THE ADM TALE GETS EVEN STRANGER THEFT. EXTORTION. SABOTAGE. EVEN PHONE CALLS TO THE CIA. THESE GUYS JUST CAN'T STOP SLINGING MUD AT EACH OTHER.
By RONALD HENKOFF REPORTER ASSOCIATES RAJIV RAO AND CINDY KANO

(FORTUNE Magazine) – On the surface, things seem to be looking up for Archer Daniels Midland. In mid-April, without admitting any wrongdoing, the Illinois company agreed to pay $25 million--a surprisingly small sum--to settle a class-action antitrust suit brought in civil court on behalf of some 600 lysine customers. Lysine, a synthetic amino acid added to pig and poultry feed, is at the heart of the Justice Department's criminal probe into price fixing by ADM. The proposed settlement, which must be approved by a federal judge, minimizes a big chunk of the civil liability that ADM would face if it is indicted and convicted--or pleads guilty--in the criminal case.

But at ADM, things are never what they seem. And so what you are about to read has less to do with allegations of price fixing in a corn product most people have never heard of than it does with aggressive business practices run amuck. As Bonnie Wittenburg, a security analyst at Dain Bosworth in Minneapolis, says, "If this investigation were just about lysine, who would care? From an investment point of view, things would be worked out. But to me, there are signs that we've got a corporate culture problem here."

No matter what kinds of deals it strikes in court, then, ADM will still have to clear the heavy clouds surrounding the way it prices products, acquires technology, pays executives, and deals with government officials. At the least, the events of the past ten months threaten the legacy of Chairman and Chief Executive Dwayne Andreas, 78, the man who built ADM into a global agribusiness. At the worst, they could lead to the indictment and possible imprisonment of his son and onetime heir apparent, Michael Andreas.

The accounts out of Decatur get crazier by the day. Whatever the truth of them (we may never know), they all seem to add to the aura of power that surrounds Dwayne Andreas, a patron of the high and mighty with connections that span the globe. Andreas is the sort of fellow who, when he suspected Japanese rivals of sabotaging a fermentation plant a few years ago, didn't bother calling the police or a private investigator or even the FBI. Instead, according to a tale told by a source close to ADM, he sought the help of an old friend at the Central Intelligence Agency in London. The CIA's assistance to ADM, as described by the source and recounted here for the first time, was highly unusual--very likely a violation of the agency's own policies. And it has come back to haunt Andreas in a big way.

Nobody at ADM would talk to FORTUNE on the record about anything. How-ever, an individual close to ADM's top management who is familiar with the goings-on at the company spoke on the condition that he not be identified. Perhaps that's because the story he tells is so bizarre. Aside from the 911 to the CIA, it includes an unproven case of industrial espionage, an aborted FBI sting, and accusations of extortion against Mark Whitacre, the former ADM executive who secretly doubled as an informant for the FBI. The ADM source says Whitacre tried to extort $2 million from the company in November 1992, just about the time he signed on with the feds. Astonishingly, Whitacre's bosses didn't dismiss--or even discipline--him after that purported episode. Quite the contrary. They told the ambitious executive that he was first in line to become ADM's next president.

It may seem hard to believe that corn could be at the heart of so much intrigue, but there you have it. Grand juries in Chicago, Atlanta, and San Francisco are investigating whether ADM conspired with domestic and foreign competitors to rig prices of three products derived from corn: lysine, high-fructose corn syrup, and citric acid. Justice Department sources, while acknowledging that their investigations are behind schedule, still expect indictments to be issued this summer in the lysine case, where the government's evidence is strongest.

The prime targets of the lysine investigation are Terrance Wilson, head of ADM's corn-processing division, and vice chairman Michael Andreas. The younger Andreas, 47, known as Mick, recently agreed to relinquish his title and board seat before ADM's annual meeting in October. Mick's departure is part of a shakeup that will leave his father as the only management director on a panel long criticized for its cozy links to the Andreas clan. It will also leave the aging chairman with no clear successor.

