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Red flags, not white: Victims say H&I Grain officers reject plea proposal

SIOUX FALLS, S.D. — Three years after a South Dakota company stiffed farmers for millions in grain purchases, surviving company officials in mid-July rejected a criminal plea agreement, so the case may be headed for trial, some victims say, asking not to be identified by name.

Officials of the South Dakota Attorney General's office on July 17 were not immediately available to confirm or deny the report.

The South Dakota Public Utilities Co. revoked H&I Grain's trading license on June 24, 2017, after allegations of large-scale speculation, losses and non-payment for grain marketed in 2016. The company's president, Duane Steffensen, died at age 67 on Jan. 12, 2019.

The South Dakota Attorney General and Kingsbury County officials told victims that the Steffensens had rejected a plea offer the victims had earlier approved: Class 6 felony for Duane's wife JoAnn, a Class 4 felony each for his son, Jared, and Jared's wife, Tami.

"It's going to go to a jury trial at this time," one victim told Agweek, declining to go on record on the issue.

Jared, speaking from his home, declined to comment to Agweek.

The company had facilities in South Dakota at Hetland, Arlington and De Smet. It owes millions to some 60 farmers, and holding a bond of only about $400,000.

Three generations

H&I Grain was owned by Duane Steffensen, president, his wife, JoAnn, vice president. They took it over in 1988 from Duane's father, Martin. In the past 15 years it was largely run by Jared and Tami. Older children, Tonya and Joshua, worked for H&I in lesser roles.

Duane, president of the company, developed congestive heart failure. Duane said in 2018 legal depositions Jared had joined the business in about 2002 or 2003 and within six months had started running "90% of it." Jared had spent time with his grandfather Martin and attended a business school in Sioux Falls, S.D.

In 2011, Jared set up a hedging account at Country Hedging. It was supposed to be limited to 100,000 bushels, and his parents were guarantors.

CHS sued the Steffensens for the guarantee. The Steffensens sued CHS for failing to monitor and control Jared's trading.

The father would say he didn't have a credit card and didn't know details of grain trading, or that the limits were lifted.

Jared Steffensen -- front and center -- served on the Arlington, S.D., city council from 2013 until withdrawing in 2016.Jared was an Arlington, S.D., city councilman from 2013 to 2016, when he resigned after the grain issues surfaced.

In June 2018, the South Dakota attorney general and Kingsbury County produced indictments for Class 2, 3, 4 and 6 felonies, but a year later the case hasn't been tried or settled.

Farmers separately won nearly $3.8 million in a civil judgment against H&I Grain in court in Kingsbury County at DeSmet, S.D.

Other people's money

Among the farmers who were part of the successful civil suit is Frank Virchow, who says he is owed more the $700,000 but has yet to be paid.

Virchow, 75, of Lake Preston, S.D., and his family farm about 15,000 acres and run a crop insurance, input supply and cattle enterprise. He is one of the few who will speak about the case, noting that others often are "ashamed at being taken in."

In the H&I Grain case, some 50 some farm families are victims.

Virchow says some PUC officials indicated that the farmer bore some responsibility because they didn't get a check the day the grain was delivered. That's insulting to Virchow, a veteran of the Vietnam war, and an experienced grain trader.

"You price your grain," Virchow says. "You don't have time to run in and pick up a check every time you drop a load of grain off. We had grain that was priced, sold before it was ever delivered, told them we needed a check within a few days after delivery."

Virchow says the state wants farmers to be satisfied with a plea bargain and "be satisfied with getting them a little jail time, maybe, and a fine. The fine doesn't doesn't do the farmers one damn bit of good because the fine goes to the state of South Dakota."

Deep connections

Virchow came home after serving in the Marines in Vietnam in 1969. He did grain hauling for H&I Grain. "I worked with Duane from 1970 when he was still in high school. I trusted him," Virchow says.

As a grain marketer, Duane often was often able to offer a 15-cent per bushel premium over local markets, Virchow says, presumably because of connections, experience, and because he had trucks. All along, payments often came slowly, but in 2016 was different.

"Everybody was having a hard time figuring out why they were having a problem of being paid," Virchow says. "The check wouldn't come and they'd say we mailed that out two weeks ago. And they never did."

Instead, Steffensen would write a check and stick it in a drawer and the books would show that the account was paid, Virchow says.

On Sept 15. 2016, CHS sued Duane and Jo Ann for $1.9 million.

In October 2016, Virchow and his hired men were on one side of a speaker phone conversation with Duane. "I said, 'Duane, I hear you guys are in trouble. We have 400 acres of corn." Virchow wanted to know whether he should pile grain on the ground or bring it to an unstable elevator. He said, 'You don't have to worry, Frank.'"

Virchow wonders who knew about the H&I problems, and when — the PUC, the Great Western Bank, where H&I had a $7.15 million unsecured line of credit. He wonders why no one notified farmers or stopped them from hauling grain in. He wonders why H&I Grain didn't self-report.

Cheryl Olson, head of marketing for Great Western Bank in Sioux Falls, says the bank's privacy policies "prohibit us from talking about any legal matters or any issues surrounding current or former customers of the bank."

'Definition of churning'

Dwayne Ingalls with Pederson Ingalls Commodities, LLC, of Sioux Falls, S.D.Dwayne Ingalls with Pederson Ingalls Commodities LLC, of Sioux Falls, is a broker for some of the farmers and knows people affected by the case. Ingalls testified at some of the SDPUC meetings.

The way Ingalls reads it, Jared was going out on the board and speculating on a hedge account with CHS Hedging.

