Two former top executives of the Beech-Nut Nutrition Corp. have been found guilty of hundreds of counts of mail fraud, conspiracy and violation of federal food and drug laws in the sale of apple-flavored sugar water that had been labeled pure apple juice for babies. Personal accountability may be coming to the boardroom.
Former Beech-Nut president Neils L. Hoyvald was found guilty on 351 counts of violating the federal food and drug laws and John F. Lavery, a former vice president in charge of manufacturing at the plant where the bogus apple juice was made, was convicted on 448 counts.
Beech-Nut pleaded guilty to 215 felony counts last year and agreed to pay a record $2 million fine. Beech-Nut was acquired by Nestle S.A., the Swiss food company, in 1979.
The government's case was handled by Assistant U.S. Attorney Thomas H. Roche, who called it a "story of corporate greed and irresponsibility." Evidence presented showed that Beech-Nut could save up to $1.75 a gallon on hundreds of thousands of gallons of fake "apple" concentrate made from beet, corn and sugar cane syrup. There was never any claim presented that any baby was harmed by it, and Beech-Nut had the good grace not to try to claim that anyone was helped by it, either.
Except Beech-Nut. Roche said in the trial that even after Hoyvald learned that the juice was phony, he arranged for more than 600,000 jars to be sold at huge discounts in the Caribbean. In his closing argument, Roche made the point that the evidence in the trial never showed the two executives "worrying about selling fake apple juice to babies." What they were worried about was "bad publicity and profits."
The two former executives face prison terms and fines: Conspiracy and mail fraud, for example, are each punishable by up to five years in jail. Sentencing dates have not been set.
The indictment, trial and verdict in the Beech-Nut case stands in stark contrast to what has happened, so far, in the Dalkon Shield cases. The intrauterine device was marketed by the Richmond-based A.H. Robins Co. from 1971 to 1974 to millions of women. The company's product liability insurer has paid hundreds of millions of dollars in claims to women who developed pelvic infections and subsequently became infertile, miscarried and even died as a result of using the IUD. More than 200,000 claims are still outstanding; the Robins company has filed for bankruptcy, and a federal judge has set a $2.5 billion trust fund to compensate victims of the birth control device.
The source of the infections was the multifilamented string that was attached to the IUD, and served as a conduit, or wick, for bacteria to enter the uterus. Extensive court litigation has shown that Robins officials knew about the wicking problem in June 1970, six months before the device went on the market, but they did not alter the design because that would have added to manufacturing costs. They ignored subsequent warnings and reports of women being severely harmed by the device because they feared that taking action would be an admission that something had been wrong. Furthermore, the company continued to claim that the shield had a 1.1 percent pregnancy rate even after studies showed the rate was 5 to 10 percent.
Robins is a family-owned firm, with President E. Claiborne Robins Jr. and members of his family owning about 40 percent of the stock. Robins Jr. became president of the company in 1978. His father was chairman of the company in 1971, when the company began selling the shield. He is still chairman of the company. As part of a bankruptcy reorganization plan filed this month, the two will contribute $10 million of their own money to the victims' compensation fund.
A federal grand jury in Kansas is conducting a criminal investigation into possible obstruction of justice by the company in the course of its defense against Dalkon Shield claims.
After more than a decade of litigation and investigations, personal accountability and culpability for the Dalkon Shield disaster has yet to be established. Personal accountability also failed to play a role in the E.F. Hutton case in which the giant brokerage company pleaded guilty to 2,000 counts of mail and wire fraud in cheating banks for more than two years. The company paid the $2 million fine, but no individuals were tried for any criminal activities.
The criminal trial and convictions of the Beech-Nut executives are a healthy change in the right direction. Companies don't break the law. People do. But until the people are held accountable, the companies will get away with murder.