Copyright # 2002 John Wiley & Sons, Ltd.

MANAGERIAL AND DECISION ECONOMICS

Manage. Decis. Econ. 23: 45–49 (2002)

BOOK REVIEWS

THE INFORMANT: A TRUE STORY, by Eichenwald, K.

New York: Broadway Books, 2000, xv+606 pp., $26.00 (cloth),

$14.95 (paper).

The competitors are our friends, and the customers are our

enemies.

We know when we’re lying.

} Corporate mottos of the Archer Daniels Midland Co.

The Informant begins in 1992 with allegations of industrial

espionage and extortion targeting the new Bioproducts Division

of the Archer Daniels Midland Company, self-styled

‘Supermarket to the World’. After investing more than $150

million and building the planet’s largest facility for producing

lysine, an amino acid used as a feed additive to promote weight

gain by chicken and pigs, output was lagging far below the

plant’s rated capacity of 113 000 metric tons per year. The

proprietary microbes necessary to convert dextrose into lysine

were dying like flies. Mark Whitacre, the manager of the

Bioproducts Division, told his bosses he had learnt why: a

phone call from an executive at one of ADM’s Japanese

competitors revealed the existence of a plot to introduce a

microbe-killing virus into the plant’s fermentation tanks. For a

payment of $10 million, the caller promised to name the mole

working for ADM responsible for disrupting its lysine

production process and to supply a virus-resistant microbe

that would solve the plant’s problems.

As The Informant unfolds, Mark Whitacre, the first Ph.D.

named to head one of the company’s main operating divisions,

rapidly becomes the central figure in a bizarre and convoluted

story eventually involving wire fraud, tax evasion, money

laundering, obstruction of justice, and price-fixing conspiracies.

In the end, Dr. Whitacre turns out to be a pathological liar of

truly Clintonian proportions. He lied to his bosses, to his

coworkers and associates, to the FBI, to his lawyers, and even

to his psychiatrist. Given the evidence he helped gather over the

course of several years as a cooperating witness, about the only

thing Whitacre seems to have told the truth about was his role

in negotiating an agreement between ADM and its Japanese

and Korean competitors to fix the price of lysine, about which

more later.

After hearing Whitacre’s charge of foreign sabotage and

extortion, the politically well-connected leadership of ADM,

Dwayne Andreas and his son Michael (‘Mick’), phoned Dwayne’s

nephew Allen, a lawyer who oversaw ADM’s European opera-

tions and had contacts at the CIA. That phone call subsequently

triggered an inquiry by the FBI’s Springfield, Illinois, field office

that, on the basis of information divulged by Whitacre, quickly

snowballed into two major criminal investigations.

In one of these cases, Whitacre was in due course sentenced

to prison for nine years and ordered to make restitution to

ADM, to the tune of $11 million, after pleading guilty to 37

felonies. Two vice presidents of the Bioproducts Division,

Marty Allison and Sid Hulse, also pled guilty to less lengthy

criminal indictments charging them with fraud, conspiracy, and

tax evasion. Hulse was sentenced to ten months in prison; in

return for cooperating with prosecutors, Allison received no jail

time. In the second case, Whitacre, Mick Andreas, and Terry

Wilson, the president of ADM’s corn-processing division, were

convicted of participating in an unlawful conspiracy to fix lysine

prices. The three men each received jail terms of two and a half

years, six months of which the trial judge permitted Whitacre to

serve concurrently with his earlier sentence. ADM was fined

$100 million. In addition, ADM’s two Japanese and two

Korean competitors struck deals with prosecutors whereby they

pled guilty to price fixing in return for fines of $10 million and

immunity for all but one of their executives, Kazutoshi Yamada

of Ajinomoto, Inc., allegedly the lysine conspiracy’s

‘quarterback’, the person responsible for collating and dis-

tributing information to the conspirators about industry output

volumes and market shares. Mr. Yamada was indicted but did

not appear at trial.

How did the informant himself end up bearing the brunt of

the penalties? One has to read the book. It is impossible in the

limited space of a review to tread more than lightly on the many

twists and turns in the path leading from the FBI’s ‘flipping’ of

Whitacre, convincing him secretly to record meetings at which

the terms of the lysine conspiracy were hammered out, to his

being named as a defendant in two federal criminal proceed-

ings. In brief, it seems that Whitacre started down the road to

personal ruin when he became a victim of the long-running

‘Nigerian Advance Fee Fraud’. That scam, in which someone

claiming to be connected to the Nigerian Ministry of Petroleum

Resources asks for help in bilking the ministry of millions of

dollars through a complex scheme involving bogus invoices,

cost Whitacre about $200 000. He also convinced some of his

friends and associates to contribute sums of $10 000 or $20 000

which the person running the scam would periodically say were

needed for the purpose of bribing Nigerian government officials

or defraying other expenses incurred in freeing up the money

that would make them all rich.

