American Grocers

Samir Itani got rich sending expired food overseas to U.S. troops in the Middle East.

And that year, she witnessed the darker side of Itani's business for the first time. According to court documents, it started when a shipment of meat and dairy, mainly cheese and hamburger patties and frozen dinners, was denied entry into Saudi Arabia because the packaging didn't have an official export certificate or stamp from the United States Department of Agriculture. Basically, Itani obtained a blank form from the feds, made copies, forged it and sent it to the Saudi Embassy. The shipment was cleared.

"It was just a way he cut corners. He didn't have time for shipments to be denied or even delayed," Pallares says. "He had to move so many containers to keep up."

Erasing expiration dates had also become a part of business. The scheme was quite simple: A food wholesaler in Brenham would contact Itani with an extremely cheap quote on soon-to-expire food. According to court documents, "Itani would usually take the product if [the wholesaler assured him that the product date was easy to manipulate." (That company, Bren­ham Wholesale Company, was never prosecuted or charged with anything. It's not unusual for vendors to unload old food for ranchers and farmers looking to feed livestock on the cheap.)

American Grocers used acetone, spray paint...
Courtesy of Berg & Androphy
American Grocers used acetone, spray paint...
...and Dremel tools  to remove ­expiration dates from food packaging.
Courtesy of Berg & Androphy
...and Dremel tools to remove ­expiration dates from food packaging.

Itani, his brother and Pallares, along with other workers at American Grocers, used several methods to get rid of the expiration dates. Sometimes they would simply use spray paint, sometimes they would use a Dremel tool to scrape the dates off packaging. Acetone, however, became the preferred method. The chemical, used in nail polish remover, was an easy way to remove ink from labels and leave an undisturbed place on the packaging to print a new date.

The operation ran in plain sight, Pallares says, on the floor of the warehouse or sometimes outside, and in the early days, everyone, at least at American Grocers, was involved.

"The truck drivers [delivering food and acetone] would come in and out every day, but they never figured out what was going on," Pallares says. "I knew it was wrong, but I got to the point where I didn't think twice about it, seeing it daily. It's hard to explain, but getting out was a hard decision."

The breaking point for Pallares came in 2003, when Itani landed the deal to send food to American troops. Pallares wanted no part, and about a month after the contract was signed, she quit. She tried to start her own food exporting company but didn't have much luck competing with Itani; she could only deal with the vendors she knew. The business failed, and Pallares decided to take her information to the authorities.

She had contacts at the Department of Agriculture, but she didn't get much of a response when she presented the case. A friend advised her that if she wanted to pursue Itani through the muck of federal bureaucracy, she should find her own attorney. Even that proved difficult; Pallares was turned away time and again by lawyers who didn't know how, or didn't want, to deal with Pallares's case. Eventually, she was referred to Joel Androphy, who knew almost immediately it was a big case.

Androphy had worked similar whistleblower cases before. He represented one of nine plaintiffs in a lawsuit against a pharmaceutical company that made the antipsychotic drug Zyprexa, landing the government last year a settlement of $1.42 billion. He won another settlement of about $46 million against Pfizer in 2002, dealing with the drug Lipitor. Three years later, Androphy settled with drug company King Pharmaceuticals for $124 million, on charges involving Medicaid fraud. And each of those cases, like what Androphy potentially saw for Pallares's case, was filed under the "Qui tam" writ.

"Most attorneys have probably heard of Qui tam, but there aren't many who know what it actually means," says Sarah Frazier, a partner at Berg & Androphy. "And there really aren't too many who would take one on."

Basically, the case works like this: A citizen (Pallares) acts as a whistleblower when she believes a company (American Grocers) is ripping off the government, and a lawyer (Androphy) files a federal lawsuit on behalf of the whistleblower and the government. Sometimes federal prosecutors join the lawsuit and continue the investigation; oftentimes they don't. But the goal is to win the lawsuit or reach a settlement, get paid and take down the bad guys.

With information and files from Pallares, Androphy filed his suit against Itani and American Grocers on August 25, 2005. The government agreed to intervene in the case, and for more than a year, federal agents and Pallares, along with Androphy, Frazier and Kathryn Nelson (another Androphy attorney), worked to build a case against Itani. After the 2006 raid, agents had all they needed.

In one e-mail, for example, an American Grocers employee asked Itani about a large shipment of SweetWorks chocolates, citing discrepancies on an invoice as well as expiration dates that had passed.

"Are we going to change dates and send or do we need to coordinate return to SweetWorks?" the employee wrote.

Itani responded: "The bad dates we will erase and ship later."

And according to amended court documents from Androphy — filed after the raid — acetone had become such an important part of Itani's daily business that it was listed as "an expense on his financial statement along with other legitimate warehouse supplies such as shrink wrap and tape." After an inspection of the warehouse, the company that insured American Grocers grew concerned with the cache of chemicals and wrote that the "quantity of acetone stored in the warehouse area currently exceeds the quantities required for daily use."

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