12 months’ home detention for “free range” egg fraud

Auckland man Xue (Frank) Chen has been sentenced to 12 months’ home detention for the sale of caged eggs which were falsely labelled as “free range”, following a Commerce Commission investigation. He had earlier pleaded guilty to one representative charge of obtaining by deception under the Crimes Act 1961.

Mr Chen sold eggs through his company Black Water Trading Limited, trading as Gold Chick, from a farm in Henderson, West Auckland.

Gold Chick is a producer and supplier of free range eggs. However, caged eggs were also purchased from other suppliers, packaged into egg cartons labelled as “free range”, and then sold to wholesale suppliers, retailers and directly to the public at the higher prices that free range eggs attract. The conduct occurred between September 2015 and October 2017.

In sentencing in the Auckland District Court on 21 July, Judge Field said “it’s an easy matter to package eggs in a misleading way and there must be corresponding deterrence”.

He said Mr Chen’s “motivation seems to be entirely financial” and that the offending could “discredit an entire industry in the minds of consumers when they can’t be sure what they are buying is in fact the product.”

For the Commission, Chair Anna Rawlings said “many consumers are willing to pay more for free range eggs but it is not possible to visually distinguish between free range and caged eggs. Therefore wholesalers, retailers and consumers must trust claims by suppliers that eggs are genuinely free range. Mr Chen abused that trust for financial gain.”

During the charge period Mr Chen’s company purchased more than three million caged eggs.

“We estimate the fraudulent profit from selling caged eggs as free range was approximately $320,000, based on the difference between what Mr Chen’s company spent on purchasing caged eggs and the revenue gained from selling them as free range,” said Ms Rawlings.

The Commission opened its investigation into Mr Chen’s business in June 2017 following a complaint from a former Gold Chick employee. Surveillance showed regular purchases of eggs from a supplier known to solely produce caged eggs. A search warrant was executed in December 2017 and the evidence recovered included invoices from the caged eggs supplier and burnt remains of its packaging labels.

Mr Chen has undertaken to make a $50,000 donation to the SPCA.

Background

If you can’t back it up, don’t say it

Mr Chen was convicted under the Crimes Act but it is an offence under the Fair Trading Act to make false, misleading or unsubstantiated representations.

The Commission has resources to assist businesses in making sure their claims are accurate, including a video called ‘If you can’t back it up, don’t say it’.

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