Finally realizing that the con-artist would keep asking for

money as long as his gullible victims were willing to pay it and

that his Nigerian boat would never come in, Whitacre decided

to recoup his losses by running the same scam on ADM. He

submitted phony invoices generated by dummy corporations he

set up to pose as suppliers or customers of the Bioproducts

Division, and then laundered the payments through bank

accounts in the Cayman Islands, Switzerland, Hong Kong, and

Australia. He double-billed ADM on legitimate transactions,

committing forgery in the process, and entered into numerous

kickback arrangements with ADM employees and consultants.

All told, Whitacre managed to steal some $9 million from his

company.

Whitacre’s downfall is also explained by his own bizarre

behavior, possibly attributable to a serious bipolar disorder for

which he was later hospitalized on two occasions. He played

both ends against the middle, supplying crucial audio and

videotaped evidence of ADM’s involvement in price fixing to

the FBI, all the while keeping his secretary and other people at

ADM at least partially informed about his cooperation with

government investigators. Thanks to Whitacre, ADM was

prepared for the FBI raid that brought the long-running

investigation officially to light. He faked at least one (and in all

likelihood two) suicide attempts to gain sympathy, told lies

about his daughter being harassed at her school, and falsely

claimed that he had been kidnapped and his life threatened.

During his manic phases, Whitacre lived in a fantasy world in

which delusions of grandeur led him to boast that, ‘when it was

all over’, a grateful board of directors would appoint him as

ADM’s new CEO. Showing his gardener a new briefcase the

FBI had given him containing one of the agency’s best

recording devices, Whitacre said that he should start calling

him ‘014’. ‘Why 014?’ ‘Because I’m twice as smart as 007’ (p.

143). Egotistical, anxious to please, paranoiac, and fulsome in

response to media attention, Whitacre’s charges of criminal

wrongdoing became both more outlandish and more contra-

dictory as the investigation proceeded. In the end, the

government’s star witness simply self-destructed.

The Informant presents a fascinating account of corporate

intrigue and the inner workings of a major antitrust investiga-

tion. While Whitacre and the agents who ran him often take

center stage, bureaucratic infighting between the FBI, the US

Attorney’s Office, and the Justice Department’s Antitrust

Division and its Fraud Section, the hardball tactics of defense

counsel, and the machinations at ADM are never far from view.

The author, a reporter for the New York Times, replays the

story as it happened, leaving the reader adrift in the web of lies

and deception, never quite sure where the line between the

fabulous and the factual should be drawn.

The key question raised by The Informant is, do Whitacre’s

allegations hang together in establishing the existence of an

unlawful price-fixing conspiracy? There seems to be no doubt

that Whitacre and several other ADM executives participated

in a series of meetings with their counterparts from Japan and

Korea for the purpose of negotiating agreements about lysine

prices and production volumes. As far as the law is concerned,

such evidence is all that is required to establish criminal

liability. Price fixing is illegal per se under the Sherman Act, and

prosecutors need not show that conspirators actually succeed in

raising prices above competitive levels.

Economists are more curious. Given the fragile nature of

price-fixing agreements, most would be predisposed to doubting

the effectiveness of a purported lysine cartel. According to Mick

Andreas, admittedly not the best witness on this point, ‘it was

impossible to fix prices . . . because too many variables wereinvolved’ (p. 307). The Informant contains only passing

references to lysine prices and profits, and certainly presents

no evidence that the price moves it does report were the ceteris

paribus result of the conspiracy’s operation. What seems clearer

is that the Korean producers were reluctant and sometimes

disruptive co-conspirators. ADM and the Japanese lysine

companies were never sure that the Koreans were reporting

their production volumes truthfully and, indeed, at one point

the Koreans stopped reporting numbers to the cartel’s

‘quarterback’ altogether. On another occasion, Whitacre

himself triggered a lysine price war in hopes that the Justice

Department would lose interest in the investigation, thereby

avoiding the scrutiny that might bring his other illegal activities

to light. In any case, one construction of the facts provided by

Eichenwald is that the Korean and Japanese producers had

been fixing prices prior to ADM’s entry into the lysine business,

and that all of the meetings that followed represented attempts

to cope with the emergence of a new competitor geared to

produce a volume of output that exceeded the collective

production capacity of the incumbents.