When a grain buyer buys grain they instantly then sell it on the board with offsetting futures contracts. "They're not in the business of market speculation. They're just trying to buy the grain from the farmer, move it along to the end user — an ethanol plant, whatever — making some basis moves, or 'trades,' they might say. That's how they make their profit," Ingalls says. "You should never ever see an elevator that's 'long' on the board."

Ingalls saw at least two of Jared's brokerage statements that indicated he was " long" on 600 to 700 contracts of corn and 300 contracts of soybeans. Each of the contracts account for 5,000 bushels of crop. "He's long 3 million to 4 million bushels of corn, and 1 million to 1.5 million bushels of soybeans," he says.

Ingalls wonders about the CHS Hedging brokers who were supposed to be facilitating or supervising the trades. "The definition in our world of 'churning' is doing something for commissions that's not in the best interests of the customer," Ingalls says. "They were getting him in those contracts in the morning, exiting them the same day, to avoid the margin requirements he would have to have in those accounts. He would enter them in the next morning; he would exit them the next day."

Victims ponder the fact that former grain traders Jared and Tami Fae Steffensen continue to live in an up-scale home.Virchow says the biggest effect is on younger farmers who are trying to "figure out how to survive and ... move forward so they can pay their bills — chemical, seed, inputs. It's devastating to these families while the people who are guilty — and I do mean GUILTY — they can run around and live a lifestyle with their luxury and toys.

"I think they should have to sell all of their toys and their houses, and I think they should have to pay back as many people as they possibly can," he says of the Steffensens. "I know the banks are going to want their money first, but I don't think should be able to live the same lifestyle while all the farmers are struggling."

TIMELINE

• 1960s and 1970s — Martin Steffensen manages a Hetland, S.D., owned Gene Cotton of Volga, S.D. Martin and his son, Duane Jens Steffensen, later ran it as Steffensen Grain. In 1988 Duane incorporates it as H&I Grain Inc. — named for their association with a separate grain and trucking company, H&I Grain of South Sioux City, Neb.

• 2002 or 2003 — Duane's youngest child, Jared Steffensen, now 37, joins the business and within six months becomes its grain marketing manager. His wife, Tami Fae, later manages its business..

• November 2011 — Jared creates grain trading contract Country Hedging, a predecessor of CHS Hedging Inc., Inver Grove Heights, Minn.,, backed by a guarantee from his parents, Duane and JoAnn Steffensen. He was initially limited to trading 20 contracts of 5,000 bushels each, or 100,000 bushels.

• April 2012 — Jared opens a "subaccount" at CHS Hedging without his parents' knowledge. Limits are approved by CHS Hedging officials Phylis Nystrom and Linda Bryden, and later Jenna Roe, when Nystrom is promoted.

• 2012-2014 — CHS Hedging,increases Jared's trading limits from 100 contracts per day to 500 contracts per day. One court document estimates that the H&I account produces $800,000 in annual commissions for CHS Hedging.

• Feb. 8, 2016 — CHS Hedging effectively removes any limits, in some cases citing software changes.. From April to July, 2016, Jared's trading becomes "massive" and he becomes "obsessed," according to one court document description. Jared allegedly loses $6 million to $10 million, according to a later suit.

• June 2016 — H&I files an annual financial report with the South Dakota Public Utilities Commission, as then required by law. (Later, reporting became required quarterly.)

• July 7, 2016 — CHS Hedging discovers it can't withdraw $436,593 that H&I Grain owes the company, from H&I Grain accounts at Great Western Bank, headquartered in Sioux Falls, with branches including Watertown.

• July 11, 2016 — CHS shuts down the H&I account, later claiming it is owed $1.9 million.

• Sept. 15, 2016 — CHS Hedging in federal district court sues H&I Grain owners Duane and JoAnn Steffensen for breach-of-contract on their guarantee.

• June 2, 2017 — Duane and JoAnn Steffensen counter-sue CHS Hedging.

• June 23, 2017 — South Dakota Public Utilities Commission formally suspends H&I Grain's trading license, the next day revokes it.

• July 21, 2017 — Several farmers file Chad Murphy et al. v. H&I Grain of Hetland Inc.,

• April 17, 2018 — Kingsbury County Judge Patrick Pardy awards a $3.77 million pre-trial judgement in the Murphy case.

• June 26, 2018 — South Dakota Attorney General Marty Jackley and Kingsbury County State's Attorney Gregg Gass, indict all four officers for felonies, as the result of a grand jury.

• Nov. 15, 2018 — SDPUC requests an independent receiver for H&I Grain. Farmers from Beadle, Brookings, Clark, Kingsbury and Minnehaha counties file claims for $2.9 million, despite the $3.8 million judgement in the Murphy case.

• Dec. 17, 2018 — H&I Grain, Inc., files Chapter 7 bankruptcy liquidation. declaring $10 million to $50 million in assets and the same range of liabilities. Lee Ann Pierce is named trustee.

• Jan. 1, 2019 — Federal District Judge Karen E. Schreier orders a judgement in favor of CHS Hedging against Duane and JoAnn Steffensen.

• Jan. 12, 2019 — Duane Jens Steffensen dies, at age 67. Obituary contributors praise him for his "strong work ethic."

• March 26, 2019 — South Dakota Attorney General officials meet with "producers/victims" of Steffensens, and reject a proposal by the Steffensens and counter-propose that they plead "guilty" to Class 4 felony theft charges. JoAnn's charges would be deferred or plead guilty to a class 6 felony.

• June 14, 2019 — South Dakota assistant attorney general officials meets victims a third time to describe a plea agreement that would let the Steffensen's off.

• July 10, 2019 — Victims learn report hearing from the Attorney General's office that the Steffensens have rejected a proposed plea, that would have been one Class 6 violation for JoAnn, and one Class 4 felony each for Jared, 37, and his wife, Tami Fae. The AG's office is not immediately available for comment.

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