Farm elevator copes with alleged swindle by manager

ASHBY - Ashby Farmers Elevator Cooperative members voted this week to give their board authority to sell all of its assets and to at some point dissolve the co-op without a subsequent member vote.

The co-op closed its doors on Sept. 14 in the wake of discovering $4.9 million in unauthorized transactions by its former general manager, with some of the money apparently spent on big-game hunting trips. The facility reopened Oct. 5 under a lease with the Wheaton Dumont Cooperative Elevator.

In a special meeting at the Ashby American Legion hall, members also voted to allow the board to file for "assignment for the benefit of creditors" - a state mechanism similar to federal bankruptcy, in which an "assignee" (like a trustee in bankruptcy) is appointed to seek assets for creditors. The votes easily cleared the required two-thirds majority to pass. $10 million in debts

Erik Ahlgren, a Fergus Falls, Minn. attorney, was hired to track down checks written on the elevator's accounts by former general manager Jerry Hennessey, in part to fund big- game hunts and taxidermy.

At the meeting, Ahlgren underlined that the co-op owes about $8 million to CoBank for an operating loan and perhaps another $2 million for other debts. He added that only only about $1.5 million of CoBank's debts may be secured with collateral. The $6.5 million not covered by collateral is unsecured, accounting for 75 percent of the total unsecured debts.

Warrenn C. Anderson, a lawyer from Morris, Minn., attended the meeting and acknowledged he is representing some of the larger farmers in the case. He said he wanted his clients to be able to pursue funds from the Directors and Officers Insurance Policy held by the co-op to protect itself from lawsuits based on officer wrongdoing. Ahlgren later said that policy is valued at about $1 million.

Anderson said one question is "why there was a compilation and not a (financial) audit." There was no answer to this question.

Ahlgren told members that when the co-op failed, it had less than 5,000 bushels each of corn and soybeans - virtually empty of grain compared to the more than 300,000 bushels of capacity. The lack of grain in inventory was "part of the fraud" by Hennessey, who reportedly skipped town Sept. 11. Hennessey apparently effectively was making deals to store grain without a grain storage license, but the grain farmers owned disappeared without compensation. If the state knew the elevator was licensed to hold farmer-owned grain, rather than elevator-owned grain, their inventory inspections would have been "much more intense," said state Sen. Torrey Westrom, R-Elbow Lake, who attended the meeting.

Keep it local

The elevator facilities were reopened as Ashby Grain LLC on Oct. 3 under a lease between the board and the Wheaton-Dumont Cooperative Elevator, based in Wheaton, Minn. The lease agreement runs through the end of the year and is month to month after that.

Philip Deal, the chief executive officer of Wheaton-Dumont Co-op, attended the Oct. 15 meeting but did not speak. Wheaton-Dumont Cooperative Elevator has 16 other locations in Minnesota, North Dakota and South Dakota, with sales ranging from $280 million to $350 million a year.

Deal said with the wet harvest weather, the Ashby site hasn't gotten a good start in handling grain. He said it is prepared to be a "full-service" elevator, providing both seed and feed, as well as grain handling.

"I think we're pretty good at bolting on another facility and providing the service a community needs," Deal said. The lease entity has hired, at least temporarily, two of the company's previous staff members.

Ahlgren praised the board for choosing the Wheaton elevator because it ensures "competition" in the marketplace.

"Wheaton-Dumont has stepped up to the plate, but it's you guys who have to support it," Ahlgren said.

On the other hand, Ahlgren said farmers who thought they had contracts to deliver grain to the defunct co-op have "no obligation" to deliver that now.

"Do what's best for you," he advised.

Ahlgren acknowledged Wheaton-Dumont has made an offer to purchase the facilities, but that deal has been held up by the uncertainty over who would be responsible for an underfunded pension program. He declined to confirm an audience member's assertion that the offer is $615,000.

A federal investigation

In the meeting, Ahlgren told members he had filed a civil suit against Hennessey and his wife, Rebecca "Becky" Hennessey.

Ahlgren said he expects a default civil judgment against Jerry Hennessey, in part because the former manager may not be in the region. He says Becky Hennessey is in the region and has arranged to pick up the complaint.

Ahlgren emphasized that collecting debts is neither easy nor quick. He answered one patron that the the law offers special protections for a debtor's home. He said the law would protect a non-farm debtor's home up to 160 acres with a value of up to $420,000. Sometimes creditors can be authorized by a court to sell property and pay the debtor the exempt amount.

He said there may be available assets from the Hennesseys in guns, taxidermy, recreational vehicles and other real estate.

Ahlgren said he would also work to "claw back" value from fraudulently written checks, written to taxidermists and others. He emphasized that even if he can convince a court to impose judgments, they may not be retrievable. The due process generally means it might take two years at best and maybe up to five years.

On the criminal front, Ahlgren said he has forwarded information on Hennessey to the U.S. Department of Justice, urging them to investigate potential bank fraud, which would be a federal crime.

Grant County Sheriff Troy Langlie on Oct. 16 said he could no longer comment on the status of the case and urged Agweek to contact the U.S. Attorney, who handles federal matters. Tasha Zerna, a public affairs specialist with the U.S. Attorney's office in St. Paul, declined to confirm or deny whether there is an active investigation regarding Jerry Hennessey.

State countermoves

Westrom, chairman of the Senate Agriculture, Rural Development and Housing Committee, and state Rep. Jeff Backer, R-Browns Valley, vice chairman of the House policy committee that covers agriculture, each spoke briefly during the meeting.

Both legislators brought with them paper claim forms from the Minnesota Department of Agriculture and urged farmers to file claims and any evidence of any transactions that might make them eligible for the cooperative's bond, an insurance policy with a value of only about $120,000 to pay victims of insolvency.

Westrom, himself a lawyer, said this isn't the first case of fraudulent elevator finances in his district, which includes eight counties, but it is "the biggest."

Westrom said the Minnesota Legislature's session starts Jan. 8, and he expects farmer protections in elevator insolvencies will come up within the first two or three months. Westrom is studying a range of policy responses to protect farmers, including indemnity funds that North Dakota and about a dozen states have in place, in a half-cent or cent per bushel charge is used to create a fund that would protect credit sales contracts, for example. He said the Legislature will look at whether the bond size is "large enough" or should be eliminated because it give a false impression of protection.

Westrom said the the Legislature may also look at whether it's workable to require an annual financial audit, even though a cooperative is a private business.