There is also a gaping hole in Eichenwald’s description of the

lysine cartel. A maudlin attempt to put a human face on the

victims of the alleged conspiracy by recounting the troubles of a

brother-in-law of the assistant special agent in charge of the

FBI’s Springfield Field Office, is one of the rare occasions on

which The Informant mentions the buyers of lysine. The

brother-in-law ‘had been a farmer most of his life, struggling

almost every day to get the crops in. He had been dependent on

banks, dependent on weather, dependent on feed companies.

Then recently, [he] and a friend had decided to take more

control of their futures by opening their own feed business’ (pp.

170–71). The agent’s kinsman may well have felt powerless in

the face of lysine prices that seemed to have ‘been going crazy’

(p. 171), but it is hard to believe that major lysine consumers

such as Hudson Foods and Tyson Foods stood idly by while

their suppliers conspired to profit at their expense. Indeed, the

conspirators ‘spent hours discussing regional prices and how to

handle customers who falsely claimed that they had been

offered a better price’, but arrived at no better solution than

pledging to hold firm against such demands (p. 222).

‘Everybody’s going to want to cheat anyway’, Terry Wilson

told Whitacre. ‘Knowing Mick, we’ll want to cheat’ (p. 220).

Allusions to Jeffersonian ideals notwithstanding, I harbor

little sympathy for the FBI agent’s brother-in-law who, besides

being dependent on the vagaries of the weather, is also, like his

fellow farmers, a virtual ward of the state. Nor do I feel sorry

for ADM. Perhaps the company, which enriched itself by using

the political process to elevate US sugar prices above the world

price, thereby inducing substitution in favor of high-fructose

corn syrup as a sweetener in soft drinks and many other food

products, and to secure federal subsidies for ethanol, a gasoline

additive derived from corn, thought that private price-fixing

agreements could be run like government-managed cartels. Still,

as a matter of economics, if not of law, The Informant fails to

convince me that ADM settled the lysine case for reasons other

than staunching the hemorrhaging of shareholders’ wealth that

followed revelations of being in the government’s crosshairs.

On the basis of evidence gathered during the investigation of

price-fixing in lysine, follow-on criminal cases produced guilty

pleas from, among others, drugs companies Hoffman-LaRoche,

which played ‘quarterback’, and an affiliate of Bayer AG, who

admitted to conspiring to fix the price of citric acid. Hoffman-

LaRoche and numerous other multinational corporations also

pled guilty to fixing the prices of vitamins. ‘Eventually, about 30

different grand juries investigated price fixing in almost every

corner of the food and feed industry; by 1999, the government

had obtained more than $1 billion in fines’ (p. 559).

The Informant is vivid testimony to Adam Smith’s famous

observation that ‘people of the same trade seldom meet

together, even for merriment and diversion, but the conversa-

tion ends in a conspiracy against the public or in some

contrivance to raise prices’. What almost everyone ignores is

BOOK REVIEWS46

Copyright # 2002 John Wiley & Sons, Ltd. Manage. Decis. Econ. 23: 45–49 (2002)

Smith’s warning in the next sentence: ‘It is impossible indeed to

prevent such meetings, by any law which either could be

executed, or would be consistent with liberty and justice’.

Meanwhile, Mark Whitacre resides in a federal minimum

security prison in Edgefield, South Carolina, where he has used

his spare time to earn degrees in psychology and law. Now that

his protagonist is licensed to steal, Kurt Eichenwald may well

have the opportunity to write several more riveting books. To

avoid being the subject of an equally sensational story, the

attendees at future trade association meetings are hereby given

notice to follow the advice offered jokingly by one of the parties

to the great lysine conspiracy: ‘pat ’em down for wires’ (p. 158).

William F. Shughart II

The University of Mississippi

School of Business Administration

PO Box 1848

University, MS 38677-1848 USA

DOI: 10.1002 mde : 1039

INVESTING FOR SUSTAINABILITY: THE MANAGE-

MENT OF MINERAL WEALTH, by Hannesson, R. Boston:

Kluwer Academic Publishers, 2001, ix+109 pp., $66.50 (cloth).

