken wings for specific large commercial food chains. The conspirators routinely discussed the way large deliveries of broiler chickens should be bid on and priced. According to prosecutors, this conspiracy took place for at least five years.
While the charges against Penn are still pending, he can mitigate any exposure he has by agreeing to cooperate with authorities. Penn faces a maximum prison term of ten years. He also faces fines and penalties of up to $1,000,000.
In most cases like Penn’s, defendants choose to enter a plea bargain with hopes of reducing any punishment they may receive. If Penn cooperates, he can reduce prison sentences and lower any fines or penalties assessed by the court. In exchange, prosecutors will expect Penn to plead guilty early in the investigation and cooperate in the other antitrust investigations. The plea bargain could include testifying against his co-conspirators. Alternatively, Penn may choose to put the government to the test of proving the case to a jury beyond a reasonable doubt.
We recommend businesses require employees to undergo thorough training for compliance with the law. As an asset of the company, a specially crafted written compliance program that educates employees on the status of the law in their industry is invaluable. Employees who understand acceptable types of professional behavior are more likely to abide by the law. Businesses run the risk of federal criminal investigations, charges, and convictions when employees operate outside the law.
Based on the evidence released to date against Penn, prosecutors have a strong case. A guilty plea will avoid any downside of being convicted at trial. However, if convicted, Penn faces the maximum sentences allowable by law.