ADM blames all its woes on one man--Mark Whitacre, the former president of the BioProducts division who worked as an FBI mole for 22 years. Whitacre, 39, says he eavesdropped on 15 meetings in North America, Europe, and Asia at which ADM and four Asian competitors plotted to fix the prices of lysine. He says three of the meetings are on videotape. Whitacre also audiotaped more than 1,500 conversations among ADM managers, during which, he says, they discussed efforts to rig prices of lysine, corn syrup, and citric acid. Whitacre has told FORTUNE that he recorded several senior executives--including both Andreases--repeating ADM's unofficial mantra: "The competitor is our friend, and the customer is our enemy."

ADM fired Whitacre shortly after his role as a whistle blower became public, and accused him and three colleagues of embezzling at least $10 million. Whitacre, now CEO of a startup medical technology company, admits that he personally netted about $6.4 million in tax-free money from bogus invoice schemes. But he says the cash was part of an established off-the-books compensation program for ADM's senior managers. Whitacre failed to tell his minders at the FBI about that money, a lapse that has complicated the Justice Department's price-fixing probes for at least two reasons.

First, at ADM's request, the feds are conducting a separate grand jury investigation into the off-the-books payments. That inquiry is moving slowly as Justice tries to determine exactly how much money was taken by whom. Second, Whitacre's world-class credibility problems have forced the antitrust investigators to find other witnesses who can substantiate what he captured on tape. FORTUNE has learned that Justice recently struck a bargain with an executive who knew about price fixing in lysine and promised him immunity in exchange for his testimony. The alleged lysine conspiracy included executives not only from ADM but also from four foreign companies: Ajinomoto and Kyowa Hakko Kogyo of Japan and Cheil Foods and Miwon of South Korea.

ADM's lawyers will likely argue that Whitacre, in collaboration with the FBI, suckered his colleagues into talking about--but not necessarily doing anything about--the price of lysine. What follows is an account of how the price-fixing investigation started, as told by the source close to ADM's top management. This version is in many ways similar to what Whitacre told FORTUNE in an exclusive interview last year ("My Life as a Corporate Mole for the FBI," September 4, 1995). The ADM source and Whitacre agree that the troubles began after ADM called the feds to investigate a case of suspected sabotage. What they differ on are the details--and whom to blame.

Fundamentally this is a story about bugs, not the electronic variety--though they are clearly part of the narrative--but the microorganic kind. In the summer of 1992, ADM had serious trouble at its lysine plant, the flagship of Whitacre's BioProducts division. Bacteria that were supposed to convert dextrose, a product of corn processing, into lysine weren't doing their job. Up to 70% of what came out of the plant wasn't lysine but some useless glob of biochemical exudate. These weren't ordinary startup pains, since the plant had been running for almost two years. Whitacre, according to the ADM source, came up with an explanation: sabotage.

The global lysine business--now worth $600 million in annual sales--has a history of subterfuge and ill will that goes back three decades. Until ADM entered the market five years ago, the industry was dominated by two Japanese companies. In 1969, Kyowa Hakko, the first producer to make lysine using fermentation, charged Ajinomoto with stealing its bacteria, allegedly by taking a specimen out of the wastewater that spewed from Kyowa Hakko's plant. A Japanese court agreed with Kyowa Hakko's patent-infringement claim in 1972, and Ajinomoto started using a new bug.

Twenty years later it was ADM's turn to suspect Ajinomoto of playing dirty, possibly by bribing an ADM factory worker to spike the dextrose soup with renegade bugs. Nobody knew for sure. That's why, in September 1992, Dwayne Andreas called his buddy at the CIA in London.

Timing is important here. In his FORTUNE interview, Whitacre said ADM began preliminary price-fixing discussions with Ajinomoto and Kyowa Hakko in Tokyo in April 1992--five months before Andreas's call. If Whitacre is right and ADM was breaking the law, why would Andreas call the CIA? There are three possible explanations:

There was no price fixing. The early talks Whitacre described--which are not on tape--never happened. That's what the ADM source says. But this is the least likely explanation. A non-ADM source familiar with the alleged conspiracy has corroborated Whitacre's claim that the competitors began holding hands in the spring of 1992.

