by Joel Androphy, Berg & Androphy
HOUSTON, Nov. 19, 2010 — American Grocers, Inc. and its owner Samir Itani have agreed to pay $13.2 million to settle civil charges that they engaged in false or fraudulent conduct by shipping food products past or near their expiration dates to United States troops stationed in the Middle East.
The settlement was reached more than five years after Delma Pallares’ lawsuit against American Grocers, Inc. brought to light the illegal conduct. Pallares, represented by the law firm of Berg & Androphy, brought her lawsuit, also known as a qui tam action, under the Civil False Claims Act in the Southern District of Texas. The qui tam statute allows a private person to sue a person or company who is knowingly submitting false bills to the federal government. The U.S. Government intervened in the case in November 2010.
“Despite her fears of retaliation, Delma came to us with a compelling story,” said attorney Joel Androphy with the law firm of Berg & Androphy who represented Delma Pallares in her efforts to reveal the fraud. “We needed to get the government’s attention, no matter the monetary outcome. We spent five years relentlessly pursuing this case along with Assistant United States Attorney Michelle Zingaro, and we were ultimately successful—the government issued a search warrant for American Grocers’ warehouse, indicted Itani, and intervened in the qui tam action. Anyone who defrauds our troops has been sent a strong message.”
Ms. Pallares, who rejected offers to be put in the witness protection program, worked for American Grocers as a logistics manager and general merchandise manager from 1996 through 2003. She gained extensive knowledge of the daily operations of American Grocers, including how the food products were invoiced, valued, and weighed prior to shipping and, according to the complaint, how Mr. Itani and his employees changed expiration dates and forged accompanying documentation. Ms. Pallares’s efforts in locating persuasive evidence led to this successful prosecution and enabled the U.S. Government to intervene. Without her knowledge, the alleged schemes would have gone unnoticed and the U.S. Government would not have recovered any of the $13.2 million settlement. The government investigators were very thorough and supportive of Delma.
Mr. Itani allegedly schemed to purchase aging or out-of-date food products, change the expiration dates, and then resell the more than $36 million in products to military contractors for consumption by U.S. troops. In one example described in the complaint, turkey products that had at the most a six-month shelf life were given instead a twelve-month shelf life. In addition, according to the complaint, much of the accompanying documentation, including health certificates, Halal certification, and invoices, was forged, again at the direction of Mr. Itani.
According to the allegations in the complaint, Mr. Itani instructed his employees regarding how to re-label the food products using internal documentation. Mr. Itani often changed the production date of a product from the date of manufacture to the significantly later date when he shipped the product from his warehouse, usually twelve months from the real expiration date to a new date regardless of the product’s true shelf life. The dates were changed by eradicating expiration or “sell by” dates with acetone (an ingredient in nail polish remover), or with spray paint or a “Dremel” tool, and then imprinting new dates on the products with a machine designed for that purpose. So much acetone was housed at American Grocers, according to the complaint that its insurance company warned after an inspection that the acetone created a dangerous work environment and a fire hazard.
“The supporting evidence demonstrated a brazen effort to manipulate expiration dates,” said Kathryn Nelson of Berg & Androphy. When some chocolates that were about to expire arrived at American Grocers’ warehouse in 2005, for instance, Itani instructed an employee: “THE BAD DATES WE WILL ERASE AND SHIP LATER.” During a raid of the warehouse, federal agents actually witnessed employees eradicating dates on packages of food. “That search, and the documents seized by the agents that day confirmed all of Ms. Pallares’s allegations,” stated Sarah Frazier of Berg & Androphy.
In addition to changing dates, health certificates for the food items were routinely forged at Mr. Itani’s direction. This was done because exports that contain meat or dairy products generally require certification that they are free of certain diseases, including rinderpest, foot-and-mouth disease, hog cholera, swine vesicular disease, African swine fever, bovine fever, bovine spongiform encephalopathy (“BSE” or “mad cow disease”), and contagious bovine pleuropneumonia.
The fraudulent conduct also involved forging Halal certificates required by countries such as Saudi Arabia and Kuwait. Imports of food products into certain countries require certification that they meet appropriate requirements for Muslim religious slaughter. The complaint alleges that, instead of procuring proper certification, Mr. Itani obtained fake Halal certificates created by a sheik that never inspected the product. Further, the complaint alleges, Mr. Itani eventually bypassed even the sheik’s fees by duplicating the sheik’s certificate and forging Halal certification within his company.
According to the complaint, Mr. Itani’s extensive efforts to cheat the government included the creation of two sets of invoices. Mr. Itani would send the “real” invoice, which included correct product descriptions and costs, to the bank to secure payment. Mr. Itani would send what he referred to as the “fake” invoice, with significantly lower stated amounts, to the customer for presentation to customs officials in order to lower the amount of customs and duties owed. As a result of this practice, the complaint alleges, Mr. Itani was able to secure and keep customers.
In addition to this case, on July 21, 2009, Mr. Itani entered a plea of guilty to one count of conspiracy to defraud the U.S. Government with respect to claims (different from those asserted in Ms. Pallares’s complaint) in violation of 18 U.S.C. Section 286. In the Superseding Information to which Mr. Itani pleaded guilty, the U.S. Government alleged that Mr. Itani included overcharges in food product invoices to U.S. military contractors that were then passed along to the U.S. Government. These overcharges took the form of distribution fees and bogus trucking costs, which were concealed by inflated and fabricated invoices. Sentencing is set for December 3, 2010. The U.S. Attorney for the Southern District of Texas has agreed to a punishment range of up to 24 months’ confinement.
Source: Berg & Androphy