ONIDA, S.D. — A South Dakota grain marketing adviser is facing concerns in the wake of a federal civil lawsuit, filed Jan. 25, 2021, in Tennessee.

Indigo Ag Inc. of Memphis is suing Fearless Grain Marketing LLC of Onida, S.D., and its owner, Jeremey Frost, of Onida, S.D., for grain contract violations, potentially exceeding $8 million, or even more. It isn’t clear how many farmers are involved.

Indigo Ag is an agricultural technology company incorporated in Delaware, with principal offices in Boston and Memphis, Tenn. Indigo originated initially as a developer of microbial technologies for treating crop seeds to improve yield and quality. The company also deals in carbon credits under the Indigo Carbon entity.

Frost is the founder, an owner and partner of FGM, a limited liability company. The company entered agreements with Indigo Ag in May 2019, and then again in 2020.

In a 40-page lawsuit, in federal court in Memphis, Indigo alleges a breach of contract, stating that FGM entered into “valid binding” grain marketing contracts, improperly binding growers to sell millions of dollars of grain, purportedly on behalf of Indigo to unnamed buyers.

Contacted by Agweek, Frost denied any wrongdoing.

Frost said he had filed a “whistleblower” complaint involving Indigo Ag with the Commodity Futures Trading Commission in December. Ed Tagliaferri, spokesman for Indigo Ag, declined comment on the suit.

Frost said he filed for an “arbitration” with the National Grain and Feed Association in January, prior to the lawsuit. Frost referred questions to his lawyer, Harris L. Kay, of Chicago. Kay said Frost denies wrongdoing and on March 9, 2021, asked the court to dismiss the suit and put it into arbitration by the NFGA.

Daniel J. Brown, of Dorsey & Whitney LLP of Minneapolis, representing Indigo Ag, referred inquiries to Indigo marketing officials.

Leah Mohr, deputy executive director of the South Dakota Public Utilities Commission, which regulates grain marketing in the state, couldn’t immediately answer whether producers have filed complaints, which would trigger an investigation.

Mohr said FGM is not a licensed grain buyer in the state. Indigo Ag’s Class A license first went into effect July 1, 2018. She said the SDPUC is “aware of, and continues to monitor” the lawsuit, but doesn’t comment on “complaints or investigations.” SDPUC officials have previously explained that South Dakota does not regulate “broker” entities that enable grain trades but do not take title to grain less than $300,000 in value.

In the suit, Indigo accuses FGM of “fraud” in failing to honor agreements on confidentiality and non-disparagement, including telling customers Indigo was trying to “blackmail” them.

They say Frost exceeded his authority by telling growers they could back out of the contracts when the market moved against them.

According FGM’s website, Frost started the company in April 2017. Prior to that, he was grain department manager for CHS Midwest Cooperatives of Pierre, S.D., for 20 years, and was its location manager for CHS at Onida, a town of 565 people about 30 miles north and east of Pierre, S.D.

In the suit, Indigo says it has sustained damage of at least $75,000 but that the dispute has caused the company to incur costs and disbursements of more than $8 million. Indigo said FGM is responsible to pay “any and all damages.”

“In effort to shift blame from FGM to Indigo for the reckless short positions FGM counseled its growers to enter into through the Indigo Marketplace,” FGM “instructed” grower-clients to “breach their outstanding forward contracts with Indigo,” the complaint said.

This deprived Indigo of grain it is “entitled to” in the contracts.

Indigo claims FGM intended to “cause the breach or termination of Indigo’s business relationships” when it told grower clients Indigo was causing them to lose “vast sums of money through its Managed Pricing Program and its Marketplace.”

An MPP is where a broker like FGM takes a contract (often 5,000 bushels per contract) to market a farmer’s grain using futures and hedges.

The “Marketplace” is an Indigo website for separately listing offers from buyers or sellers for trading (cash, futures or basis), where Indigo pairs the seller and buyer. The farmer puts the grain into Indigo’s name. The farmer can have it picked up or can truck it. When it hits the elevator (buyer) the buyer pays Indigo. Indigo pays the farmer.

At one point in allegations, Indigo said FGM has falsely alleged Indigo owes “tens of millions of dollars” to “dozens” of growers. Indigo said Frost, in a letter, falsely claims Indigo was creating “phantom demand.” FGM falsely claims Indigo “short-paid” a on a “slew” of contracts, totaling “an additional” $50 million. Indigo claims Frost violated a confidentiality agreement by sending the letter to an “undisclosed list of recipients.”

