Tuesday, December 21, 2021

Commissioner Wants to Revoke Express Grain License for Fraud

 Commissioner of Agriculture Andy Gipson wants to revoke the license for Express Grain Terminals, LLC after he discovered the company submitted phony financial statements to obtain a license.

There is currently a stay on all proceedings against Express Grain after it filed a bankruptcy petition in September. The Commissioner filed a motion for relief from automatic stay yesterday in the US Bankruptcy Court in Aberdeen.

Mississippi requires grain elevator operators to obtain an annual warehouse license. They 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.

The motion states:

On May 27, 2021Express Grain submitted what it purported to be the audit report by Home to the Department in support of documentation required for the renewal of its licenses.  However, the report submitted by Express Grain to the Department was not the same as the May 20, 2021 Report submitted to Express Grain by Home, LLP, a copy of which was obtained by the Department pursuant to its demand on Home, LLP dated December 17, 2021. Several differences were noted, such as:

a.         Removal of "Emphasis of Matter Regarding going Concern" on p. 2.

b.         Alteration of Operating Income on p. 2 from a loss to·positive income.
c.         Changing  Home, LLP's letterhead  by substituting  a letterhead format that Home, LLP no
longer uses.
d.         Numerous other material alterations to be shown on a hearing hereof.

The Department  believes the alterations  made by Express  Grain to Home, LLP's May 20, 2021 Report were made with intent to deceive the Department concerning Express Grain's true financial condition and were willful, intentional, malicious, deliberate and were not the result of an honest mistake, inadvertence or oversight.

The Commissioner asked the Court's permission to investigate the submission of the phony financial statements. Federal law provides a specific exception for government investigations and prosecutions in bankruptcy stays.

Commissioner Gipson stated in a letter sent to the Lieutenant Governor Friday that he discovered Express Grain submitted phony financial statements to his office immediately after the Senate Agriculture Committee held a hearing on the Express Grain implosion last Thursday. Earlier post.

Attorney Edward Lawler, Jr. represents the agency. A hearing is scheduled for January 6, 2022 at 10:00 AM at Greenville Federal Building.


Kingfish note: This motion presents an interesting little conundrum. There is currently a big fight between the farmers on one side and the Colemans and UMB Bank on the other side. The farmers want the court to liquidate the company while the other side wants to keep the company operating as a going concern. The Court appointed a Chief Restructuring Officer instead of a bankruptcy trustee, thus avoiding the liquidation route. However, it is hard to see how the company will operate if the Commissioner revokes its license. Stay tuned.

Here is a question for the bankruptcy lawyers: suppose the investigation determines fraud occurred for quite some time. Can the bankruptcy be dismissed?



 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. 

Kingfish note: reassuring emails, phony financial statements, pillars of the community, where have we seen this before?


Anonymous said...

And a certain receiver would sue Horne even though they had nothing to do with the fraud. The whole damn system is broke

Go Shad, errr, Andy said...

They could always switch to selling timber futures.

Anonymous said...

...Welcome to the party, pal....

Anonymous said...

..Voo doo economics here.

Anonymous said...

Reckon it matters that Horne is misspelled four or five times in the motion?

Anonymous said...

Revoking the license could have an impact on any operable insurance agreements.

If it were me, I would seek to void all insurance policies for failure to be licensed….which does little to help farmers tbh.

(I think Home is substituted for Horne in the body of the article)

Bottom line - Not enough $$ to go around.

This will end badly for lots of innocent farmers.

Look for regulations to be increased in this arena…..and for people to bitch about it.

Anonymous said...

Kingfish: What do you mean by 'wants to'. That would seem to indicate its a preference or something he's requesting be done. Either The Hat will revoke it or he won't revoke it, if that authority is vested in him. Why do you twice use the phrase 'wants to'?

Additionally, assuming this family can get away with claiming mistakes were made...let's consider mail and/or wire fraud in transmitting fake/altered letterheads, the transmittal of which would be a federal crime.

