RICHMOND, VA—John Morrell Palmer III, 55, of Fredericksburg, Virginia, was sentenced today to twelve months and one day in prison, followed by three years of supervised release, for participating in a wire fraud conspiracy that resulted in losses of approximately $1.8 million to the Kellogg Company, a food manufacturer and supplier. He was also ordered to pay restitution to Kellogg’s in the amount of $1,886,392.87 and to forfeit that amount to the United States.
Dana J. Boente, United States Attorney for the Eastern District of Virginia; Adam S. Lee, Special Agent in Charge for the Federal Bureau of Investigation (FBI), Richmond Division; Gary Barksdale, Inspector in Charge of the Washington Division of the U.S. Postal Inspection Service; and Colonel W. Steven Flaherty, Virginia State Police Superintendent, made the announcement after sentencing by U.S. District Judge M. Hannah Lauck.
Palmer pleaded guilty on July 2, 2014. According to court documents, he was employed as a sales manager with Kellogg’s, working in the Fredericksburg, Virginia area. Co-conspirator John David Farmer was the President of Farmer’s Foods, a grocery store chain based in Chase City, Virginia. Kellogg’s ran various incentive programs to encourage the volume purchase of Kellogg’s product by retailers, including Farmer’s Foods. Under these programs, retailers received deductions that were credited against their accounts with SuperValu, a grocery wholesaler through which Kellogg’s sold product.
From 2009 through 2013, Palmer and Farmer conspired to submit fraudulent documents regarding non-existent purchases to Kellogg’s and SuperValu. The appearance of greater than actual sales resulted in reduced net costs for Farmer’s Foods. As a result of the fraudulent submissions, SuperValu awarded Farmer’s Foods approximately $1.8 million in unearned deductions against its running account with SuperValu. Kellogg’s then reimbursed SuperValu for the awarded deductions. Palmer used his position at Kellogg’s to facilitate the fraud. In return, Farmer paid cash kickbacks to Palmer in the total amount of approximately half the value of the fraudulently obtained deductions.
Farmer pleaded guilty to a single-count criminal information charging him with conspiracy to commit wire fraud on October 27, 2014. His sentencing is scheduled for January 22, 2015, before United States District Judge M. Hannah Lauck.
This case was investigated by the Virginia State Police, the United States Postal Inspection Service, and the Federal Bureau of Investigation. Assistant U.S. Attorney Michael C. Moore prosecuted the case on behalf of the United States.