MINNEAPOLIS - The former general manager of the defunct Ashby (Minn.) Farmers Cooperative Elevator Co. pleaded guilty to federal felony charges of mail fraud and income tax evasion in U.S. District Court in Minneapolis on Thursday, Feb. 14.
U.S. Chief Judge Judge John Tunheim told Jerry Hennessey that the sentencing will be held at 11 a.m., June 13, in the federal courthouse in Fergus Falls, Minn. Sentencing guidelines call for Hennessey to serve 6.5 to 8 years in federal prison. A sentence within that range would remove the possibility of either side appealing the sentence. Tunheim explained that all offenses are assigned a base offense level and there are increases and decreases based on particulars, including criminal history.
On top of that, he'd get up to $250,000 in fines and restitution of a total of $6.5 million to victims and the Internal Revenue Service.
As part of the plea, Hennessey agreed to up to $5.3 million in restitution to the court, which would be paid victims, either to the co-op or members. The plea agreement requests that the court would order that restitution would be made prior to a $1.2 million repayment to the IRS for income taxes.
Hennessey's attorney told Agweek that Hennessey would decline interviews with Agweek.
Until sentencing, the judge agreed with the probation officials who had recommended (over prosecutor objections) to allow Hennessey more freedom to move about the state without a location monitoring program. In part, Kelly said, Hennessey would use the freedom to help sell some of his assets, including his homestead, and to recover some assets which may have have been removed.
Responding to questions from Tunheim, prior to pleading guilty, Hennessy said he'd graduated from Barnesville (Minn.) High School and spent one year at Mayville (N.D.) State University before going to work for seven and a half years at a co-op in Hoffman, Minn.
He then spent 30 years managing the Ashy co-op. He said he's suffered from Type 1 diabetes since 1982 and has "highs and lows" and acknowledged the disease is a "struggle" to regulate. He had spinal fusion surgery three years ago and needs it again, he said, acknowledging he is in pain but not taking medication for it.
Hennessey is accused of stealing at least $5 million from the co-op over 15 years, using much of the funds for international big game hunting and for improving his farmstead home. Hennessey acknowledged he'd taken "millions of dollars" but wouldn't agree to a specific figure without reviewing the records.
Assistant U.S. Attorney John Kokkinen also noted that Hennessey reported a $97,000 income for 2013 in a tax filing year when he had another $700,000 in income. Hennessey admitted his income was underreported from 2011 to 2017 by some $3.6 million. The underpayed taxes amounts to $1.6 million, including $1.2 million in federal and $400,000 in state taxes, he said.
In one of the most unusual fraud cases in recent times, Hennessey disappeared on Sept. 10, with the help of a former elevator driver, who helped him travel to the Des Moines, Iowa, area. It is unclear how long he was there before returning to the Minneapolis area and his daughter's home.
Federal charges were filed Dec. 3, and Hennessey turned himself in Dec. 4. Hennessey put up bond and was confined to the state. On Dec. 18, federal authorities described the case in an updated "information," which is an updated version of the charging complaint.
In that document, Kokkinen said Hennessey had taken a $7 million to $8 million from a CoBank line of credit, transferred it to the co-op's bank account but used some of the funds to cover fraudulent payments for his own benefit, including big game hunting, equipment, taxidermy and buildings. There were "well over 100 checks" for such things, giving the bookkeeper doctored carbon copies that indicated the checks were for grain or feed.
Kokkinen said Hennessey had made "numerous misrepresentations" to CoBank. He zeroed in on Hennessey using $34,166.67 of the company's money for a piece of hunting land he was buying on a contract-for-deed at Brook Park, Minn.
The case has numerous related developments:
It includes two large buildings for hunting-related equipment. Kokkinen in the federal suit said that Hennessey could forfeit all of the buildings and improvements on that property, as well as equipment. It isn't clear how this affects the co-op's claims against Hennessey in a separate civil case on behalf of farmers and other creditors
The co-op is suing Hennessey and his wife, Rebecca, for restitution, part of which could come from the sale of the property The real estate listing includes a number of photos and drone video of the property. Among the photos are ones of a full bar in a large animal trophy display building and a gun room - essentially a vault, with a safe-style door.
• Rebecca "Becky" Hennessey is continuing to pursue her divorce from Hennessey, whom she'd known since high school. She has said she intends to return to her family name of Bolgrean.
• The Minnesota Department of Agriculture says that as of Feb. 14, there have been 36 farmers who have filed a total of $2.6 million against the elevator.
• Attorney Erik Ahlgren has been named the "appointee for the benefit of creditors, which is like a trustee under state law (and similar to a federal bankruptcy trustee). A hearing on Feb. 12 included setting a bond for Ahlgren's work, as well as his compensation.
• Jason Lina, an attorney with Fluegel Anderson law office in Morris, Minn., said his firm initially considered a lawsuit against the board of directors, who are insured for about $1 million with a policy known as "directors and officers insurance." But Ahlgren being named as the the "assignee for benefit of creditors," means the Fluegel firm would have to get Ahlgren's blessing to go forward on a claim against the "D&O" insurance.
"I hope (Ahlgren) is going to choose us to pursue that claim," Lina said. "That insurance is based on the idea that the board of directors didn't perform their fiduciary duty."
They could be individually liable beyond the claims, he said.
"Between the CoBank and the farmers, there are damages of $9 million," he said. There is a six-year statute of limitations.
"A lot of farmers have lost a lot of money, and I think they attribute that, in large part, to the board's lack of attention to what Hennessey was doing, and they'd like to see a claim against the board soon," Lina said.