Shuttered Ashby, Minn., grain co-op looks for quick sale in wake of fraud
ASHBY, Minn. -- Ashby Farmers Cooperative Elevator is closed for business but is talking with three other cooperatives in the region to buy or lease it, hoping to get one of the community's vital businesses up and running.
ASHBY, Minn. - Ashby Farmers Cooperative Elevator is closed for business but is talking with three other cooperatives in the region to buy or lease it, hoping to get one of the community's vital businesses up and running.
Erik Ahlgren, a Fergus Falls, Minn., lawyer, was hired by Ashby Farmers Cooperative Elevator Association to help pick up the pieces in the wake of an alleged fraud by long-time elevator manager Jerome R. "Jerry" Hennessey. Hennessey is alleged to have stolen some $2 million in at least the past 10 years, a time when he was known to go on safaris and other expensive big-game hunting trips.
"It's very possible it had gone on before that," Ahlgren said. Hennessey had managed the elevator since 1989.
Speaking to a member meeting of about 300 people at the co-op warehouse on the evening of Sept. 18, Ahlgren laid out the facts as the board of directors sat silently in the front row and declined comment. Ahlgren said he could guarantee that "nobody feels worse" than the board members, although some audience members indicate the board had failed in its oversight responsibility.
Most co-op members declined to be interviewed. William Malvin, 92, a farmer from nearby Carlos, Minn., sold grain he'd raised at the Ashby elevator in 2017 - the final crop he'd raise himself with other land rented out. The elevator in Carlos had closed, and a trucker recommended Ashby.
"The directors were asleep; they weren't doing their job," Malvin said of the Ashby situation. He estimated he might never see half of the $15,000 he's owed.
Ahlgren said he's unaware that a financial audit of the company had ever been done for the company. A co-op, he said, is not required to conduct an annual financial audit, although the bank's lender, CoBank, could have required one.
He said the Ashby elevator would sell the assets, free and clear of all liens, in order to get the grain elevator operating.
"We've got to have this place open as soon as possible," Ahlgren said. Any sale of the assets would require a membership vote.
Ahlgren indicated the elevator may attempt to ask a judge for a pre-judgment lien on Hennessey's assets.
Otter Tail County shows Hennessey and his wife, Rebecca R. Hennessey, as owners of 170 acres in the county, including a 57-acre building site. The parcel's land value has changed little in the past 10 years and is about $220,000.
The buildings are a different story. The county started taxing a home in 2012, with the building value at $253,800. The value increased to $478,300 in 2018, and finally $516,000 in 2019. (The 2019 valuation is based on 90 to 105 percent of sale value, rather than the low 80s used by the county prior to a state law change.)
The co-op's financial statements indicate the co-op owes the members about $800,000, and Ahlgren thinks it's "actually higher." He thinks the co-op would be able to distribute "some money" to members, but he couldn't make promises about how much. He said the co-op's profit-and-loss statements had been "falsified a long time."
"At this point, I don't trust the information on our financial statements," Ahlgren said.
$8M to CoBank
The co-op owes $8 million to CoBank. The bank is a secured creditor, with a mortgage on all of the real estate, but limited to $250,000 in collateral value. CoBank's subsidiary, Farm Credit Leasing, has a secured loan on the newest of the company's bins, also secured by $250,000. So the bank is secured to about $500,000. Ahlgren said the co-op will try to work out an arrangement with CoBank to pay transitional costs.
Eide Bailly's forensic accounting group is doing an investigative study of a Wells Fargo account used by Hennessey and has identified $2 million in checks to unknown individuals.
They used Google to determine some of the names belonged to people associated with Hennessey's big-game hunts. The elevator will make claims against individuals and entities who received unauthorized checks, including for big game hunts and taxidermy. The Minnesota Uniform Fraudulent Transfer Act allows the co-op to claw back funds that were paid within the past six years with "the actual intent to hinder, delay or defraud your creditors."
"Here the co-op would be a creditor of Jerry; the transfer would be to, for example, the taxidermist or anyone who received a check," Ahlgren said.
The co-op showed about $4 million bushels of off-site grain storage, a figure Ahlgren said likely was "fabricated."
The Minnesota Department of Agriculture conducts a "grain audit." Nick Milanowski, supervisor for the grain unit division, said the company was certified only as a grain buyer - not as a company that stores grain on behalf of farmers who would still own it. Because any grain in off-site storage belongs to the elevator, and not the public, the inspector is not obligated to physically count it for the kind of special inspection the elevator requested.
Milanowski said farmers who have delayed-price contracts should file claims. In those contracts, the farmer hands over title to the grain but agrees to set a price or terms later. Milanowski said courts have recently determined those contracts aren't valid unless both parties have signed them. It might be covered by a cash sale, covered by the bond.
"When in doubt, file a claim," he said.
The company has a grain bond against insolvency, but the payout on those is limited to a total of $125,000, which would be divided proportionately among farmers with valid claims. It also has a crime insurance policy, limited to $100,000 per occurrence, but it is unclear how it defines an occurrence.
"I could read it more than one way," Ahlgren said.
A criminal investigation has been opened in the case, but Hennessey has not been charged.
Grant County Sheriff Troy Langlie said his department is waiting for co-op bank statements from the elevator's bank for evidence. Langlie, who is facing an election challenge, said he knew Hennessey but said he was not a personal friend. He said he'd visited Hennessey's home about 20 years ago but not recently. "Not what they talk about today," he said.