Renato Zampa, head of the Cospalat dairy consortium in Udine in northeastern Italy, is alleged to have sold milk he knew was tainted with aflatoxins, the Italian news service ANSA reported.
Aflatoxins are known to cause liver cancer and stunt children's growth.
Investigators said Zampa colluded with a laboratory to dilute milk containing the toxins with normal untainted milk. Authorities also allege the consortium allowed unauthorized dairies to provide milk for cheese that was illicitly made but certified as being a variety of quality cheese.
All the defendants are charged with conspiracy to commit commercial fraud, adulteration of foodstuffs and commercialization of foodstuffs dangerous to health.
A sixth person has been placed on restricted movement and a seventh person is at large.
Some 24 members of the 100-member consortium are being questioned.