Andreas didn't know what was happening. He didn't realize that Whitacre and corn-processing division President Terry Wilson were allegedly talking prices with competitors.

Andreas knew but didn't care. He was cocky enough to think he could ask the CIA to look into the suspected sabotage--and nothing else.

While the CIA supposedly mulled Andreas's request, Whitacre got a long-distance call from an Ajinomoto engineer. A former ADM executive identifies this person as Mr. Fujiwara, whom Whitacre had met earlier that summer when an Ajinomoto delegation visited the Decatur lysine plant. (The executive does not recall Fujiwara's first name, and Ajinomoto would not reveal it.)

According to the ADM source, Whitacre told his bosses that the Japanese engineer was willing to sell the company an "enzyme"--a microbiological magic bullet--that would make its lysine bacteria behave. The pricetag, Whitacre reported, could be up to $10 million. Whitacre also said that Fujiwara seemed to know an awful lot about what was happening at the lysine plant. Maybe Ajinomoto really did have a saboteur in Decatur.

ADM, though a seasoned global competitor, had never gone head to head against a Japanese rival with a product as technologically sophisticated as lysine. Mick Andreas, according to an ex-employee, was particularly exercised about the Japanese. The vice chairman even handed some of his executives hardback copies of Rising Sun, the sensational Michael Crichton novel about a criminal conspiracy by Japanese businessmen in California.

The ADM source says discussions with the CIA began in earnest in late summer. Over a period of six weeks, someone acting on ADM's behalf met with CIA agents in Europe. Together the agency and the company hatched a sting. They would offer the engineer a fee, ostensibly to acquire the magic-bullet technology but really to smoke him out about the suspected sabotage.

Should the CIA have been helping ADM? There's been considerable debate about the role of the spy agency in a post-Cold War world. But several points are clear. First, the CIA is not a law-enforcement agency and has no authority to operate on American soil, where the sabotage supposedly occurred. Second, the agency is not supposed to work for private companies. The CIA won't comment directly on ADM's story, but it did send FORTUNE a stack of policy statements, including this one by C.R. Neu, until 1995 the national intelligence officer for economics: "We do not engage in what is sometimes called industrial espionage...The intelligence community does not accept tasking from private firms, [and] we do not report information to individual firms."

Former spooks say there's no way agents should have done what ADM says they did. "This story just doesn't track at all," says a former CIA agent in Europe who is now a private security consultant in the U.S. "This kind of thing would be so hot to touch, so potentially dangerous, that no agent would want to handle it."

Are Dwayne Andreas's political connections so powerful that he managed to persuade agents of the CIA to violate their own policies and act--at least for six weeks--as his own elite force of private detectives? That's what this story seems to imply.

By November 1992, as the ADM source tells it, the CIA was out of the picture, having turned the sabotage investigation over to the FBI. On November 4, Mick Andreas instructed Whitacre and Mark Cheviron, ADM's security director, to meet with Brian Shepard, an FBI agent based in Decatur. At that conference, Cheviron assented to Shepard's request that Whitacre begin recording phone calls to Fujiwara on his home phone.

Then another strange thing happened. "The night of the meeting," explains the ADM source, "Cheviron gets a call from Whitacre. He's panicked. He's wild. He says his daughter at boarding school in Indiana got a phone call from a Japanese person threatening her: 'If your father doesn't give us $2 million, you'll be in trouble.' " The next day, the source says, Cheviron and Richard Reising, ADM's general counsel, quizzed Whitacre on the purported threat. They claim that he eventually backed down and admitted making up the whole story.

