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Express Grain Terminals moved one step closer to losing its warehouse licenses after Agriculture Commissioner Andrew Gipson held a revocation hearing Friday.  

MDAC held the hearing after discovering Express Grain submitted phony financial statements to the agency as part of its license renewal for at least three years. 

The weather outside mirrored Express Grain's future: stormy, cold, and dark.  The Commissioner strode into the room stuffed with lawyers wearing his trademark white cowboy hat but he mercifully took it off before proceeding with the hearing.  Playing hookey from the hearing were Express Grain owners John and Dr. Michael Coleman. 

The Commish opened the hearing in no uncertain terms as he charged Express Grain made "massive alterations" to its audits and "submitted a forged report to MDAC" in May 2021.  The agency renewed the warehouse license to Express Grain in June 2021 based upon the bogus audit. 

Express Grain attorney Craig Geno responded in quite candid fashion as he did not try to sugar-coat the fraud that took place:

I am not here to defend what EG did prior to filing of the bankruptcy petition. The professionals in the bankruptcy case did not know altered financials were submitted until after the petition was filed. I can't defend the alteration. What happened afterwards was a tragedy. There is no excuse for it, no defense for it, and I won’t try to defend it.

The bankruptcy attorney said "we agreed to unseal the exhibits so the public could see what happened."  A  former Express Grain employee met with investigators so they could see John Coleman executed the fraud.  

 Mr. Geno provided an update of Express Grain bankruptcy case.  The bankruptcy court allowed the company to use its cash to finish operations through the end of February.  An auction of Express Grain assets will be held the morning of February 25.  The Court will hold a hearing that afternoon to approve the winning bids.

Horne CPA Joe Greene testified the audits submitted to MDAC were completely fraudulent.  The 20-year Horne veteran said the company completed the audits and said they were submitted to Express Grain.   Horne discovered the fraud after statements were made about the Horne audits at a Senate Agriculture Committee hearing on Express Grain that took place in December.  An alarmed Horne met with MDAC the next day.  Audits were compared and fraud was discovered.  Mr. Graves discussed some of the major alterations:

* Express Grain excluded the "emphasis on a matter of going concern."  The Horne audit stated the same language every year although the amount of the losses changed with time: 

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.

To say the redaction was a big deal is an understatement.  The auditor clearly warned the company was in serious trouble and didn't think it could survive. The warning must have rattled Express Grain President John Coleman because he completely removed the warning from every audit he submitted to MDAC.

Mr. Greene said the Express Grain's biodiesel facility had not operated at full capacity for quite some time.  The facility contributed heavily towards company lsses.  

* The balance sheet said the property and net equity was $59 million but the phony audit said it was $72 million.  Express Grain said member's equity was $24.9 million when in reality it was $2.3 million.  Translation: The audits reaaaaaally overstated how much money the Colemans sunk into Express Grain.  

*  The Horne audit said Express Grain suffered an impairment loss of $13.3 million. The impairment was excluded from the audit.  

* The net loss for 2020 was $21.2 million.   However, the company reported the loss was $1.9 million. 

* The plan of operations (page 7) said accumulated losses were $21.6 million since the company's inception.  The books carried a $35 million line of credit and a $40 million loan.  There was no assurance the company would have sufficient cash flow.  This information was completely redacted from the audits submitted to MDAC. 

* The company was not in compliance with net worth or debt to income ratio requirements (Note 4)*

* Express Grain obtained $2.3 million of PPP loans but excluded the loans from the phony audits.

Commissioner Gipson asked Mr. Greene if Horne he  knew UMB Bank had the Horne audits.  The CPA said he did not know which audits were submitted to UMB as Horne only provides the audits to the client, Express Gain.  

MDAC Deputy Director of Regulatory Services Gene Robertson took Mr. Greene's place on the hot seat.  The Deputy Director testified renewal notices are issued at the beginning of May, two months before applications are due.  Applicants must provide copies of their financial statements and insurance policies. Director Robertson said he "had no idea the audits were false when he issued the license." He would not have approved the licenses if he knew the financial statements were false. There was no cross-examination of the Director.  

Mr. Robertson said a farmer reported a "slow pay" issue in December 2020.  The Deputy Director called John Coleman.  Mr. Coleman said Express Grain was restructuring and the check should be good in "two weeks" and suggested Mr. Robertson call UMB Bank for confirmation.   The Director did so and the bank verified Mr. Coleman's claim.  

Express Grain Chief Restructuring Officer Dennis Gerrard took his turn at bat after the Deputy Director retired from the stand.   Mr. Gerrard painted a dismal picture of the Greenwood company.  The workforce is very disillusioned as the bankruptcy came as a complete surprise to the employees and community.  He said "the facility in Greenwood was not the most stable operation we've run accross."  Production was erratic.  The financial records were "scattered and tough to work through."  Communications within Express Grain were "poor."  How poorly run was Express Grain? The company only had a part-time Chief Financial Officer.  

Express Grain has enough cash to keep running to February 25 as it continues to sell finished products and by-products. There are no plants to operate past February 25.  Mr. Gerrard's company, CR3 Partners, is actively marketing Express Grain's assets.  40 groups have expressed various levels of interest in purchasing assets.  

15 parties visited Express Grain facilities and investigated for purchase.  The Sidon and Minter City facilities drew the most interest.  However, there is little interest in the Greenwood facility. It has been closed since last Summer.  Greenwood is a crushing operation with biodiesel capability.  The CRO initiated cleanup and winding down procedures at Greenwood.  

The CRO said he didn't know if any potential investors are interested in continuing the warehouse or dealership operations.  He said most of the soybean customers were poultry and catfish farmers in Mississippi. 

Commissioner said that was all well and good but he was more concerned with whether the licenses were fraudulently obtained.  Mr. Gerrard said he didn't become aware of the bogus audits until the Commissioner filed a petition to revoke. 

 Commissioner Gipson  closed the hearing: 

This is a serious matter.  There are many affected people, families, and interests at stake here.  This is a tragedy.  I thnk we all agree that it is tragic.  We will consider all of the evidence that has been submitted.  We will make proposed findings of fact, conclusions, and findings.  We will make a decision whether the licenses of Express Grain Terminals, LLC should be revoked or cancelled per Mississippi law.  

Thus endeth the hearing.  

Express Grain Posts

Express Grain & UMB try to block investigation. 

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?  

* Note 4 states: The  LOC  requires  EGT maintain  a  tangible  net  worth,  as  defined,  of  not  less  than  $20,000,000  minimum  debt service ratio of 1.25:1.00.   As of June 30, 2020, EGT was not in compliance with the tangible net worth or the minimum debt service requirement. The December 17, 2020 amendment required EGT to have a tangible net worth of at least $16,000,000 as of December 31, 2020 and a debt service coverage of 1.25:1.00. EGT was not in compliance with these covenants as of December 31, 2020.

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. However, Express Grain and UMB Bank objected to any investigation of the grain elevator.