Indigo alleged FGM falsely claimed Indigo had violated National Grain and Feed Association or other regulations, and was “fluffing” numbers via “misleading practices” and is “constantly taking implied positions” and “does not realize it most of the time.” Indigo said FGM falsely claimed Indigo was “altering contracts” and had “blackmailed” or “bribed” FGM.

In the suit, Indigo says Frost had improperly put “numerous” growers into “severe negative positions tied to their physical commodities based upon pricing strategies they have undertaken, as recommended by” Frost and FGM.

It says Frost on or about Oct. 7, 2019, through the fall of 2020, entered into “a series of Managed Pricing Program Agreements (MPPs) with Indigo. Indigo, as buyer, offers the seller in Indigo Marketplace “forward contract pricing provisions.”

Frost did not immediately answer.

In a profile of the FGM website : Jeremey’s customers have “repeaped (sic. reaped) the benefits of Jeremey’s” experience, “averaging $40 per acre bettter (sic. better) than the posted local price.”

“Since Fearless Grain Marketing started, less than a year ago, Jeremey has helped producers obtain a gain verses (sic. versus) posted local bids for grains,” the site says. “He works closely with the farmer utilizing his pool selling ability along with his elevator margin knowledge to obtain the best price for the producers of millet, milo, soybeans, corn, winter wheat, spring wheat and sunflowers.”

Among other things, Jeremey urges clients to be “proactive.” That means being aggressive in marketing utilizing futures/options and being a basis trader which is where spreads, carries and inverse become crucial.”

“Be the casino; don’t go to the casino,” Jeremey advises. “Be the insurance sales company, don’t buy insurance. Leverage working for you, not against you. Understand objective, risk, reward and realize follow up is key!”

Transaction timeline

According to Indigo, this is the chain of events that led to the lawsuit:

• May 1, 2019 — Indigo entered into a “grain Marketing Advisor Agreement” with Indigo. This includes two transaction commitment agreements, and a “Marketplace Volume Incentive Agreement,” all signed by Frost.

• May 22, 2020 — Indigo and Frost entered into a Grain Transaction Commitment Agreement. Indigo said FGM committed to “source and sell to Indigo” a “minimum” of 30 million bushels of crops for delivery through the 2022 marketing year. In the case of a shortfall, FGM would pay a per-bushel fee of three-quarters of a penny per bushel.

• June 1, 2020 — Frost entered a second agreement allowing him to source and sell at least another 20 million bushels of crops through the 2022 marketing year.

• Aug. 25, 2020 — Frost and FGM entered a Marketplace Volume Incentive Agreement, which provided FGM would “refer its network of crop sellers” to sell crops to Indigo on Indigo Marketplace. They would be able to use a pricing mechanism to “bind transactions” on the Indigo Marketplace.”

• September 2020 — FGM “almost immediately” began “incorrectly describing” Indigo’s pricing programs as “options" or “futures.” In reality, they are “forward cash (physical) grain contracts,” requiring delivery. Indigo is not a “Commodity Trading Advisor.” FGM ignored limits as an adviser and “committed Indigo to transactions without Indigo authorization,” Indigo alleges. FGM entered a contract with a "commodities buyer” and committed Indigo to “buy and deliver … substantial” amounts of millet. After creating the contract, Frost “refused to stand behind it,” Indigo alleges. They say Frost said the contract “should have been cancelled” by the buyer. But Indigo tried to negotiate with the buyer but said the result was a “significant loss” by backfilling or cancelling the contract. Indigo said the dispute caused damage to Indigo’s reputation by being forced to cancel.

• Oct. 2, 2020 — In one case, an agricultural commodities buyer sent a contract to an Indigo account manager, saying FGM committed Indigo to 1.96 million pounds of “re-cleaned millet.” Indigo asked Frost about it. He said he had grain sellers “lined up” to fill those contracts. “In reliance on (Frost’s) representations and authority, Indigo allowed the contracts to proceed,” the suit said. Ultimately, Frost didn’t have “designated sellers” to cover 1.62 million (83%) of the 1.96 million pound contract. The 1.96 million pound contract would equal about 1,120 acres of millet at the conversion of 50 pounds per bushel. (One of the “sellers” Frost listed as a supplier was “not in the network of growers who will conduct business with Indigo.”) In a second case, an Indigo buyer received a “contract” from another buyer, totaling 200,000 pounds of millet, requiring delivery Sept. 1, 2020, through Oct. 31, 2020. Again, Frost, said he had grain sellers lined up to fill the contracts, and named an “individual farmer.” But on Nov. 18, 2020, Frost “finally admitted the grower may not be aware of the contract at all.” The grower had not agreed with Frost on this contract. Indigo believes Frost told the grower to say that he had call Indigo and “someone named ‘Tim’ told him he did not have to deliver.” Indigo said this is false.

