DOJ Drops Abbott Formula Criminal Probe, Civil Penalties End Case

The Justice Department closed a criminal investigation into Abbott Laboratories' Sturgis infant formula plant without filing charges, the Wall Street Journal reported, citing people familiar with the matter. Federal prosecutors instead opted for civil penalties, ending a probe that had gathered substantial evidence of potential wrongdoing at the facility that triggered a nationwide formula shortage in 2022.

The decision removes a significant legal overhang for Abbott's nutrition business. The Sturgis plant, which produces Similac, had been the subject of a criminal inquiry following its shutdown in February 2022 after reports of bacterial contamination in infants. The closure caused months of supply disruptions and drew scrutiny from regulators and lawmakers.

Abbott has already paid civil settlements related to the plant's operations. The company agreed to a $100 million settlement with the Securities and Exchange Commission in 2024 over disclosure issues tied to the plant's closure, according to a separate WSJ report. The DOJ's decision to drop the criminal case means Abbott avoids potential fines or operational restrictions that could have followed a conviction.

The WSJ report said federal prosecutors had gathered evidence including internal company communications and employee complaints about quality-control lapses at the Sturgis plant. The decision to pursue civil penalties rather than criminal charges came after months of negotiations between Abbott and the DOJ, the people said.

For Abbott, the resolution removes a key risk factor that had weighed on the stock since the plant closure. Shares of Abbott have recovered from their 2022 lows but remain below pre-crisis highs. The company's nutrition segment, which includes infant formula, posted sales of about $8.5 billion in 2024, with Sturgis production having resumed in mid-2023.

Investors had been monitoring the criminal probe as a potential catalyst for further volatility. Now that the case is closed, the focus shifts to the civil penalties and any lingering reputational damage. Abbott's Alpha Score sits at 43 out of 100, a mixed rating that reflects the company's solid fundamentals but also the regulatory and legal overhang that still exists from the formula crisis.

The DOJ declined to comment to the WSJ. Abbott said in a statement that it cooperated fully with the investigation and is pleased to have the matter resolved. The company reiterated its commitment to safety and quality at its manufacturing facilities.

While the criminal case is over, Abbott still faces civil lawsuits from families who allege their infants were sickened by formula from the Sturgis plant. Those cases are proceeding in federal court, and the company has not yet resolved them. The civil penalties from the DOJ are separate from those private lawsuits.

Traders watching the stock will likely focus on the company's next earnings report, due in April, for any update on legal costs or formula sales trends. The plant's return to full production has been gradual, and supply dynamics in the infant formula market remain a factor for the broader industry.