Thursday, January 6, 2022

Express Grain & UMB Try to Block Investigation

 UMB Bank and Express Grain are trying to stop Agriculture Commissioner Andy Gipson's investigation of the failed grain operator.  The Commissioner said Express Grain obtained its license to operate through fraud and asked the bankruptcy court's permission to investigate.  The grain elevator and its lender in turn asked the Court to block any investigation or revocation of the Express Grain license even if fraud took place.

Mississippi requires grain elevator operators to obtain an annual warehouse license. The grain elevators must pay a fee and submit audited financial statements. Horne LLP audited the company and submitted the audits to Express Grain.  Express Grain in turn submitted a different set of financial statements to the Department of Agriculture & Commerce.

Commissioner Gipson discovered the submission of the phony documents last month.  However, the bankruptcy court issued a stay against all proceedings against Express Grain.  The Commissioner asked the Court's permission to investigate the submission of the phony financial statements. He argued federal law provides a specific exception for government investigations and prosecutions in bankruptcy stays. Earlier post.

The Commissioner didn't stop with his fight to revoke the license but also asked the court to block a $30 million loan to the company from UMB Bank. Express Grain asked the Court on December 20, 2021 to approve a $30 million loan to the bankrupt company.  The company says it needs a loan so it can pay farmers when they deliver their crops to the grain elevator and continue operations and continue operations.  Farmers are now requiring immediate payment upon delivery of their crops.  If approved, UMB would move to the front of the creditor line in bankruptcy court. Express is in default to UMB for loans of $70 million.

The Commissioner said he intends to revoke the Express Grain license since the company submitted fraudulent financial statements. Without a license, the company will be out of business and thus there will be no need for a loan.

UMB said revocation does not protect the public:

MDAC’s  commencement  or  continuation  of  regulatory  and/or  judicial proceedings to suspend, cancel, or revoke the Grain Warehouse Licenses issued to Express Grain does not protect the public safety and welfare and thus should not be excepted from the automatic stay under section 362(b)(4).  MDAC makes no allegations in its pleadings that there is a risk to the public safety and welfare by the ongoing operation of the Debtors’ operations, which are being capably managed by the CRO and under the close supervision of the Bankruptcy Court....

 Likewise, in this instance, MDAC has asserted no health, welfare,  moral, or safety violations that would warrant the revocation of the Grain Warehouse Licenses. Rather, MDAC’s potential  investigation  and  subsequent  determination  regarding  the  Grain  Warehouse  Licenses centers on Express Grain’s failure to provide timely and accurate financial statements to MDAC under the Grain Warehouse Law. While the statute requiring a grain warehouse to provide MDAC with annual financial statements is regulatory in nature, it does not relate to matters of public safety and health. To the extent licensing does relate to matters of public safety and health, any risk to the public has been mitigated due to the Court’s supervision and the Court’s appointment of a Chief Restructuring Officer....

 The bank also argued the management that allegedly committed the fraud is no longer in control of the company.  

Express Grain joined the fight to block the Commissioner's investigation.  It said it has not

Debtor's counsel has not yet received from the Department what the Department contends it received from the Debtor, and therefore it is unable to admit the authenticity of the document mentioned in Paragraph 8 of the Motion. 

The company said revocation would throw employees out of work and prevent vendors from being paid (Sounds like a great argument for not busting a drug cartel, doesn't it?).  Creditors will be harmed as well as revenue will cease.  

A hearing on the Commissioner's motion was scheduled for today but it is postponed to January 25.  The motion on the approval for the UMB loan will be held after the Commissioner's hearing.  

Express Grain Posts

Express Grain prez won't talk.  

Express Grain shuck and jive continues.  

Commish moves to block Express Grain loan.  

Commissioner wants to revoke Express Grain license for fraud. 

Express Grain Update: Fraud! 

Senate Committee holds Express Grain hearing. 

This week on the podcast: Express Grain 

Shucking & jiving to bankruptcy. 

Express Grain Prez threatened. 

Express Grain collapse over $100 million. 

Lawyered up?  

Lawsuit: Express Grain shucked bank out of $71 million. 

Were Delta farmers shucked and jived? 

