Wednesday, December 7, 2022

Feds Indict Coleman in Express Grain Fraud

December 6 will always be remembered as a Date of Infamy for John Coleman.  FBI agents arrested John Coleman yesterday after a federal grand jury indicted the former Express Grain CEO for six counts of wire fraud in the company's collapse.  The arrest took place after the Attorney General also unsealed an indictment against him for fraud and making fraudulent statements yesterday.  


The state indictment accused him of stealing over $50 million from Mississippi farmers.  The company collapsed last year and filed bankruptcy.  Bankruptcy claims were approximately $200 million

Express Grain operated several grain elevators in the Mississippi Delta.  John Coleman served as CEO for the Greenwood-based company.   His father, Dr. Mark Coleman, owned 99% of the company. 
Unfortunately for everyone concerned, Express Grain was losing money and a great deal of it.  

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.  Unfortuantely, Express Grain in turn submitted a different set of financial statements to the MDAC (The real audits will be called the "Horne Audits" while the phony audits will be labeled the "MDAC audits" in this post.).  

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: 

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.

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.

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 and provided its 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. 

 

23 comments:

Anonymous said...

John Coleman pleaded not guilty it says. The arrogance reminds me of Rudy Warnock. The arrogance that says "I never do anything wrong". And Michael Coleman let his business partner and employee, John Coleman, rip him off and he has yet to file suit against him. He has actually given money to John and his family. So that says Michael was in on the fraud as well. These guys are such con-artists. I don't know about Michael, but I assure you that John has always been a crook.

Anonymous said...

So, why has only ONE Coleman been indicted and arrested when the evidence is damning for at least two Colemans?

Anonymous said...

Is the alleged criminal related to the Greenwood ophthalmologist of the same last name ?

Anonymous said...

Horne LLP is a respectable group. Don't they have a cause of action againt Colemans (and I do mean both of them because a 99% owner would have to be insane not to look at audits carefully)? The very association of their name with Express Grain or the Colemans is damaging.

Anonymous said...

Coleman is a piker compared with Lamar Adams.

Anonymous said...

Does the indictment have any reference to any inspections of the Express Grain grain warehouse operations by Commssioner Gipson's state grain warehouse regulators and inspectors?

Examination of the grain warehouse books and financial statements?

Inspection of the grain in the grain warehouse?

Inspection to verify if the books match what's in the bins?

Or were Commissioner Gipson's grain warehouse inspectors operating under the theory that crooks will self arrest?

Does Commissioner Gipson need a budget increase to do a better job regulating state regulated grain warehouses? Will the current budget suffice as now there's one less grain warehouse to regulate?

Are thetre even any grain warehouse regulators on the job?

He seems to talk about regulating grain warehouses somewhat less than he does Mississippi pumpkin festivals and cucumber cultivators.

Anonymous said...

Better get the straight jackets out so they don’t weasel out of this by hurting themselves!

Anonymous said...

"The maximum penalties for wire fraud are 30 years in prison and a $1 million fine." That should be the minimum sentence. People like this cause so much damage and injury to people. Needs to be breaking rocks all the way down to sand.

Anonymous said...

Did Horne scrub the audit report of the loses, or did Express Grain monkey with the audit?

John Pittman Hey said...

As of right now, there is zero evidence to suggest that Dr. Michael Coleman committed any crimes or knew what was going on.

What makes anybody assume that Dr. Coleman was provided with the undoctored audits to review?

@3:11 -- Horne LLP did report the losses in the audits for years going back. John Coleman is accused of doctoring the audits going back to the 2017 audit.

@11:39 -- plenty of families don't sue their own kids when they cheat them. Besides, the bankruptcy law bars Dr. Coleman from suing his son. Plus his son is judgment proof. And plenty of families support their grandchildren and their DIL no matter what their son did to cheat them.

@12:07 -- Horne can't sue EG or John Coleman by law, because they are protected from suit by the bankruptcy code. Plus they are judgment proof. There's no evidence in the public record that Dr. Coleman had anything to do with tampering with the Horne audits, so how can they sue him?

@1:04 -- if UMB Bank, seven NMTC lenders, and StoneX and Macquarie couldn't detect the grain fraud, how do you think Andy Gipson could? The bank actually had professionals inspecting the grain EVERY MONTH, and still nobody caught it.

John Pittman Hey

Anonymous said...

3:11 Express Grain monkeyed with the numbers after Horne completed the report and submitted the bogus ones to the state.

Anonymous said...

Attn 12:07 Of course Horne CPA has a course of action. But, they would be about $100 million dollars behind the first creditors. Would you be stupid enough to spend good money chasing that%? Where did you graduate from high school?

Anonymous said...

3:11 - Read the indictment.

Macy said...

@John Pittman Hey, thank you for your responses and your reporting on this.

Would you mind providing some more information on your last point in your post? If true, I'm wondering how John Coleman pulled that off.

Anonymous said...

