UMB Bank intends to completely shuck the Colemans after Express Grain ripped off the bank. The bank sued Dr. Michael Coleman for $38 million in U.S. District Court in Missouri on August 24. Dr. Coleman owned 99% of Express Grain when the company collapsed last year.
State and federal grand juries recently indicted John Coleman for wire fraud, making fraudulent statements to defraud the government, and false pretenses.The state indictment accused John Coleman of stealing over $50 million from Mississippi farmers.
UMB issued a $40 million revolving loan and a $35 million term loan to Express Grain. The loan terms were modified several times. The loan agreement required Express Grain to provide audited financial statements by May 1, 2021. The loan covenants also decreed Express Grain couldn't assume more than $50,000 of additional debt.
Unfortunately for UMB, Express Grain substantially overstated the amount of assets it held. Express Grain needed cash but the amount of money it could borrow against the line of credit depended on the amount of assets. The complaint states:
Thus, Borrowers made material misrepresentations regarding the receipted commodities sold to the Repo Lenders by an amount exceeding $42,000,000.
55. By underreporting the receipted commodities sold, Borrowers overstated the amount of Borrower-owned commodities and eligible inventory. In other words, Borrowers represented that the commodities sold to the Repo Lenders were still owned by Borrowers, when in fact, they were not. As a result of the misstated receipted commodities, the company owned inventory reported by Borrowers in borrowing base certificates, compliance certificates, and financial statements are also false.56. Under Section 11.2 of the Loan Agreement, it is an Event of Default for Borrowers or Guarantors to make any false, incomplete, inaccurate, or misleading statement or representation to Plaintiffs.
John Coleman's federal indictment dovetails the UMB complaint:
21. On September 22, 2021, UMB Bank requested that JOHN R. COLEMAN provide a ""warehouse receipt report"" showing the amount of the grain physically held by Express Grain that had been pledged as collateral to UMB Bank as well as amounts that had been pledged or sold to third parties other than UMB Bank.
22. On September 22, 2021, JOHN R. COLEMAN responded to UMB Bank and grossly underreported the amount of grain that had been pledged or sold to entities other than UMB Bank. For example, JOHN R. COLEMAN claimed that 100,000 bushels had been sold to FC Stone Merchant Services, LLC in a purchase and sale agreement, when in reality, 2,780,000 bushels had been sold to FC Stone Merchant Services, LLC, a difference of over $30 Million. This same grain that had been sold to FC Stone Merchant Services, LLC was also pledged as collateral" "to UMB Bank; furthermore, the Farmer Victims that had harvested this grain had not been paid by Express Grain for that same grain..
23. On September 23, 2021, JOHN R. COLEMAN admitted via email to UMB Bank that he had grossly underreported the warehouse receipt report and that he had sold or pledged as collateral millions of bushels of grain and not reported those bushels to UMB Bank..
UMB recovered half of the $71 million debt in bankruptcy proceedings.
The complaint charges Dr. Coleman with breach of guaranty since he did not repay the loans after a demand was issued in September 2021. Dr. Coleman owes UMB principal of $35.5 million and interest of $3 million.
Synopsis
The Horne audits show a company that is in serious trouble as it tried to stave off impending collapse. The losses substantially increased every year as debt soared. Meanwhile, the MDAC audits painted a rather different picture. Express Grain was losing some money but was in no danger of failure.
Horne warned at the beginning of each and every audit the company face the serious prospect of failure. Horne stated on page 4 of each Audit:
The accompanying combined financial statements for the year ended June 30, 2020, have been prepared assuming that the Companies will continue as a going concern. As discussed in Note 1 to the combined financial statements, the Companies have accumulated losses of approximately $21,600,000 since its inception and their total current liabilities exceed total current assets at June 30, 2020. The biodiesel facility was placed into service during fiscal 2019 but has not operated at full capacity. The Companies have a line-of-credit with a balance at June 30, 2020 of approximately $24.6 million that matures within the next twelve months. These conditions raise substantial doubt about the Companies' ability to continue as a going concern.Management's plans concerning these matters are also discussed in Note 1 to the combined financial statements. The combined financial statements do not include any adjustments that might result from the outcome this uncertainty. Our opinion is not modified with respect to this matter.Every Horne audit continued this dire warning although the amount of the losses changed. The audits show Express Grain's implosion accelerated over the last four years. The annual losses are stated below.
December 2020 (Semi-annual audit): $19.4 million
2020 audit: $21.6 million
2019 audit: $14 million
2018 audit: $9 million
2017 audit: $2.4 million
None of these warnings appeared in the audits submitted to the state for licensure requirements. They were simply omitted. Out of sight, out of mind. It is not hard to see why they disappeared as they would have stood out as a giant red flag to anyone who even looked at the first two pages of the audits. With no such red flag warnings present, MDAC renewed the license, unaware the company was collapsing. Thus Express Grain was illegally operating while it took in the crops from unsuspecting farmers. Earlier post on phony audits.
