Supreme Pays U.S. $389 Million for Afghanistan Food Fraud

Supreme Foodservice GmbH, a logistics company co-owned by billionaire Stephen Orenstein, agreed to pay $434 million to settle criminal and civil allegations that it overbilled the U.S. for food and bottled water provided to American troops.

Supreme agreed to pay $250 million in criminal penalties to resolve U.S. claims that it considered overcharging even for ice, according to federal court documents unsealed today in Philadelphia. The company also agreed to pay $101 million to settle a whistle-blower lawsuit, $38.3 million to refund the troop-support agency for bottled water, and $45 million to address other allegations.

A company official entered the guilty plea today before U.S. District Court Judge Gene Pratter.

“This is about soldiers in the desert being charged outrageous amounts of money for something like water, all for money,” Pratter said before accepting the plea. “That’s pretty low.”

Supreme supplied food for troops in Afghanistan, from lobster and rib-eye steak on special occasions to basic fare of chicken wings, breaded shrimp and hamburgers. Its contract with the U.S. was worth $8.8 billion from 2005 to 2013, according to court documents.

Not Charged

Supreme is a unit of Supreme Group, which has its corporate headquarters in Amsterdam. Supreme is 75 percent owned by Orenstein, according to information compiled by Bloomberg. He’s not named in the criminal case. Thomas Becker, a spokesman for Orenstein, declined to comment on the case.

“We accept full responsibility for and deeply regret our past actions,” Emma Sharma, the company’s chief ethics and compliance officer, said in a statement. “We have implemented new compliance mechanisms and strengthened our internal processes.”

In addition to the Philadelphia case, two other Supreme units agreed to pay $45 million to settle allegations they overbilled for fuel purchased by the U.S. for an airfield in Afghanistan and falsely billed the government to ship food to troops. The agreements resolve investigations by prosecutors in Virginia and Illinois into Supreme Site Services GmbH and Supreme Logistics FZE.

Sharma told Pratter today that the company has implemented an ethics program that requires annual training for employees and owners.

‘Enormous Steps’

“We have gone to enormous steps to make sure this will never happen again,” Sharma said in court.

Supreme and its units and affiliates employed more than 5,000 people in 2009, according to court documents.

Pratter imposed five years of probation as part of Supreme’s plea and ordered the company to hold an annual service event to honor or assist veterans.

The fraud was uncovered after former Supreme employee Michael Epp, a German citizen, contacted federal investigators. The U.S. intervened in a lawsuit filed in 2010 by Epp, the former director of the firm’s commercial division and supply chain.

Epp, who named Supreme and Orenstein as defendants in his suit, alleged he was fired in March 2007 after advising Orenstein that Supreme would have to refund money to the U.S. Defense Department because it overcharged for transportation fees. Orenstein denied the allegation.

Supreme and Orenstein stopped Epp’s required post-employment compensation and sought to rescind his work permit, allegedly in retaliation, when the co-owner learned of Epp’s plan to file a complaint under the False Claims Act, according to court documents.

Masterminding Plan

An amended complaint filed in September 2012 described Orenstein as masterminding the company’s plan to maximize profits through various schemes at the expense of the U.S.

Central to the scheme was the creation of Dubai-based Jamal Ahli Foods Co. to act as a middleman and mark up prices for fresh fruits and vegetables and other locally produced products sold to the government, according to the complaint.

Supreme was accused of seeking to hide its relationship with Jamal Ahli Foods by putting the company in the name of its Dubai sponsor and the wife of a Supreme Dubai director.

Supreme used Jamal Ahli Foods to mark up milk and juice products by 55 percent and non-alcoholic beer by 125 percent, while describing the unit to the U.S. as a vendor and concealing its true relationship, according to the amended complaint.

An e-mail cited in court papers indicates the company considered overcharging for ice cubes, but abandoned the idea when employees realized the U.S. knew how much they cost.

‘Aberrantly High’

Troop-support officials complained in May 2006 about Supreme’s “aberrantly high” prices for fruits and vegetables, with corn priced 525 percent higher than its competitors, according to court documents.

After receiving the complaint, one Supreme executive e-mailed Orenstein and Epp saying, “This is not very nice. I think it is time to raise distribution fees,” according to court documents.

Under the terms of the settlement, Epp will receive $16.2 million as his portion of the government’s recovery, plus $1.5 million for attorney’s fees and expenses from Supreme.

The criminal case is U.S. v. Supreme Foodservice GmbH, 14-cr-00512, U.S. District Court, Eastern District of Pennsylvania (Philadelphia). The civil case is Epp v. Supreme Foodservice AG, 10-cv-01134, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

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