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US: Collusion Inquiry Targets Ice Companies

by JOHN R. WILKEThe Wall Street Journal
August 7th, 2008

Federal prosecutors are investigating an alleged criminal price-fixing conspiracy in the $1.8 billion market for packaged ice, with the help of a former industry executive who told authorities the collusion was nationwide and forced up prices for consumers and businesses.

In a July 23 filing in federal court in Detroit, and in an interview with The Wall Street Journal, a former vice president of sales for Party Time Ice, Martin McNulty, disclosed new details of the ice probe and said some industry executives were caught by FBI wiretaps discussing the alleged conspiracy.

Mr. McNulty's identity and his central role in the criminal investigation haven't been previously reported. Federal law-enforcement officials confirmed that information provided by Mr. McNulty triggered the investigation, which began in Detroit three years ago.

In June, prosecutors unsealed charges against Home City Ice Co., Cincinnati, alleging that the company conspired to suppress competition in the Detroit market from 2001 to 2007. The company, which pleaded guilty to the charges, makes 4,400 tons of ice a day and is the market leader in the Midwest. It could face fines of as much as $100 million.

In March, Reddy Ice Holdings Inc., of Dallas, said its offices were searched by the Federal Bureau of Investigation, and Arctic Glacier Inc., Winnipeg, Manitoba, said it had been served with a subpoena. Neither company has been charged with any wrongdoing.

The three companies dominate the national market for wholesale ice and the bagged ice sold at supermarkets, gas stations and convenience stores. Federal antitrust enforcers are looking into allegations that they secretly agreed to allocate customers and regional markets among themselves, keeping ice prices high and excluding rivals.

Reddy and Arctic have each issued statements saying they are cooperating with the government's investigation. The chief financial officers of both companies declined to comment further on the probe or on Mr. McNulty's claims. Home City is cooperating with investigators under terms of its plea agreement.

Reddy said its board formed an independent committee to conduct an internal investigation. Reddy says it is the nation's largest maker of packaged ice, with 2,000 employees in 31 states. Its marketing jingle: "Good times are in the Bag!"

Arctic Glacier, the operating unit of Arctic Glacier Income Fund, also based in Winnipeg, said it operates 37 plants in the U.S. and Canada. It has been an aggressive acquirer of its local competitors, buying 77 ice makers from Portland, Ore., to Brooklyn, N.Y., since 1996.

In addition to the possibility of criminal prosecution in the price-fixing probe, the three ice companies face dozens of civil suits filed by customers around the country who claim they were overcharged.

One of the latest and most detailed of these lawsuits was filed in federal court in Detroit July 11 by Boies Schiller & Flexner LLP, on behalf of McGeary's Pub in Albany, N.Y., and Bill's Beverage Center in Amsterdam, N.Y. Their attorney, Richard Drubel, said the suit seeks to recover alleged overcharges by the three major ice makers, on behalf of all of their retail customers.

Depending on the part of the country, the retail price of a seven-pound bag of ice typically ranges from around $1.50 to $2.00.

Mr. McNulty, 45 years old, told investigators he was fired by Arctic Glacier in 2005, after the company acquired Party Time Ice, of Port Huron, Mich., because he refused to participate in the price-fixing conspiracy. In May 2005, he approached the Justice Department's antitrust unit in Detroit. He soon became an active participant in the investigation, working with the FBI to tape telephone calls and, at one point, wearing a wire to a dinner with an industry executive at a T.G.I. Friday's restaurant in Lansing, Mich.

In a lawsuit filed two weeks ago in Detroit, Mr. McNulty is seeking back pay and other damages from Arctic Glacier and the other alleged conspirators. He says that in his position as a top salesman in the industry, industry executives discussed the conspiracy with him; he also said he was sometimes asked not to approach certain customers because they were on another company's turf.

Mr. McNulty said that he provided prosecutors with evidence of a secret agreement by the companies to divide up big customers and stay out of each others' sales regions. Such market-allocation agreements, if proved in court, are criminal and often bring stiff fines and imprisonment.

Federal law-enforcement officials have confirmed Mr. McNulty played an active role in the investigation but wouldn't discuss details. Court filing show that investigators have gathered other evidence expanding on Mr. McNulty's initial allegations.

In an interview, Mr. McNulty said he lost his home after he was fired, and that he was later offered his job back, at twice his original salary, if he would agree to go along with the conspiracy. "The arrogance was breathtaking," he said. "They considered their own customers to be the enemy. They said to me, 'We can't let them play one of us off the other, all they want is to get a better price.'"

Mr. McNulty's attorney, Daniel Low, of Kotchen & Low in Washington, said some of the evidence that he was fired for refusing to cooperate, and was then blackballed in the industry, is supported by wiretaps and other information the government has obtained in its investigation of the ice makers.

A Justice Department spokeswoman, Gina Talamona, declined to comment, citing the continuing probe, which she called "very active."

Write to John R. Wilke at john.wilke@wsj.com1

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