• October 2020 — Growers had been making “unusual requests” to Indigo to “ameliorate the effects of the current markets, and to raise threats and allegations” against Indigo. Frost has made “significant use” of Indigo’s Managed Pricing Programs and other pricing tools on behalf of their growers. This allows growers to enroll parts of their crop in marketing programs, based on the grower’s “chosen advisor” and strategy. These allow growers to “benefit from hedging expertise” and are “intended to hedge market price risk and maximize sales price for the physical grain at delivery.” Indigo also offers other “pricing products” that would allow growers to forward-contract to create a strategic marketing portfolio, rather than be subject solely to market prices at the delivery time. “All Indigo-managed pricing programs and other pricing product are forward contracts that are embedded in a physical grain delivery contract during the specified crop year,” the suit said. According to Indigo, Frost and FMG had improperly put “numerous” growers into “severe negative positions tied to their physical commodities based upon pricing strategies they have undertaken, as recommended by” Frost and FGM.

• November 2020 — Indigo concluded that Frost had recommended and implemented “pricing strategies” that created “substantial risk” and reduced the value of “certain of their crops.” Indigo determined that Frost and FMG had not correctly communicated the “risks of their pricing strategies” and attempted blame Indigo for the grower losses. Frost “returned to making knowingly false descriptions of Indigo’s pricing programs and tools,” and characterized them as “options or futures and no-risk programs with unlimited swapping and rolling opportunities.” This falsely informed growers they could “simply refuse to deliver grain or comply with contract terms.”

• Dec. 1, 2020 — FGM and Frost sent a “highly defamatory email” to “at least one grower with substantial contracts with Indigo” saying Indigo “was or could be subject to a fraud claim or Ponzi scheme claim, and indicating a strategy of coordinating growers to publicly repudiate their contracts with Indigo or Indigo’s buyer counter-parties.” Indigo said the email was sent via Jeremey Frost’s typical business email, which is actually an email owned and provided for use to Frost by Reliance Capital Markets II LLC, doing business as RCM Alternatives. Indigo alleges an “unknown number of persons at RCM Alternatives had improper access to Frost's Indigo confidential information. (FGM is an “alias” and Frost an “associated person registered” of Reliance Capital Markets, with the National Futures Association, Indigo said.) Indigo tried to approach growers but they were were reluctant to talk. Some defaulted on contracts, “potentially costing Indigo substantial sums.” Meanwhile, Indigo withheld money from Frost.

• Dec. 30, 2020 — Indigo paid $220,491.27 to Frost and FGM in return for signing an “enforceable memorandum of understanding.” Among other things, FGM agreed to send emails to growers “correcting” certain “misstatements” regarding grower contract terms. The email was sent. The agreement required Frost to cease disparaging Indigo. FGM was to acknowledge cancellation of FGM’s role in Indigo programs, and to keep all settlement negotiations and terms “strictly confidential.”

• Jan. 13, 2021 — Frost called a grower to “state the same lies.” Among other things, he said Indigo had changed the rules and that the grower had a “right to refuse to deliver” under his contracts and that the grower would be “justified in breaching the contracts” with Indigo.

• Jan. 20, 2021 — At 7:03 a.m., an “unknown recipient” of Frost’s letter, going by the alias of “ImTheBoss” posted the letter, in full, on the website newagtalk.com

• Jan. 20, 2021 — Indigo sends FGM a “cease and desist” letter, demanding they identify who they sent the letter to, retrieve any letters, acknowledge they include confidential information, correct statements by saying Indigo “disputes” the contents, and cease and desist from further dissemination of "libelous, slanderous, proprietary or confidential” information. Among other things, Indigo demanded Frost go to the AgTalk website to explain that “you are the author” of the letter in the post and demand they be removed. Indigo wants Frost and FGM to “identify the person” known as “ImTheBoss,” or confirm they don’t know the person’s identity.