Anonymous said...

The "fraud" angle could lead to later determinations that certain debts are non-dischargeable in bankruptcy. I assume this is where The Hat is attempting to aim his licensure revocation activities.

Bill Dees said...

Why is commissioner paying a private law firm? Isn't that the Attorney General's job?

Anonymous said...

It is a failure on the part of the legislature that the rules don't require direct submission of audited financial statements to the government agency.

Anonymous said...

So we ligitate abortion cases all the way to the supreme court, but when it comes to representing state agencies in the normal course of business, we dont have enought qualified lawyers and have to hire private attorneys???

Anonymous said...

More attacks on KF from some anonymous nobody who wasn't and isn't forced to read the product.

Kingfish said...

Probably because the Commissioner wants the job done. The AG office has turned into a black hole

Anonymous said...

KF, accurate statement!

Anonymous said...

Sounds like Horne did their job. I'd be willing to bet that UMB gave Express covenant waivers until they started missing interest payments. I'm still confused how the bank saw the business model as successful in the long term given the title & capitalization issues with the grain deposited under the dealer contracts. The bankers responsible for that decision should stop banking forever.

Anonymous said...

Black hole or not...the authority to revoke rests with The Hat, not the AG. 'Wants to' my ass. Thanks KF at 1:43.

Anonymous said...

It is a pretty simple situation, the grain elevator buys the grain (but doesn’t pay for it yet) they have capacity to hold it. If the price goes up, the grain elevator sells it for more money than (in theory) they
paid for it. But the market went the other way, thus the farmers lose their money because their crop prices went down. What is their recourse, they don’t have their “Beans”, and the bank drafts are insolvent!

Anonymous said...

Not quite, 4:17 - I'm sure that there is a regulatory process, involving prior notice, hearings, and appeals that must be followed prior to the revocation of anything in Mississippi (and in the other 49 states of this republican democracy). Even in the case of apparant (note the use of the proper adjective) fraud.

Anonymous said...

Could be the death nail of lawyer Barrett's stretched claim against the bank. If EG submitted falsified audited statements to MS Dept of Ag, reckon they submitted similarly falsified statements to the bank over the past year or two? If so, the bank was continuing their loan agreements trying to work their way out of a bad deal, but the claim (unsupported, except through conceptual conspiracy theories, kinda similar to Trump's election steal claims) that the bank was waiting until the elevators were full to shut them down might be going down the preverbial drain.

Waiting to see something solid from the Lexington trial lawyer to support his massive tort claim against the bank that they were aware all along of the financial condition and worked to improve theirs by waiting a few months.

Otherwise, the better trial lawyer from a few miles north may win this battle of the unwashed.

Anonymous said...

The Ag Commissioner “wants to” is an accurate statement. Under bankruptcy law, the judge makes that call. Commissioner is powerless to yank their license now. Umb will claim all day long they didn’t receive the actual audited reports from Horne. I don’t know how much weight that holds. Horne could attest to that, and I’m sure they will during discovery. Either way, this dude committed federal fraud and will be charged accordingly. Doubt he’ll actually do jail time, but I feel like he’ll be indicted. And he should be. And the bankers loaning this money are either impressively bad at their jobs, or knew it would all play out this way and need to be investigated themselves. Sounds like fraud is the tip of the iceberg.

Anonymous said...

What's it called if a person or bidness entity wanting to borrow money from the bank shows fake or altered paperwork to convince the banker to make a loan? Then the person or bidness entity can't pay and next thing you know the brown hits the fan! (asking for a friend, and most certainly guarantee not trying to get free legal advice from the JJ think tank)


The banker gets their copy of the audit and due to covid it takes a few months to get the paperwork done...even though they think it might be serious and game over...next thing you know they done filled the bins like they do most years. How convenient!

Anonymous said...

Hang them high with the Joseph Brown Gang. Thieves need to die.

Anonymous said...

Attn 10:08 the term is “death knell”, not “death nail”.

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