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Opening statements begin in federal insurance fraud case

FARGO, N.D. -- Jurors in a federal crop insurance fraud trial in Fargo, N.D., were alerted that they'll have to make a judgment on the credibility of a former hired hand in a case against farming brothers Aaron and Derek Johnson of Northwood, N.D.

FARGO, N.D. -- Jurors in a federal crop insurance fraud trial in Fargo, N.D., were alerted that they'll have to make a judgment on the credibility of a former hired hand in a case against farming brothers Aaron and Derek Johnson of Northwood, N.D.

Lawyers offered opening arguments on Dec. 2 in the case that alleges the brothers intentionally conspired to damage crops -- both in the field and in the bins -- to maximize crop insurance returns. The Johnsons say they're not guilty.

A key to the case will be Leo Borgen, a former Johnson Potato Co. employee, who reported the case to Guy Mitchell, an official for the insurance company.

Borgen is incarcerated at James River Correctional Facility in Jamestown, N.D. In 2010, he was convicted of drugging and sexually assaulting another man. He will be available to testify in the case, but it isn't clear when. Prosecutor Nick Chase told the jury Borgen was never assured he would avoid prosecution by testifying, but said he received $1,200 for his undercover work for the investigation.

Chase used 30 minutes Dec. 2 to preview the case for the jury of 11 women and 3 men. He likened the case to someone owning a car and hitting it with a baseball bat to collect car collision insurance. Chase gave jurors a primer on how crop insurance works and how government subsidies work to make an inherently risky business possible.

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"This is an intentional fraud case," Chase said. He said the brothers -- being tried separately, but in concert -- played a role in a cover-up by lying about it to officials of the U.S. Department of Agriculture's Risk Management Agency, which oversees crop insurance, and the Farm Service Agency, which oversees federal disaster payments.

Focus on 2006 crop

Chase said much of the evidence would focus on the 2006 crop, but that the case involves allegations across several years. He said the fraud occurred in a "tight-knit potato farming family," within a "tight-knit potato-growing community."

According to the government's theory, the Johnsons misused crop insurance to produce potatoes in new areas. Among other things, they preferred to use the county average yields, rather than their own actual yields, to peg their insurance benefits. Chase said the two had a pattern of alternating custody of fields so they could be "new producers" under the law, and maximize crop insurance possibilities.

While there's nothing legally wrong with that, he said the Johnsons added Rid-X, a bacteria used to clean septic systems, to potato seed before planting it, sometimes bragging about it, and in one case suggesting another farmer do it. He said they also intentionally damaged crops in the field, and applied Rid-X to stored crops.

Chase said when the market prices declined, the Johnsons used chemicals, heat and added frozen or spoiled potatoes in storage to make the potatoes qualify for payments under crop insurance.

The Johnsons blamed a dirt floor in a storage building for the spoilage, but government experts will testify that the damage started on the top of the pile, not on the bottom, where the dirt is, Chase said, adding that other producers in the area didn't have the same problems with the rot issues that the Johnsons reported.

Whistle blower

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Chase said Mitchell pursued Borgen's whistle-blowing report with North Dakota State University experts, who said they could test for Rid-X, but it would cost $100,000 to $200,000.

Among other things, Borgen said Aaron Johnson had purchased Rid-X or other brands of the same chemical from hardware stores in Cooperstown and Jamestown, but also at the Menards store in Grand Forks, where he used his own credit card to purchase 15 boxes of the chemical. Chase said that was the largest amount of Rid-X purchased at any one time in any Menards store.

Richard Henderson, Aaron's lawyer, predicted the government will not be able to prove "deliberate damage," and without that there's no case. He said a single purchase of a large amount of Rid-X proves nothing.

He said if the insurance company suspected fraud, it could have collected physical samples of the potatoes in storage and did not. He said marketing data don't support the theory that insurance was the Johnsons' best option.

Ben Thomas, an attorney for Derek, told the jury it needs to consider evidence for each of the brothers separately, but added, "The only thing worse than being blamed for something your brother did is being blamed for something your brother didn't do."

Related Topics: CROPS
Mikkel Pates is an agricultural journalist, creating print, online and television stories for Agweek magazine and Agweek TV.
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