The Chipotle Corporate Sabotage Theory Returns

Some people see a simple case of foodborne illness. Others see corporate sabotage.
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Yet another outbreak of foodborne illness last week at Chipotle Mexican Grill did what it usually does to the burrito chain: The stock price plummeted. It's bad news—particularly for the patrons who got sick—but it's a boon for anyone that had the foresight to short the stock.

The latest outbreak was first noted by iwaspoisoned.com, a website that crowdsources reports of customer illnesses following visits to restaurants. The goal, it says, is "safer food, safer communities and a healthier economy." Yet, as Bloomberg reported last week, hedge funds looking to profit from others' bad luck can also access a "souped up" version of the site for a $5,000 monthly fee.

Aaron Allen, principal at Aaron Allen & Associates, a restaurant industry consultancy, posited in a LinkedIn post on Monday morning that the Chipotle illness might not just be a matter of luck. "A lot of things stacked up that made it suspicious," he told Bloomberg in an interview on Monday, "and when you look at it from a statistical point of view, even more suspicious." His group has no financial interest in the chain, Allen said, and he has previously lauded the chain's pre-scandal marketing.

He's not the first to publicly speculate about the possibility that corporate sabotage is behind Chipotle's woes.  (There was even a recent plot line on Showtime's "Billions" in which a hedge fund manager contaminated the customers of a fictional company, Ice Juice, whose stock he had just shorted.) A similar theory—which was largely dismissed—circulated two years ago when the chain was hit by outbreaks of E. coli, norovirus, and salmonella. The stock price plummeted at the time, costing the company billions of dollars in market capitalization. 

While Allen can't prove his theories about Chipotle, he argues that corporate sabotage of a similar nature has happened in the past. A woman planted a severed finger in her Wendy's chili more than a decade ago. In the 1980s, Tylenol capsules were purposely tainted with potassium cyanide, leading to the deaths of seven people in the Chicago area.

Plus, there was a lot of money on the table for Chipotle short sellers—as much as $459 million, according to Allen's calculations—before there were any inklings of a food safety problem. "Chipotle short-sellers saw their ambitions rewarded with $55 million in less than one day," he wrote of the latest scare.

Allen said his team, which includes a statistician and food safety experts, found a number of "statistical anomolies." First, he wrote in his post, the time of year raises questions; while 60 percent of food safety outbreaks occur from December to May, Chipotle's happened from August to December. Second, Chipotle experienced four times the number of norovirus outbreaks a chain of its size would be expected to have, and that's not even counting the E. coli and salmonella. And, he notes, significantly more people got sick from each of the outbreaks than normally do from the same pathogens. The average norovirus outbreak causes about 18 illnesses, while salmonella usually leads to about 25. At Chipotle, more than 200 people were sickened from a single August 2015 norovirus outbreak, and 64 fell ill from the same month's salmonella problem.

"We're not saying this as a definitive," he said. "But if you were a short seller and you were looking for where there would be the most financial gain in the restaurant industry, the best way is a food safety scare, and the best stock would be Chipotle."

Chipotle did not respond to Allen's post but told Bloomberg that it was aware of the 2015 theories. "We ... did not see any evidence to support them," spokesman Chris Arnold said in an email. He also pointed out that the company implemented food safety enhancements after those incidents.

"I can tell you unequivocally that none of the 2015 outbreaks were caused by some terrorist or criminal acts," said Bill Marler, a leading food safety attorney who has litigated foodborne illness claims for decades and who represented clients in each of that year's Chipotle outbreaks. "It's conspiratorial nuts."

Marler examined the fact patterns in each case and believes they were all caused by the usual suspects: sick employees, failure to pay attention to detail and ready-to-eat food showing up already tainted. 

He allows that a conspiracy is theoretically possible. "But I don't believe in aliens, or that humans walked the earth with dinosaurs, either," he added.

Allen said he's just raising a question about a statistical anomaly, not accusing anyone of purposely poisoning burrito lovers. "It really is one of those situations, like who would put a finger in the chili?"

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