Whitacre, for his part, says he did express some concern about his daughter's safety, but he says he never claimed she had been threatened. He calls ADM's claim that he tried to extort $2 million "ludicrous." If Whitacre did indeed try to extort money from ADM, why didn't the company cashier him on the spot? What kind of culture is it that can tolerate an executive who tries to flimflam it out of two million bucks? Says the source: "Dwayne would have preferred that Whitacre be fired, but others in the company argued that he was the best salesman ADM had. He was taking them into new markets and new products." Whitacre insists he was subsequently told many times that he was the leading candidate to succeed President James Randall, now 71, when he retired.

In early November the FBI told ADM it was ready to execute the sting supposedly devised by the CIA. This was the deal: ADM would pay $3 million to the Japanese under the guise of buying the technology but really in the hopes of trapping the saboteur. The FBI gave ADM the rough draft of a contract. This two-page document, a copy of which is pictured at the beginning of this article, is on plain white paper with no letterhead. We asked FBI agent Brian Shepard if the contract was authentic, but Shepard declined to comment.

In the document, the FBI says it will put up the $3 million, but it makes clear that ADM will have to foot the bill if the fish (Fujiwara) swallows the bait and swims away: "The FBI is 'fronting' the money that ADM has already agreed to pay on its own, and ADM, not the FBI, is taking all the risks in losing the money."

This was a sting operation, all right. Except that it was ADM, not Ajinomoto, that wound up getting stung. The FBI and ADM never inked a final deal, ostensibly because higher-ups at the Justice Department never approved it. In February 1993, the FBI told ADM that it had found no evidence of sabotage at the lysine plant. The case was closed.

But the FBI's price-fixing investigation was just beginning. The source says ADM suspects that in the course of tapping Whitacre's phone, the FBI caught him in some illegal act and forced him to cooperate: "They came up with something to turn him."

Whitacre, of course, tells a different story. He says he voluntarily signed on with the FBI hours after that very first November meeting in Decatur. Whitacre had two telephone lines at home, and he says he realized right away that if the FBI tapped one, they would likely tap both. It was the second phone line, Whitacre says, that he was using to conduct price-fixing conversations with the Japanese--with the knowledge and approval of Mick Andreas and other ADM executives.

Whitacre says it was actually President Randall who first floated the sabotage theory. Whitacre acknowledges that he discussed lysine technology with Fujiwara, but he says there never was an "enzyme" that the Japanese engineer was trying to sell. Instead, says Whitacre, ADM was trying to buy--illicitly and at a below-market price--the key to Ajinomoto's kingdom, a specimen of its lysine-producing bacteria.

There isn't a wisp of evidence that Fujiwara ever tried to sell anything to ADM. Nor is there any hint that anyone at Ajinomoto was involved with--or even knew about--sabotage at the Decatur plant. Ajinomoto, citing pending litigation, refused to comment on what happened. In a richly ironic turnabout, Ajinomoto is now suing ADM in a Delaware court, claiming the American company infringed its patent for the production of lysine--an allegation that ADM denies.

As for price fixing, it remains to be seen whether there was, in fact, a conspiracy. If there was, it doesn't seem to have worked very well. The price of lysine swung up and down repeatedly between 1991 and 1995. Today it sells for about $1 a pound, still lower than when ADM entered the business. However, in antitrust law, the crime is in the conspiracy, not the execution. Explains Steve Kowal, an antitrust defense lawyer and former federal prosecutor, now at the Chicago firm of Burditt & Radzius: "Price fixing is what's called a per se violation. If the government proves that [ADM] agreed to fix prices, even if, in fact, down the road, prices were not fixed, that would still be a violation."

ADM's best defense may be the very corporate culture that seems to have gotten it into so much trouble in the first place. Current and former employees describe ADM's Decatur headquarters as a rough-and-tumble place with a trading room ethos. Executives, who are mostly white, male, and middle-aged, like to brag, often in four-letter words, about their houses, their cars, their sexual conquests, their prowess in the marketplace, even perhaps, their ability to fix prices. The company, which has already spent millions of dollars on legal fees, may need to convince a jury that much of what its managers had to say on tape was, after all, just a bunch of cheap talk.

REPORTER ASSOCIATES Rajiv Rao and Cindy Kano