JPH, you've done a great job of reporting on this scandal, with even-handed information coming from you while many folks that surround you (literally - geographically) wanted to hear different 'facts'.

And, good response here to the various comments that either haven't been following closely enough, or are just typical JJ commenters that don't little things like practicality and law get in the way of their snideness.

Anonymous said...

John Pittman Hey, you have done a tremendous job covering this story. Kudos to you.

My opinion:

1) Michael Coleman should have know what was going on. He own 99% of the business. How do you not know what is going on? You own the business!

2) Michael Coleman owns 99% of the business. The guy he hired to run it was known to not be competent to handle this type of responsibility, and was also known to be shady. Michael Coleman knew this because the guy was his son.

3) Michael Coleman has been unapologetic, combative, and has actually interfered with the people trying to properly resolve this.

4) Michael Coleman has actually aided and abetted his former business partner in trying to escape the charges and the repercussions of them. This includes giving him money and refusing to hold his former business partner accountable. After all of the fraud was exposed, Michael Coleman would not even fire the guy! What business owner gets rippped off by his employee and refuses to fire him?

Kingfish said...

So why even require an audit when what you advocate is the Commissioner conducting the audit. Yeah, that would go over well. Give the gumming access to all bank accounts and other financial assets to audit the books on all license applicants. I can just imagine how well that would go over, especially in this state.

Don Drane said...

"if UMB Bank, seven NMTC lenders, and StoneX and Macquarie couldn't detect the grain fraud, how do you think Andy Gipson could?"

And these are the same people claiming Brett Favre had some sort of duty to forensically investigate the legitimacy of a package deal approved by the Attorney General, The Governor, an Agency Head and a vetted recipient of Federal Grants.

Anonymous said...

If Michael Coleman ownes 99% of the business and UMB bank didn’t require him to sign a personal guaranty, then they shit the bed on that one.

John Pittman Hey said...

@8:38 -- yes indeed, UMB Bank did require Dr. Michael Coleman and John Coleman to sign personal guaranties to the bank.

Those documents were filed with the court, and published in the press months ago.

We're all just waiting to see whether UMB Bank will file suit against Dr. Coleman for the $35+ million the bank is still owed.

John Pittman Hey

John Pittman Hey said...

Macy @9:54 - you wonder how could the fraud be hidden from so many substantial institutions...

Remember, there are two sides to this fraud.

First, there is the forging of audits to fool various entities. The problem is that being a very closely held private company, there was no independent public access to the original audits from HORNE. Without original copies from Horne, how could anyone know the audits being passed around were fake?

Indeed, the only way it came to light was when HORNE auditors themselves heard statements by Andy Gipson made at the hearing held by Senator Chuck Younger's Senate Ag Committee (around Dec 16, 2021) that led them to infer that Gipson had been given falsified audits. They showed up at his office the next day with the ACTUAL copies, and a quick comparison unravelled the whole mess over the weekend. Next Monday, MDAC was in court filing a motion to investigate the fraud.

Once those ACTUAL audits were unsealed sometime in February, other people compared them to the copies they had received from EG -- UMB Bank and MS Development Authority -- and discovered they too had been defrauded.

The second aspect of the fraud is falsified records of grain inventory and grain sales.

Again, there was no public accountability, and as long as all the parties could be kept in the dark, nobody could put two and two together.

In hindsight, MDAC ought to have required the audits for the licenses to come DIRECTLY from HORNE. But apparently, the law as set up now makes that impossible. The legislature needs to fix that.

In hindsight, UMB Bank should have been checking eGRAIN warehouse receipts to see if they matched what EG was reporting as to who all had ownership of the grain. That is, assuming that UMB Bank was permitted to access eGRAIN in that manner.

In the business world, it's sometimes difficult to catch businesses lying about their inventory -- until it's too late.

My guess is that banks and other lenders will need to reassess how they establish collateral interests in fungible inventories such as masses of grain. I think this will result in higher borrowing costs for everybody in the business.

John Pittman Hey

Anonymous said...

"Is the alleged criminal related to the Greenwood ophthalmologist of the same last name?"

No. And neither are the original incorporators of Coleman's BBQ. And neither are the other 28 people with that last name living in Leflore County.

"In the business world, it's sometimes difficult to catch businesses lying about their inventory -- until it's too late."

In fact, it's ALWAYS difficult since no government body audits inventory of a privately held business or corporation.

John Pittman Hey said...

@1:21 -- actually, and tragically, John Coleman is Greenwood ophthalmologist Dr. Michael Coleman's son, and Dr. Coleman was a 99% owner of Express Grain. But nobody has credibly accused Dr. Coleman of any wrongdoing.

Dr. Coleman has another son, Dr. Lee Coleman, who also practices with him in Greenwood, and he wasn't involved and also has not been charged or suspected of anything improper.

Both Drs. Coleman are excellent doctors and held in high regard in the community.

It is a horrible tragedy for their family.

John Pittman Hey


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