Most discussion of extractable (i.e. non-renewable) natural

resources focuses on the optimal rate of extraction of the

physical resource itself. Hannesson tackles a closely related

issue: how to convert the transitory wealth generated from

mineral extraction into permanent wealth. This is an important

question for many decision-makers, as transitory wealth is

created in a large number of contexts other than the extractive

industries. Highly popular movie and music stars, models,

professional athletes, and the like earn quasi-rents for limited

periods of time. So do winners of lotteries, television game

shows, and those who hit jackpots at gambling casinos and in

courtrooms. A large fraction of the population inherits wealth

from their parents. In each of these cases, wealth flows to the

recipient for a brief period of time.

The recipient of such transient wealth can consume it, in

which case his enhanced consumption also is transitory, or

invest some portion of it to create a perpetual flow of income

that can support future consumption. In his highly readable

book, Hannesson identifies the parameters that determine the

optimal fraction of transitory income to save in order to

generate a sustainable annual income. These parameters include

the period of time during which the individual expects to earn

transitory income, the expected rate of return on investments,

the period of time that income is saved, and the extent to which

the transitory income fluctuates over time. Hannesson’s

discussion of sustainability is couched in terms of creating an

infinitely lived stream of income that outlasts the finite mineral

resource. However, the general concepts are quite applicable to

the cases mentioned above. Someone who manages the financial

affairs of a professional athlete, for example, need only replace

the perpetual income to be earned with an income series

(annuity) that outlasts the athlete’s period of high earnings but

that expires at some finite point in the future. The principal

difference between these cases, is that in the case of an athlete

there is a single owner of the rent-generating resource, whereas

in the case of extractable resources the public frequently is the

residual claimant to the quasi-rents, either through direct

ownership or indirectly through taxation. More on this

presently.

In Chapter 1, Hannesson makes the utterly valid (and

thoroughly under-appreciated) point that sustainability is an

elusive concept with respect to extractive resources. This is

because rates of extraction unavoidably are based on known

reserves and prices of substitutes. However, an increase in the

price of a mineral resource induces new exploration which, at

least historically, leads to identification of additional reserves.

Moreover, an increase in the price of a mineral resource

simultaneously creates incentive for current users to economize

on the use of the resource and/or to seek out lower-priced

alternatives. Either way, this alters the optimal time-pattern of

extraction. Hannesson further makes a distinction between the

consumption (or extraction) of a nonrenewable resource and

the wealth derived from extraction of a nonrenewable resource.

Even though there may be a finite amount of the physical

resource, the transitory wealth generated from extraction can be

converted into a perpetual stream of income through invest-

ment.

In Chapter 2, Hannesson has a discussion of what mineral

rents are and identifies different types of mineral rents. This is

followed in Chapter 3 by his analysis of how much a country

can consume out of its current (or transitory) mineral revenues

without impoverishing itself in the long run. In Chapters 4–7,

Hannesson provides relevant institutional information about

and discusses the experiences of four investment funds based on

wealth generated from extractive industries: the Nauru phos-

phate funds, the Alaska Permanent Fund, the Alberta Heritage

Fund, and the Norwegian Petroleum Fund.

Finally, in Chapter 8, Hannesson draws from the experiences

of the three latter funds (all based on petroleum revenues) to

identify factors associated with success/failure of such funds. In

my opinion, the most thought-provoking and insightful

contributions are stuffed in this concise, to-the-point chapter.

For example, he notes that formal rules that stipulate a

minimum percentage of revenues be deposited into a Fund

almost certainly are superior to reliance upon the discretionary

whims of a legislative body that likely is more responsive to a

narrow collection of special interests than to the interests of a

truly sizable portion of the citizenry. He argues (p. 92), that ‘to

facilitate preservation of mineral wealth it is important to

design rules and institutions which enhance the public interest

in wealth conservation and strengthen the incentives parlia-

mentarians have for making decisions conducive to that

purpose’. If each person’s stake in the stream of wealth

generated by the fund is sufficiently small, there is little

incentive for the recipients to protect the fund from political

chicanery. This means that the pool of beneficiaries of the

fund’s returns cannot be too large. The political boundaries of

Alaska, Alberta and Norway were determined before the

discovery of their valuable petroleum, an historical accident

that fortuitously achieves the desired small pool of recipients

result.

BOOK REVIEWS 47

Copyright # 2002 John Wiley & Sons, Ltd. Manage. Decis. Econ. 23: 45–49 (2002)