PSC proposes 19% payout on Hunter Hanson grain fraud
BISMARCK, N.D. — The North Dakota Public Service Commission on Thursday, Oct. 31, approved a recommendation to pay out 19 cents on a dollar for cash sale claims against the trust fund assets of Hunter Hanson's fraudulent grain trading.
The PSC unanimously recommended paying 45 claims of $7,247,469. The trust fund holds $1,371,837, or 19% of those claims. Further, the PSC recommends only seven claims qualify as valid credit sale contracts with Hanson's businesses. Those $836,913 in claims could be paid at an 80% indemnity rate, for another $669,530, plus PSC costs.
Hanson in 2017 and 2018, was able to establish a huge grain marketing scheme that farmers and elevators claimed cost them more than $11 million. The scheme rocked the grain regulation system in the state and caught the attention of the industry nationwide.
Farmers and businesses defrauded by Hanson will still have to wait several months before seeing any payment on their losses.
The PSC set a court date for the first opportunity for a potential three-day hearing on June 16-18, 2020, in Pierce County Court at Rugby, N.D.. Payments will come some time after that.
Then living at Sheyenne and Leeds in northeast North Dakota, Hanson had no grain trading training, but obtained a bond and established a roving grain buying company called Midwest Grain Trading, and later a warehouse company called NoDak Grain Co., which he has since admitted to using to operate as "Ponzi scheme."
Hanson, now 22, amassed some $23 million in grain trades. He seldom, if ever made money on a transaction but promised farmers and elevators premium prices, and then sold grain at regular prices. He gave himself more than 30 days to pay the farmers and was paid within a day or two, kiting checks among various banks. Hanson pleaded guilty to federal charges in July and will be sentenced Nov. 12 in Bismarck. He could spend 6.5 to eight years in federal prison.
Also as part of the federal case, Hanson has agreed to pay restitution more than $11.4 million, according to authorities.
Commissioner Julie Fedorchak said this is a case of a "an individual acting very unfairly" and she said it is "more than a young guy that got a little bit ahead of himself" in the grain business, and said "there clearly is a pattern of intentional harm."
Fedorchak noted that the North Dakota Legislature had rejected attempts to bolster the grain regulation system in 2015, 2017, and 2019 sessions. They noted that a Senate bill in the 2019 Legislature would have expanded the indemnity fund to include cash sale contract losses in the event of an insolvency, but that the House rejected that.
Instead, the Legislature moved the authority for grain regulation from the PSC to the North Dakota Agriculture Department. The Ag Department and a legislative interim committee are working on longer-term changes in the system to prevent something like Hanson's fraud from happening again.
Randall Christmann, the PSC commissioner overseeing the grain regulation portfolio, was at times emotional Thursday, discussing how Hanson was costing families and companies. Christmann credited the PSC staff for efforts that he said were hampered by Hanson's withholding and attempting to destroy records.
Christmann said Hanson's records were in disarray and that Hanson had used a "number of banks."
Christmann said the PSC was able to net $100,000 from the company’s warehouses at Tunbridge and Rohrville after making an investment to make them functional enough to retrieve grain.
He said the PSC didn't just unload grain to the first buyer, but sold grain to five buyers — $185,790 from Tunbridge and $345,844 from Rohrville.
The staff collected recovered checkoffs from 13 grain buyers, and $9,840 from Hanson, as well as $3,983 from bond premium refunds and $107,666 from accounts receivable.
The PSC is recommending that Midwest Grain Trading and NoDak Grain be "treated as one entity," because the accounts were intermingled.
Midwest Grain Trading has a $400,000 bond from State Farm. NoDak has a $165,000 bond from Philadelphia Indemnity and a $150,000 bond from CorePointe.
Christmann said credit-sale contracts, which are not protected by bonds, were sometimes rejected because they weren't in writing as the law requires. The state has $4.3 million in a Credit Sale Indemnity Fund.
The commissioner noted that Hanson "rarely, if ever, appropriately calculated and applied the checkoff assessment," an amount commodity organizations use for market development.
The PSC denied the claim of East Central Grain Marketing of Minnetonka, Minn.—the "introducing broker" who lined up almost all of Hanson's questionable deals. ECGM would charge a "commission" of 5 cents to 10 cents a bushel. The company had made a claim of more than $500,000.
Christmann noted that ECGM owner Dan Stommes had indicated his company's claim should be paid after all other claims were paid. Christmann said that is a "nice gesture," but moot in that the PSC doesn't pay brokerage claims.
In an interview after the meeting, Christmann acknowledged that the PSC is not attempting to tap ECGM's roving grain buyer's bond, and said he couldn't think of an instance where broker activities could allow a bond to be collected.