BISMARCK, N.D. - An interim study committee of the North Dakota Legislature met for the first time Oct. 3 on how to make changes in grain regulation in the wake of scandals like the Hunter Hanson Ponzi scheme.
The joint House and Senate Agriculture and Transportation Committee heard a number of policy possibilities, some of which could be made administratively, and some of which would require legislative action in the next regular session, starting in January 2021. The interim committee will schedule further meetings, but they aren't yet on the calendar.
The Legislature asked for an intense study of grain marketing regulation in the state after Hanson, then 21 and then living in Leeds, N.D., created a Ponzi scheme in which he bilked farmers and elevators out of millions of dollars in 2018. The North Dakota Public Service Commission, which had regulated and licensed grain buyers for decades, was blamed for failing to prevent the travesty, even though the agency had been denied earlier requests to beef up their financial oversight.
Hanson in July pleaded guilty to federal fraud charges and is scheduled to be sentenced Nov. 12. Luick said the committee is trying to make sure it doesn't happen again.
"We've got to make sure it doesn't happen again," he said.
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The committee's first grain regulation discussion was largely taken up by a report from Doug Goehring, North Dakota commissioner of agriculture. Johnson and Sen. Larry Luick, R-Fairmount, vice chairman of the committee, said Goehring reported on a series of items that he's either planning to institute or is considering after a half-dozen public town hall meetings in September. They include:
• What insurance products may be available for farmers to protect themselves for transactions.
• Whether to expand the North Dakota Credit-Sale Contract Indemnity Fund. The current fund, put in place by the 2003 Legislature in the wake of a grain company failure at Wimbledon, N.D., collected 1 cent per bushel on credit sale contracts (price-later, or deferred payment) in which farmers effectively hand over title to the grain buyer. The transaction "premiums" would stop when the fund is fully funded at $6 million. The premiums would not be collected again until the fund depleted to $3 million.
• Whether bonding levels may need to change and be based on dollar volume, not grain volume. Grain companies are required to carry bonds, which can become part of the safety net for farmers claiming losses in cases of insolvency. Luick said bond companies may be willing to increase bond levels, but it isn't yet clear whether the potential levels are sufficient to cover losses in today's transactions, which are far larger than when laws were established.
• How much to increase financial reporting from grain traders. New grain traders may need increased scrutiny up-front. Goehring and legislators are considering whether financial audits or reporting may have to be done annually, rather than every two years. In companies handling tens of millions in transactions, some of the reporting may be required quarterly. "We're trying to evaluate where those particular cut-offs should be," Luick said. The study will result in bills that specify the intervals.
Bigger indemnity fund?
Luick and Johnson both acknowledged that senators in the committee are more open to expanding the indemnity fund scope to cover cash sale losses - in addition to the credit sale contracts that are currently covered by the fund.
Luick noted that regulators in South Dakota and other states have told him told him they wish they had such a fund available, which covers 80% of a creditor's losses. But Johnson said he and some other House members on the committee philosophically are averse to farmers having to self-insure against risky transactions.
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Luick said one plan would reduce the collection amount to a "trivial" sum. "If you had $750,000 of crop sold in one year, it would cost that farmer about $70," he says.
Luick said the interim committee will study systems in other states. He noted that Illinois has an indemnity fund that pays out only on cash sale losses - not credit sale contracts - and has no cap. The premiums from farmer transactions that go into an indemnity fund may shift to being based on dollars, not the bushel volumes, Luick said. "It's easier to audit, it's easier to keep collection on, if it's on the dollar value than on the amount of bushels," he said.
