Things looked as if they might fall into place again for Chipotle Mexican Grill (NYSE:CMG) after the Centers for Disease Control & Prevention declared the fast-casual dining chain's long national nightmare was likely over.
The health agency said the rash of foodborne illness cases from E. coli contamination that first began last October and sickened more than 50 people in 11 states appeared to be over. It was closing out its investigation even though it hadn't determined a cause. As the FDA noted, "No food item has been identified as causing the outbreak, and by the same token, no food has been ruled out as a cause."
Not so spicy results
The crisis became a crippling event for the chain. Chipotle just reported revenues for the three-month period ending in December dropped 7% as same store sales plunged 15% from the year-ago period.
But if investors were expecting the restaurant chain to have finally reached an inflection point, Chipotle dashed those hopes by also revealing that a criminal probe into a separate foodborne illness case in California had suddenly gone national, and federal investigators were looking into the corporate response to such incidents going back three years.
Chipotle said it was served with a second subpoena on Jan. 28, demanding the restaurant produce records relating to food safety matters going all the way back to the beginning of 2013. While noting it was fully cooperating with the request, it also ominously pointed out that what had at one time been an investigation focused solely on a single norovirus outbreak that occurred at a Simi Valley restaurant last August, reportedly sickening 234 people, had now blown up into a full-scale, companywide probe.
What did they know, when did they know it?
Federal criminal investigations into foodborne illnesses are not common, but they do happen -- though most companies are not penalized. ConAgra (NYSE:CAG) was identified as the source of a 2002 E. coli outbreak from its meat that sickened 28 but suffered no consequences. Others, such as Sara Lee, have faced fines. The food manufacturer paid $4.4 million after pleading guilty to charges of selling tainted meat in a listeria outbreak that killed 15 people. Juice company Odwalla was fined $1.5 million for selling unpasteurized apple juice that killed an infant, and ConAgra was finally held to account and paid over $11 million for its 2007 peanut butter salmonella outbreak that sickened hundreds.
And sometimes executives go to jail.
The Justice Department is investigating Blue Bell Creameries over an outbreak of listeria that resulted in three deaths. The FDA has determined the company knew about the listeria as early as 2013, meaning criminal investigators will want to know just how much Blue Bell executives knew and when. If the answer turns out to be like the one for executives at Peanut Corp. of America, it could mean a lengthy prison sentence.
The peanut processor's CEO was found to have ordered the company to "just ship 'em," referring to nuts he knew were contaminated with salmonella that ended up killing nine people. He is serving a 28-year jail term, while another executive is behind bars for 20 years.
Under the gun
The risk for Chipotle executives is if investigators find a smoking gun in the documents they've subpoenaed indicating executives knew about or covered up information that caused people to become ill.
California county health officials expressed surprise that federal investigators were looking into the matter after Chipotle announced the original subpoena but also pointed out that the company only notified them of the norovirus outbreak after receiving word that customers were becoming ill. By then, the fast-casual chain had already closed and sanitized the affected restaurant.
Chipotle Mexican Grill is planning to launch a major public relations campaign next week to begin wooing back customers who fled after the food contamination outbreaks, but an ever-expanding criminal probe into the company's handling of the cases makes it hard to serve up a mea culpa when we still don't know if there is blame to be assigned.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.