This article originally appeared on The Taxpayers Channel website.
On January 24, UMB Bank filed new papers in the personal bankruptcy case of John Coleman, the president of Express Grain, which is also in bankruptcy.
In these new papers, UMB Bank alleges that Coleman filed numerous falsified reports to UMB Bank indicating repeatedly that EG owned more beans than it actually did, counting beans sold to others as EG's property, for purposes of obtained credit from UMB Bank that it was not entitled to under their loan agreement.
UMB Bank also discloses, for the first time, that the audit report provided to UMB Bank by John Coleman and Express Grain differed substantially from what Horne LLP, the company's auditors, had prepared and provided to Express Grain.
This new filing by UMB Bank is called an "adversary proceeding" because UMB Bank is seeking to have the bankruptcy court refuse to discharge the $70 million debt that Coleman and Express Grain owe the bank, based upon alleged fraud by Mr. Coleman.
Normally, a personal bankruptcy case when concluded, leaves the individual free and clear of his remaining debts, because they are "discharged" "by the court's final order. This leaves his creditors at least partially unpaid.
However, in certain cases, the creditors can file an "adversary procedure" to carve out the debt owed to them by the debtor, so that the bankruptcy does not provide the debtor any relief, but rather, he is left still owing the debt, which the creditor can then pursue to collection.
UMB Bank points out that both John Coleman and Dr. Michael Coleman signed personal "guaranty agreements" in which they promised to pay back UMB Bank for any money that EG failed to repay. In other words, they personally backed up the corporate loans made by UMB Bank to EG.
Under these agreements, UMB Bank can go after both Colemans personally if EG ends up failing to pay back in full the $70 million that it owes UMB Bank.
UMB Bank explains the importance of accurate inventory reports here:
... the amount that Borrowers [i.e., Express Grain] could borrow under the Revolving Loan was determined in part by the amount of Borrowers' eligible inventory under the terms of the Loan Agreement. To be included within eligible inventory for purposes of the Borrowing Base, the inventory must be owned by a Borrower free and clear of any assignment, claim, or lien except a first-priority lien in favor of UMB....
But UMB Bank claims that John Coleman falsely reported inflated figures of EG-owned grain in order to borrow more money:
Debtor [John Coleman], as an officer of Borrowers, materially misrepresented the amount of eligible inventory on Borrowers' Borrowing Base Certificates and supporting documentation. Debtor, as an officer of Borrowers, reported that as of June 30, 2020, EGT was holding 2,080,000 bushels of soybeans subject to warehouse receipts not held by UMB (the "NonUMB Warehouse Receipts"). This statement was false.
UMB later learned that the actual amount of Non-UMB Warehouse Receipts outstanding as of June 30, 2020 was 5,680,000 bushels of soybeans.
Thus, in this instance, Mr. Coleman assured the bank that EG held 3,600,000 more bushels of grain than it actually owned.
UMB Bank then walks through the next 12 months, accusing Coleman and EG of vastly inflating the amount of grain actually owned by EG each and every month.
As previously reported by The Taxpayers Channel, UMB Bank says it found out about this manipulation and false reporting on September 22, 2021, when a "corporate representative" informed them that the grain numbers were inaccurate. See our reporting here: UMB Bank: insider contacted us about suspicious Express Grain filings
UMB Bank now states: "This was the first time UMB knew of the Debtor's misrepresentations."
UMB Bank then explains:
As a result of Debtor's [John Coleman's] misrepresentations about the amount of Non-UMB Warehouse Receipts, Debtor overstated the amount of the Borrower-owned commodities and eligible inventory. In other words, Debtor falsely represented to UMB that the commodities it sold and were subject to Non-UMB Warehouse Receipts were still owned by Borrowers. The company owned inventory reported by Debtor, as an officer of Borrowers [Express Grain], in the borrowing base certificates was also therefore misstated, and the Borrowers' availability under the Revolving Loan was also therefore overstated on the Borrowing Base certificates.
Further, the company-owned inventory reported by Debtor, as an officer of Borrowers, in Borrowers' compliance certificates and financial statements were also misstated and materially false.
The Mississippi Department of Agriculture and Commerce have commenced an investigation into possible fraud by EG regarding the audit reports submitted in support of its warehouse license renewals.
