October 12, 2020

Packaging and biomedical company discloses ongoing FCPA investigation into conduct in Mexico

In a regulatory filing on October 7, 2020, Landec Corporation, a developer and manufacturer of products used in food packaging and medical applications headquartered in Santa Maria, California, confirmed ongoing investigations by the US Securities and Exchange Commission, the US Department of Justice, and the Mexican Attorney General’s Office in connection with “regulatory permitting” for a manufacturing plant in Mexico.

As reported by Landec, the company acquired Yucatan Foods in December 2018.  Yucatan in turn owns a guacamole processing plant called Procesadora Tanok, S de RL de C.V., in Guanajuato, Mexico.  Following the acquisition, in October 2019, Landec engaged outside counsel to investigate potential FCPA and environmental issues relating to what Landec described as pre-acquisition conduct at the Tanok plant.  On January 2, 2020, Landec disclosed that it had reported the potential issues to the SEC and the DOJ.  According to Landec, the US and Mexican investigations are ongoing, and the company is cooperating with the respective authorities.

In addition, Landec stated in its October 2020 10-Q that because the conduct at issue occurred before the company’s acquisition of Yucatan, Landec believes that indemnification rights in its acquisition agreement with Yucatan may allow Landec to recover “a portion of the liabilities” that have and may be incurred in connection with this matter.  This followed an earlier statement by Landec, in January 2020 that, given these indemnification rights, the company did “not believe that the effects of these compliance matters [would] have a material impact on the [company’s] financial statements.”  This appears to be at least somewhat in dispute, because in September 2020, Ardeshir Haerizadeh, the founder, former CEO, and one of the former owners of Yucatan, filed suit against Landec and alleged, among other things, that after Landec’s acquisition of Yucatan, Haerizadeh noticed that certain “very large payments” were being made to a third party and had been told by Landec employees that the payments were being used, in part, to bribe Mexican government officials in connection with the removal of “wastewater” from the Tanok plant.  This litigation remains ongoing. 

Form 10-Q  (7 October 2020) | Form 10-Q  (2 January 2020) | Haerizadeh complaint