 

Kingfish note: There might be a few farmers and banks who disagree their safety and welfare was protected when Express Grain fraudulently obtained a license.  Isn't the purpose of an investigation to determine whether any wrongdoing took place.  How can MDAC "assert" any violations if it can't investigate? 

 Contents

P.1: Commissioners motion to stay proceedings so he can investigate

P.8: Motion to approve debtor in possession loan

P. 30: Commissioner's objection to motion for loan approval

P. 38: UMB objection to Commissioner's motions

P. 45: Express Grain to Commissioner's motions


 

 

Synopsis

 Express Grain Terminals opened in 2007 and is a major grain elevator in the Mississippi Delta. Dr. Michael Coleman and his son John Coleman own Express Grain Terminals although John's share is 1%.  Express Processing open in 2015 and Express Biodiesel opened in 2018. Express Grain owns the two companies.

Express Grain ran into some financial trouble a year ago. Several farmers complained to MDAC in December 2020 that checks for their harvest bounced. However, the company made good on the checks. However, the company owed over $70 million to UMB Bank. The company submitted phony financial statements to the state when it renewed its license in the spring of 2021. Word circulated among Delta farmers during the harvest season that the company was in trouble. 

Express Grain President John Coleman assured farmers everything was okay in a September 28 letter:


UMB Bank sued the company for fraud on the same day in Leflore County Chancery Court.  UMB had issued a $40 million revolving loan and a $35 million term loan to the defendants. The bank extended the loans several times. The bank allegedly caught the company submitting false financial statements. UMB declared Express Grain in default on loans of $71 million. The lawsuit sought repayment of the loans and asked the Chancellor to place the company into receivership. Earlier post. 

Express Grain filed a petition for Chapter 11 bankruptcy the next day. 

 The company reports total liabilities of $106 million in assets of $101 million. However, the company owes another $9 million to farmers. The secured claims are $70 million while unsecured claims are $36 million.  Total amount owed to farmers is $41 million.  The top twenty unsecured creditors report  claims of over $23 million. 

 The damage does not stop with farmers losing their crops. More than a few banks place liens on harvests when farmers borrowed against them. The bankruptcy means those banks could lose the collateral on those loans.

Some farmers have gone to court to get their harvests back. They accused the bank of keeping the broke borrower afloat just long enough to steal the harvests delivered to the grain elevator without paying for them Earlier post. 

 Commissioner Gipson said Express Grain submitted phony financial statements when it applied for the renewal of its license. He obtained copies of the audited financial statements for the last three years from the company's accountant, Horne LLP, and compared them to those filed with his agency. The Commissioner said the true audits show the company was suffering a $20 million loss while those filed with his office showed a thriving company. The auditors also stated in their notes that it was doubtful the company could continue "as a going concern." 

The Commissioner asked the Court's permission to investigate the company and made it clear he wants to revoke Express Grain's license.

17 comments:

Anonymous said...

Is then Horne complicit? Shouldn't Horne have direct filed with MDAC?

Anonymous said...

Attn 11:29 AM Which Jackson schools did you attend? Your writing and grammar are a little below par.

Anonymous said...

So, Coleman's attorney filed a motion to dismiss his own bankruptcy on his way into the creditor's meeting, refused to allow his client to answer questions, and cited his own motion as the basis for a continuance.

Now, Coleman's attorney asks the court to approve a deal whereby Express Grain would get another loan from UMB for $30 million, in return for allowing the bank to jump in front of all other secured creditors with a priority lien.

Did I get that right? If so, it's gotten pretty slimy, and will likely get worse.

Anonymous said...

It could be that keeping the business running while trying to attract investment capital might be in the best interest for all parties involved. I hear the company is making money right now because margins have turned up.

Anonymous said...

@11:29.

NO.

Horne did not preform the audit FOR the MDAC, their client was Express Grain.

What EG did with the audit - i.e. submit it to lenders, submit it to MDAC, submit it to stockholders, submit it to potential investors - is in the hands of EG.

Besides not knowing what school taught you English Comp, as 12:30 noted, did you proceed from there to the Don Barrett school of law where they taught you to try to find deep pockets to sue when the culprits' pockets are damn shallow.

Anonymous said...

All this is going to bringing federal heat to the issue. Keep stirring the pot and the water is only going to get hotter.