After MDAC had the audit reports unsealed on January 19, 2022, UMB Bank says that it then discovered that the audit report John Coleman had submitted to the Bank was different from the original audit prepared by EG's auditing firm, Horne LLP, in much the same manner as MDAC had discovered regarding the audit report submitted by Coleman and EG to the Department:
On January 19, 2022, the Department [MDAC] filed the Auditor's Copy [of the EG Audit Report] with the Court. Upon review and comparison of the Auditor's Copy to the copy of the financial statements for the same period that Debtor provided to UMB in February 2021 ("UMB's Copy"), UMB notes several material differences. Among other things, the differences include:
a. UMB's Copy does not contain the "Emphasis of Matters Regarding Going Concern" that is on page 2 of Auditor's Copy the Independent Auditor's Report;
b. The letterhead for Horne, LLP is different on the Auditor's Copy than on UMB's Copy;
c. The Auditor's Copy lists an operating loss of $20,988,306 for the year ended June 30, 2020, and UMB's Copy lists operating income of $763,576 for the year ended June 30, 2020;
d. The Auditor's Copy lists a net loss of $21,226.386 for the year ended June 30, 2020, and UMB's Copy lists a net loss of $1,318,354 for the year ended June 30, 2020;
e. The first paragraph under 'Plan of Operation' on the Notes to Combined Financial Statements in the Auditor's Copy does not match the first paragraph of "Plan of Operation" in UMB's Copy;
f. The inventory amount listed on the Auditor's Copy does not match the inventory amount on UMB's Copy; and
g. Note 4 on the Notes to Combined Financial Statements on the Auditor's Copy does not match Note 4 on UMB's Copy.
According to UMB Bank, EG and the Colemans owe the bank over $70 million.
UMB Bank accuses John Coleman of "actual fraud":
The Borrowers obtained money, property, services, or an extension, renewal, or refinancing of credit from UMB by Debtor employing false pretenses, false representations of material facts that Debtor knew to be false at the time the representations were made, and/or actual fraud other than by a statement representing the financial condition of Debtor including, without limitation, to making misrepresentations as to the nature, value, and amount of the grain owned by Borrowers.
Upon information and belief, the misrepresentations made by Debtor were made with the intention and purpose of deceiving UMB.
The Bank also accuses Coleman of making "Materially False Financial Statements" and "Willful & Malicious Injury."
The Bank concludes:
UMB prays for entry of a judgment finding that UMB's claims against Debtor [John Coleman] are excepted from any discharge received by Debtor in his bankruptcy pursuant to the provisions of 11 U.S.C. Section 523(a)(6) and for such other and further relief as the Court deems just and equitable.
No court date has been set for a hearing on UMB Bank's petition.
Kingfish note: The Express Grain fiasco has graduated from the failure of a company to a yuuuuuuuge case of $100+ million fraud. The case impacts hundreds of farmers and bankers in the Mississippi Delta. When all is said and done, the impact will probably be between $150 and $200 million. One can almost bet an investigation is spinning up somewhere. Stay tuned.
38 comments:
Where did all that $ go ?
Where are the Coleman’s now?
@12:20 they were losing money at the business. At the same time, they were personally spending money like it was growing on trees. High living. There is nothing like a delta big shot.
Sounds like if UMB got false documents they will be off the hook for that lawsuit the farmers are trying to file against them. Better go to the Coleman's houses and take some silverware if you want some money back. That being said if you looked at the financials and knew anything about accounting it wasn't too hard to figure out something fishy was going on. I don't even think the Cash flow stmt agreed to the balance sheet and I am sure the notes didn't tie back.
Are the Coleman’s stateside or did they flee before an Unlawful Flight to Avoid Prosecution was issued to a country with no US Extradition treaty? This is so sad for all of these struggling farm families. I watched many trucks backed up to unload at grain terminals many time waiting for hours to unload!
Is Grifting taught in MS schools? All manner of financial deceit seems an art form here, in and out of government, albeit sufficiently sloppy to be discovered and either admired or prosecuted.
In case you failed to study Grafting or Grifting in a MS school as apparently many must have done, here is a free entertaining narrative of O'Henry's anthology of about 14 stories from 1910, titled "The Gentle Grafter":
https://archive.org/details/gentlegrafter_lw_librivox/gentlegrafter_01_henry.mp3
Don Barrett can use these exact reports to ask what the bank did to make sure it’s money was as secured as it could be?