The federal indictment charges Coleman schemed to "defraud Farmer Victims, UMB Bank," and MDAC. The fraud began with submitting the phony audits to MDAC. However, Coleman didn't submit the phony audits to only MDAC. The CEO also submitted them to UMB Bank in 2020 and 2021. The indictment spells out what happened as the company defrauded farmers and bankers alike:
21. On September 22, 2021, UMB Bank requested that JOHN R. COLEMAN provide a ""warehouse receipt report"" showing the amount of the grain physically held by Express Grain that had been pledged as collateral to UMB Bank as well as amounts that had been pledged or sold to third parties other than UMB Bank.22. On September 22, 2021, JOHN R. COLEMAN responded to UMB Bank and grossly underreported the amount of grain that had been pledged or sold to entities other than UMB Bank. For example, JOHN R. COLEMAN claimed that 100,000 bushels had been sold to FC Stone Merchant Services, LLC in a purchase and sale agreement, when in reality, 2,780,000 bushels had been sold to FC Stone Merchant Services, LLC, a difference of over $30 Million. This same grain that had been sold to FC Stone Merchant Services, LLC was also pledged as collateral" "to UMB Bank; furthermore, the Farmer Victims that had harvested this grain had not been paid by Express Grain for that same grain..23. On September 23, 2021, JOHN R. COLEMAN admitted via email to UMB Bank that he had grossly underreported the warehouse receipt report and that he had sold or pledged as collateral millions of bushels of grain and not reported those bushels to UMB Bank..24. On September 24, 2021, UMB Bank issued a Notice of Default to Express Grain and JOHN R. COLEMAN, demanding immediate payment of approximately $70,703,260.20. Throughout the harvest season of 2021, Farmer Victims delivered grain to Express Grain but did not receive payment for the grain. As a result, in September 2021, Express Grain had not paid the Farmer Victims for much of the grain physically stored at Express Grain. JOHN R. COLEMAN sold large amounts of grain to third parties such as FC Stone Merchant Services, LLC and never actually paid the Farmer Victims for the grain they had delivered to Express Grain.
The indictment claims the company owed $31 million in "grain payable"i.e. the company held grain for farmers but had not paid for the grain. The company pledged the same grain to multiple creditors (Think The Producers) while selling the grain without the farmer's knowledge. Many farmers obtained crop loans before the harvest. Short of cash and crop, the farmers and their lenders suffered severe losses.
While the company collapsed, Coleman told a different story to customers:
We are steadily crushing beans, and will start shipping trains of beans so we have ample space for everyone. I also wanted to let you know that we are in good shape financially. We have funding in place from multiple sources to make sure everyone gets paid on time. Stay safe out there and keep those combines rolling!
The statement serves as the basis for one of the counts of wire fraud as Coleman continued entice farmers to send their crops to his grain elevators.
UMB Bank sued Express Grain in late September 2021. Express Grain and its affiliated companies filed a chapter 11 petition for bankruptcy the next day. However, the fraud was uncovered after State Senate Agriculture Committee Chairman Charles Younger held a hearing about Express Grain on December 15, 2021. Ag Commish told the committee that Express Grain submitted its financial statements as required by law. Post on hearing.
The Commissioner said something that didn't sit well with Horne because Horne representatives visited MDAC the next morning when the agency opened its doors and provided Horne's copies of the audits to the Commissioner's staff. They compared the audits and soon realized the audits submitted to the agency were bogus. Commissioner Gipson investigated and revoked Express Grain's license.
The case is assigned to U.S. District Judge Michael Mills. Attorney John Collette represents Coleman. The maximum penalties for wire fraud are 30 years in prison and a $1 million fine.
Coleman faces the double whammy of state and federal prosecutions for the alleged fraud. JJ reported yesterday:
A Leflore County grand jury indicted former Express Grain President John Coleman for five counts of making fraudulent statements and one count of fraud on November 29. Express Grain operated grain elevators in Leflore County. The company collapsed last year and filed bankruptcy. Bankruptcy claims were approximately $200 million as Express Grain looted farmers and bankers alike.The first four counts of making fraudulent statements involve Coleman submitting phony audits to the Mississippi Department of Agriculture and Commerce to obtain a grain elevator license for Express Grain in 2018, 2019, 2020, and 2021. The phony audits hid over $20 million in losses over five years. Express Grain also used the bogus balance sheets to obtain $750,000 from the Mississippi Development Authority in 2020. Post on state indictments.
Coleman pleaded not guilty at both arraignments.
9 comments:
Pleaded not guilty. Who, if anyone, will he turn on in an attempt for a lesser sentence. Of course he is to be considered not guilty until conviction.
Where did the money go? He couldn't put that much up his nose.
Excellent reporting by KF.
Lost money in the commodity markets??
Attn 12:28 The commodity market would be a good guess. That is practically the only avenue he had for recovering embezzled money. Unfortunately (mostly for the farmers), this commodity scheme failed to replace and recover previously embezzled monies..
Seeems like I remember the biodiesel operation was delayed, not sure if it ever operated at design capacity. Aside from making loan payments on a large operating investment that might not have been operating then there is the opportunity to have the returns crushed by an upside down crush spread.
The biodiesel operation increased the possibilities to lose big on forward pricing of inputs and forward contracting of biodiesel sales.
Was Express Grain using QuickBooks?
If QuickBooks were good enough for FTX they might have been gettin it done for the Express Grain baws.
@4:38 They didn't use Quickbooks. They used a software called CookingTheBooks.
John and Michael are such con artists.
@4:38 - Express Grain was indeed using Quickbooks.
EG also used a number of other software packages, including some custom software written by John Coleman. I believe that he called it "GrainSoft."
Most of their software leases or licenses are listed on their Form 206G, Executory Contracts and Unexpired Leases.
John Pittman Hey
Is "GrainSteal" on that list?
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