How a trusted Subway co-op CEO allegedly hid a $200M kickback plot in plain sight

When word emerged last week that Janet Risi Field was indicted on federal bribery charges in connection with her job as CEO of the Independent Purchasing Cooperative (IPC), Subway’s nonprofit supply chain co-op, operators expressed disbelief.

“People are shocked,” one franchisee said. “She seemed like a very honest, straightforward person.”

The indictment, in short, accuses Risi and her brother of steering some $80 million in fees and kickbacks to herself and others using a system of brokers and shell companies, often disguising payments as fees typical in supply chain contracts. But the total cost of the alleged scheme, according to legal filings, topped $200 million.

Alleged kickback scheme

Risi led the IPC for a quarter century, and the plan allegedly took place for most of that period. It wasn’t discovered until at least a year after Risi left the nonprofit organization with a $6 million severance package, though there were at least two times in which the plot was nearly uncovered.

Risi and her brother, Steven Louis Risi, were the only people mentioned in the indictment, and no vendors or brokers were implicated in any criminal charges. Nor were any other IPC employees.

But those charges were filed a year after the IPC itself sued its former CEO and several companies and individuals over the apparent plot, which cost Subway franchisees millions of dollars in higher charges for almost everything they buy, from deli meats to toilet paper.

It also went against what the co-op was designed to do: Keep those prices lower.

Attorneys for Risi and others mentioned in the IPC lawsuit did not respond or otherwise didn’t comment for this piece, unless otherwise noted. The co-op’s lawsuit, meanwhile, is awaiting an order on several motions to dismiss.

Co-op operations

The IPC is a nonprofit cooperative responsible for contracting with vendors to provide food, paper, and equipment. The organization collects fees to cover its costs, and anything left over is distributed back to franchisees. Such co-ops are deliberately designed to keep costs low and improve profitability.

Risi had worked with several companies, including Ralston Purina, Jack in the Box, Burger King, and the company that makes Hot Pockets, before she helped found the IPC in 1996. That’s also when the scheme started, according to the indictment.

The plan worked like this: To keep contracts with IPC, vendors including baked goods and deli meats suppliers provided kickbacks to brokerage companies.

Those brokers, according to court documents, would steer funds to Risi and others through a series of shell companies. The fees were disguised as brokerage fees, and the shell companies hid the payments to Risi, according to court documents.

To vendors, transactions through brokers are common. Suppliers often work through such companies to secure business from restaurant chains. A company like Subway, one of the 10 largest chains in the U.S., would be a particularly lucrative client and would be well worth the brokerage fee to secure such business.

Kickbacks, likewise, are common. Many vendors will pay up-front rebates to secure business, and many franchisors use these funds to profit from their supply chain.

Vendor contracts

In 1999, according to the IPC’s lawsuit, Daniel Spinazzola, the CEO of a company called Diversified Restaurant Systems, or DRS, convinced an unnamed vendor to pay a fee as an “insurance policy” to secure the co-op’s business. DRS was IPC’s produce supplier and had a longtime relationship with Risi, according to court documents.

The vendor provided baked goods to Subway restaurants, and paid DRS $5.7 million from 2010 through 2019, in addition to an unnamed amount during the decade before then.

Another vendor, West Liberty Foods (WLF), was Subway’s largest supplier of protein, including turkey, bacon, ham, chicken, sausage, meatballs, and roast beef. The IPC said that Risi awarded the company contracts worth billions in revenue for the vendor.

Risi allegedly approached WLF’s CEO in 2001 and told him that he was required to pay kickbacks disguised as brokerage fees to DRS. Between 2004 and 2022, according to the lawsuit, WLF paid DRS and another broker, Technical Food Solutions, $172 million.

To offset those costs, according to the lawsuit, WLF inflated its charges for proteins it supplied to Subway operators. Those prices, the lawsuit says, were "significantly higher than those of competing suppliers.”

Two other vendors, a distribution company called Lineage and a bakery vendor called Craftmark, allegedly paid kickbacks through DRS. Another broker, Southwest Re-Distribution Company, solicited kickbacks from other vendors, including companies like Ecolab and Georgia Pacific.

According to the indictment, Risi and her family created shell companies to collect payments from DRS and the other brokers. Between 2000 and 2021, the brokers steered some $60 million to those shell companies.

Risi, according to the indictment, used funds to furnish and remodel her homes in North Carolina and Miami.

The indictment also says that Risi had a secret agreement to create a “slush fund,” with an unnamed advisory firm handling the funds to conceal them from the IPC and from Subway. That fund was used to buy $400,000 in jewelry as well as membership to private clubs. Funds were paid to a Risi family personal assistant, her housekeeper and a handyman. And $1.8 million was paid to a Florida company and funneled to Risi’s brother Steven, the indictment says.

Funds were later allegedly used to pay $3.4 million worth of Risi’s credit-card expenses, according to the indictment. Overall, according to the indictment, there were some $25 million in slush fund payments to Risi and others.

The scheme was almost uncovered twice, according to the indictment and the lawsuit.

In 2011, according to the indictment, a former IPC contractor filed a lawsuit alleging Risi had an inappropriate relationship with one or more vendors. That contractor threatened to give franchisees copies of the complaint at an upcoming convention. Risi asked an advisory firm, a vendor and another executive to pay that contractor $8 million to go away.

In 2019, Ed Garrett, former CEO of WLF, forwarded a business update presentation to former IPC executive Dennis Clabby. The presentation showed that WLF paid between $10.4 million and $12.7 million each year in commissions to DRS from 2011 through 2018, according to the lawsuit.

DRS was only authorized to act on IPC’s behalf on produce supplies, not deli meats, according to the lawsuit.

Clabby then asked several vendors if they were making payments to DRS and ultimately confronted Risi but did not report the payments to the IPC board, according to the lawsuit. Clabby was not mentioned in the indictment, only the lawsuit. When we asked an attorney for comment on the IPC's allegations, he called our question “a completely slanderous and fabricated statement” and would not provide further comment.

Risi ultimately left the IPC in 2021, receiving a $6 million severance. That October, according to the lawsuit, she agreed to amendments to the bakery contract with Craftmark that included minimum volume requirements that “greatly exceeded the demand necessary” to supply Subway franchisees. The result: The IPC ended up paying larger penalties to the vendor.

In January of 2022, according to the lawsuit, the IPC hired Kirsten Michulka as its new CEO. Shortly thereafter, she began asking questions. Clabby disclosed the DRS scheme. He then told Garrett, the WLF CEO, to stop paying fees to the broker, the lawsuit says. Once WLF stopped paying those fees, it reduced its prices by $9 million per year.