What internal rules were in place?
Did the bank follow those rules?
At the end you will find a willfully blind banker who decided not to follow the internal rules because it was a mess already.
Too bad so sad for UMB Bank!
If only UMB had known about all those checks that Express Grain supposedly bounced to all the farmers (was that a year before the SHTF?) perhaps they could have been a little more due diligency!
Like people have been saying at the business schools for decades:
If you owe the bank $100, that’s your problem; if you owe the bank $100 million, that’s the bank’s problem.
Also too bad so sad applies to Gipson and Company at MDAC & Company being fooled by fake paperwork both before and after after the checks bouced.
Bounce a lot of checks and claim there isn't a financial reason the checks bouced?
All righty then!
1:22- hell, what's new with that. The farmers in the delta have been doing that for decades; theory being that either this year will be good, but if not, next year will. And in the meantime, the government will bail us out for any one of the dozens of "emergencies" that occurred during the year (drought, flood, another drought, whatever).
The Coleman's were doing nothing different. Don't know about the farmers who foolishly left their grain in the hands of shysters, but some of those same farmers were taking their grain to distant elevators in the past so that their lenders wouldn't know about that part of their crop.
Does that mean UMB is about to sue Coleman and Express Grain?
"UMB Bank points out that both John Coleman and Dr. Michael Coleman signed personal 'guaranty agreements' in which they promised to pay back UMB Bank for any money that EG failed to repay."
It looks to me like the Colemans pushed the additional $30 million loan from UMB, in exchange for granting UMB a super-priority lien against all pre- and post-bankruptcy petition assets of Express Grain, in an effort to avoid personal liability on the original UMB loans.
If UMB is made, essentially, the only lienholder, with $100 million in loans against stated assets of $101, then UMB would get paid in full (or close to it). That would save the Colemans from being personally liable on the original $70 million loans. I wonder if the proposed $30 million loan also required personal guarantees? If not, I think that's kind of telling.
If only there had been some kind of warning...
What about those check that allegedly bounced in 2020?
Hard to imagine every one of those bad checks wasn't a felony.
How dochecks bounce? Careless book keeping? Cash flow timing issues? Cash flow problems?
Too bad UMB Bank didn't do a little checking to see what was really under the hood at Express Grain in 2020.
Too bad the farmers with bad checks did't complain to Andy Gipson at MDAC & Company in 2020. Andy might have showed up in his hat to kick the tires and check out the operation which was supposed to be producing biodiesel by the bargeload in 2020. I'm sure Andy knows what can cause a large business to bounce checks usually.
As bad as the allegedly faked paperwork was allegedly misrepresenting the situation how smart would you have to be to figure out there is a problem with either the business or the paperwork?
Whoops!
Just remembered the old saying
If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.
Andy's not a banker, but this Express Grain deal was the biggest Agribusiness win for the State of Mississippi since the Beef Plant fell through. He probably was a little deferential to all the chrome truck nutz set in Greenwood.
The fact that the bank was also defrauded by the submission of falsified audits is making trial barrister Barrett's attempt to cash in (for himself, and with a few coins apeiece for his clients) look more and more of a suit without basis. Maybe he could get his Texas BIL to come over and join in the effort so he would have a way to cozy up to the deal. Worked for him before, at least for a little while, until the feds came asking questions.
Ag Commissioner has a problem- lax oversight. Too busy promoting himself to tend to his official duties. Probably because he doesn’t have a clue of how the markets work!
Good luck finding assets that are truly worth $101 million.
I don’t know how much prison time the Colemans will do. But I can assure you that it will be far less than they deserve.
If only we could all be as smart and foresighted as the commenter at 4:23, while watching Sunday's game on the following Monday.
Rest assured, the bank was aware. They’re playing offense right now, making their case. They knew.
6:21 pm
Dons case might be better with the bank claiming they too were defrauded.
The bank is the one who sees the activity.
The bank has internal regulations in place and when activity becomes weird the bank has to go see what’s wrong.
And Don doesn’t need anyone to help him….he’s perfectly capable.
If we can't blame it all on Covid, let's pretend it's Andy Gibson's fault. Knuckleheads!