Anonymous said...

What a mess. Good job keeping up with this KF.

Cbalducc said...

Are the Colemans politically connected?

Anonymous said...

I see 2 scenarios:

Scenario 1 - Express Grain is broke, but didn't do anything fraudulent. So they can deal with banks, farmers, etc. through court. And maybe they get additional capital and reorganize and keep doing business and everybody eventually gets paid.

Scenario 2 - Express Grain committed some fraud. If they falsified any documents at all (I don't care if it's just one line on one document), then their license should be revoked. They shouldn't be operating. You can't give a license to a crook simply because you want "employees to stay employed" or "creditors to get paid". If they submitted phony documents to the Ag Commission, then the Ag Commission should absolutely yank their license. Anybody that thinks differently is an idiot.

Anonymous said...

It also looks to me like the Dept. of Ag. and Commerce has argued that Express Grain's licenses were void ab initio due to fraud in obtaining the licenses, meaning the licenses were never valid, so that UMB's warehouse receipts for 1.2 million bushels of soy beans are worthless, as the product of fraud and issued without valid licenses.

UMB and the Colemans, by and through counsel, have now cooked up a scheme to ratify the receipts and foreclose all of the farmers claims, in return for UMB loaning another $30 million and getting a first-priority lien against all pre- and post-bankruptcy petition assets. That would secure UMB's total loans of $100 millions against alleged total assets of $101 million. As long as no one else but UMB can get paid, the bank is made whole.

So, the bank will keep the company afloat, so long as everyone besides UMB is guaranteed to get screwed in the process.

The Ag. Department's position seems to be: let's first get a ruling on the validity of the licenses, then we'll know who owns what.

The Colemans continue to peddle their asses to whomever will pay.

If I have any of this wrong, someone please chime in and correct me.

-1:04

Anonymous said...

Andy is likely out of his league. He is playing politics by revoking their license, which will turn this bankruptcy from a Chapter 11 to a Chapter 7. The farmers will then be the ones that lose the most.

Anonymous said...

6:21, What happens to the farmers' claims if the licenses remain intact, allowing the bankruptcy to remain a Chapter 11, which requires the additional UMB loan to continue operations? Wouldn't the farmers then get zero while UMB gets the right to take it all?? (unless, of course, UMB is really motivated by good will to protect the Mississippi farmers, instead of covering its own $100 million liability)

Anonymous said...

Andy hired Ed Lawler.

Anyone know this guy?

The bankruptcy bar in MS is tiny…..who is this guy?

Anonymous said...

7:20, that depends on the BK judge and all the parties, which would also be affected by any criminal events that have occurred. Suffice it to say there is more for recovery if the operations remain viable versus becoming a corpse with a scrap value.

Anonymous said...

7:15 a.m. The second to last sentence of the article posted above states as follows:

"The Commissioner said the true audits show the company was suffering a $20 million loss while those filed with his office showed a thriving company. The auditors also stated in their notes that it was doubtful the company could continue 'as a going concern.'"

So tell me again how extinguishing the farmers claims to allow the business to continue will benefit the farmers.

Then, please explain how the Colemans' proposed deal with UMB for an additional loan appears to be anything other than another power play for UMB to recoup as much of its losses as possible, to the detriment of all other creditors.

Are you suggesting that the farmers should rely on the possibility of restitution from a criminal action?

-7:20 p.m.

Anonymous said...

7:20, this type of bankruptcy has no script due to the fraud component. If a viable entity can emerge with operational assets, there is a revenue stream for the judge to work with. I suspect the bioenergy side was the venture that sunk them, plus the owners were apparently incompetent and now are criminals.

Anonymous said...

3:46, My point was that the entity appears to have not been viable for some time. Doubling down on Express Grain to now become viable and profitable, especially considering that the Colemans still own it, is probably not the best way to protect the claims of any creditors except UMB.

If the bankruptcy court declines to place that bet, I doubt that the farmers "will then be the ones that lose the most," (Jan. 6 at 6:21 p.m.). The licenses are either void ab initio, or they are not, and I don't think making that argument is "playing politics."

If the license are invalid, at least the farmers will have a chance at clawing back some assets, which they will not if this new loan deal gets approved.

-7:20


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