Term Paper on "Corporate Fraud and Deception Whole Foods Market"

Term Paper 10 pages (2965 words) Sources: 7 Style: MLA

[EXCERPT] . . . .

Corporate Fraud and Deception

Whole Foods Market Inc.

The Early Years

Merging With Wild Oats Markets, Inc.

SEC Investigation

Rahodeb

Competitors

John Mackey and his girlfriend Renee Lawson Hardy opened a vegetarian health food store in 1978, Austin, Texas. After two successful years, they merged with Clarksville Natural Grocery to become Whole Foods Market. In 1992, company expanded gradually by purchasing and merging with various health food chains around U.S., rising up to $23 million. Whole Foods Market is known by not selling products such as foods with artificial colors, artificial sweeteners, preservatives, additives and trans fats. The whole atmosphere inside the store is designed for the customers to stay in a healthier existence with a better environment. The market also provides various prepared food sections. Whole Foods also made fare which simultaneously went into a huge market for upscale groceries. It flourished the American market place by their sales rising up at rates of 8% to 15% since 2002, in spite of high prices. The process of Whole Foods corporate culture has helped to maintain the company's positive image publicly. Whole Foods chain also provides a health care coverage for its employees by paying 19 times more than the average pay of a full time employee. This company is one of the hundred best companies which have worked for every year since 1998. However, some of the customers believe that Whole Foods sell foods which are labeled natural and organic but they don't meet the standardized conditions, although others believe that Whole Foods imports food in a huge quantity that it could increase its trust on local procedures instead.

Recently, fourth quarter profit for the Whole Food Market declined because of legal costs and gaining of Wild Oat Markets Inc. The company stated a profit of $33.9 million for its fourth quarter ending but during the same period, profits raised up to $39.8 million. Revenue for three-month was $1.7 billion as compared to $1.2 billion in 2006. The company also forecasts an interest expense of between $35 million and $40 million. In 2007, Whole Foods bought Wild Oats in about $565 deal. For past seven years, John Mackey had an online modify ego. Using a pseudonym Rahodeb, distinction of his wife's name Deborah, he typed about more than 1,100 entries on Yahoo Finance's bulletin board, championing the stock of his company and to blast a rival of Wild Oats Markets which was investigated by Securities and Exchange Commission. According to Federal Trade Commission, the court has filed under this case under the user name Rahodeb. Now days, company's goal is to reach about $12 billion in 2010 in sales, with a wining strategy of lower prices and larger stores. It also has plans to open 72 locations in three countries. They will also sell a variety of products than the existing ones do now, with various features including cafes, health, wine tasting lofts, espresso bars and even cooking schools.

THE EARLY YEARS

In 1978, John Mackey and his girlfriend Rene Lawson, opened a natural food store namely SaferWay in Austin, Texas. They borrowed $45,000 from their friends and family. Both of them went out of their apartment to store food products in there and started living in the store. Two years later, John Mackey signed a deal with Craig Weller and Mark Skiles to merge SaferWay with their Clarksville Natural Grocery, which was in result the opening of Whole Foods Market on September 20, 1980. The store was quite large with a staff of 19 people, based at 12,500 square feet. Not less than a year, in 1981, a flood appeared after 70 years, which destroyed the store's inventory and damaged most of the equipments. The loss was of about $400,000. As the Whole Foods Market did not had insurance 1, customers and neighbors helped them to repair the damage and to clean it up. Creditors, vendors and investors also cooperated with them, which helped them to re-open the store soon after 28 days.

In 1984, Whole Foods Market started expanding out of Austin, towards Houston and than Dallas, purchasing the Whole Foods Company in 1988. After a year, the company expanded towards the west coast in California. The store gained a lot of popularity by acquiring various natural foods chains in 90s. Few years later, Whole Foods Market moved into Manhattan. Throughout all of this, they were generating an interest from media and different financial industries. In 2002, the store expanded outside the United States, opening its new branch in Toronto, Canada. Whole Foods opened its biggest branch in 2005, which is based on approximately 80,000 square foot in Austin. Headquarters of the company was moved into the office above the store. While the expansion has increased, they started increasing various products and processing plants. They also purchased Allegro Coffee Company and a seafood plant that was located in Atlanta in 2003 plus they also became the first national certified organic grocer of United States in the same year. Whole Foods entered the United Kingdom in 2004, merging with several fresh and wild stores. In 2007, they opened a store of total 80,000 square feet with three levels in Kensington High Street, West London. Eventually, forty other stores opened throughout the United Kingdom. (Wikipedia)

MERGING WITH WILD OATS MARKETS, INC.

Whole Foods Market Inc. And Wild Oats Markets Inc. signed a merger agreement on February 21, 2007. It was decided that Whole Foods Market Inc. will purchase all of the outstanding stock of Wild Oats Markets Inc. In cash of $18.50 per share or $565 million on fully diluted shares. Whole Foods Market Inc. will also assume that Wild Oats Markets Inc. has a net debt of about $106 million. Federal Trade Commission issued a complaint against the Whole Foods Market Inc. because of the merger. According to Federal Trade Commission, they believed that the proposed transaction can make a lot of problems for federal antitrust laws because of eliminating the competition between the two will close the competitors in the natural and organic supermarkets nationwide. They also challenged that if the transaction moves further than Whole Foods can raise it prices, reducing its quality and services. Whole Foods Market and Wild Oats both opposed the Federal Trade Commission complaint and waited for the court hearing which was scheduled for July 31st and August 1, 2007. FTC filed papers which revealed that for several years John Mackey posted comments under the pseudonym of Rahodeb, on Whole Foods Yahoo! Investment message board which raised serious legal and ethical questions. (Wikipedia). John Mackey criticized Wild Oats Market on Internet for years before he agreed to take over it. He stated on Yahoo, "Wild Oats has lost their way and no longer has a sense of mission or even a well thought out theory of the business," also including "they are floundering around hoping to find a viable strategy that may stop their erosion." Mackey also told board members that Wild Oats of Boulder, Colo. "is the only existing company that has the brand and number of stores to be a meaningful springboard for another player to get into this space," and "Eliminating them means eliminating this threat forever, or almost forever." However, the postings did not made any issue. (Josh Fineman & Danny King, July 12, 2007). However, on August 23, 2007, court mentioned about the increasing competition in organic grocery from traditional grocery is reasonable to allow the deal. The whole official process between Whole Foods and Wild Oats completed on August 27, 2007. John Mackey also decided to upgrade the Wild Oats location before re branding them to Whole Foods name. Other Wild Oats branches will be relocated or closed.

SEC INVESTIGATION

Online posting by CEO of Whole Foods Markets, John Mackey became a part of the investigation by Securities and Exchange Commission. For eight years, John Mackey posted various comments about the organic supermarket chain on Yahoo forums by the usage of a pseudonym. In some of the posting, John Mackey praised about Whole Foods Markets stock and also about its financial results. The postings came to light after the investigation of FTC when Whole Foods Markets was planning to take over Wild Oats Markets. However, it was not clear about the fact that John Mackey violated the laws in his postings which surely raised a lot of legal questions. SEC examined his postings on yahoo to figure out whether his comments opposed about the company which previously said or they were positive about the performance of the company. Additionally, SEC also checked out at that whether John Mackey has disclosed the corporate material information or not. If he did so than it could violate securities laws which were passed in 2002 known as Regulation Fair Disclosure, designed to stop executives for sharing information with the clients or analysts. On July 17, 2007, Whole Foods Market Inc. stated that an independent committee is formed by the board of the company to investigate the postings by the CEO… READ MORE

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