Lending 101....If you are requiring financial statement or inventory audits by a third party, then why are you letting the borrower be the intermediary for this documentation?
Lending 101....
Regulating 101.....If you are requiring financial statements or inventory audits by a third party, then why are you letting the regulated party be the intermediary for this documentation?
Business 102.....If you are doing business in a state where the majority of citizens and politicians think government regulators are the problem.....the would be fraudsters already know the regulators won't catch them... and thanks to deficient regulation when you get boned by fraud there won't be adequate bonding in place to make you whole.
"UMB Bank also discloses, for the first time, that the audit report provided to UMB Bank by John Coleman and Express Grain differed substantially from what Horne LLP, the company's auditors, had prepared and provided to Express Grain."
1] If I'm screening/vetting an employment candidate do I ask him to bring me, from 3 previous employers, notes on his performance and value to the company?
2] If the mortgage company is evaluating my suitability for a mortgage, do they ask me to provide a list of creditors, how timely I paid and the status of my credit?
3] Likewise, why in hell did banks and the big-hat commissioner allow the required audit reports to pass through the hands of the prospective business/borrower?
Humans have been trying to stop other humans from cheating them since the dawn of time. A battle that never ends. The one to blame is the cheater.
@7:29 you are correct. Let's put the blame where it lays. The blame is on the Colemans. They borrowed the money, they owe the money. They bought soybeans, they owe the farmer for the product they bought. And they falsified documents. And they misrepresented themselves many times. The blame is on the Colemans. The crooks are the one to blame.
This:
Rest assured, the bank was aware. They’re playing offense right now, making their case. They knew.
And this:
If you are requiring financial statements or inventory audits by a third party, then why are you letting the regulated party be the intermediary for this documentation?
The bank(UMB) is 100% culpable in this, or at least the loan officers involved. Doesn't the bank know when checks bounce?
If you think the Bank knowingly allowed Express to falsify its financial statements, putting the Bank at risk to lose $70 million, you are smoking some bad stuff.
9:45 : Not if the loan officer was getting a nice kickback.
The bank knew when they bounced the first check. I can assure you that the bank would never return a check from a $100,000,000.00 borrower without a hell of a lot of scrutiny. Small time banks make a living on overdraft fees.Large banks do not.
The bounced checks were probably drawn on a different bank than UMB. Probably had a local bank for their payroll and operating accounts.
I am thankful for the several commenters who have posted that the entire fault is at the feet of the Colemans. Man, I would never have reached that conclusion without assistance.
@4:27. Just trying to get everyone to realize it. Some still want to blame Andy Gibson or the bank.
I still do not understand the theory of what duty UMB Bank owed to the farmers that it breached. Why was the bank obligated to pull the rug, or do whatever it was supposed to do, to EG and not maximize its return on its collateral? I mean, imagine if you own shares in the bank. You would be pretty upset if the banks to not maximize its return under all legally permissible avenues, wouldn't you. Maybe I am missing something here. Does anyone have an answer on this?
Macy, Here are my broad-stroke thoughts:
As you know, duty and breach are elements of a cause of action for negligence. Violations of law, including regulations, and perhaps the bank's own policies and standard business practices, may constitute negligence per se, thus rendering moot the issue of duty and breach.
Also, it is my understanding that everyone, including a corporate entity, has a duty to conduct themselves as a reasonably prudent person under similar circumstances. Whether the bank did so will be heavily dependent on the facts revealed in discovery. I'm sure there will be additional legal research based on the banks responses to discovery. Remember, negligence only requires notice pleading.
Additionally, when an entity adopts internal policies and practices, that can create a duty to follow them. Whether the farmers have standing to claim breach of such duties is a mixed question of law and fact that I'm sure will be thoroughly researched and briefed in pre-trial proceedings.
I believe there are also causes of action that have been pled against the bank, other than negligence, which do not require proof of duty and breach.
I'm certainly not a lawyer, but if i had provided falsified documents to a bank to obtain funds, i am pretty certain my ass would be charged and arrested for fraud. What give here?
MS has adopted the economic loss rule. A party cannot recover purely economic loss based upon negligence.
8:00, Maybe I missed something, but I believe the economic loss rule only applies to products liability actions. Please correct me if I’m wrong. A citation would be much appreciated. Thanks in advance.
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