Ashby creditors settle for $1.5M from board insurance

Creditors of defunct Ashby, Minn., grain co-op elevator settle for $1.5 million from former directors' "directors and officers" insurance. Meanwhile, they pursue $11,500 in co-op funds Jerry Hennessey illegally used to pay for a house owned by the former laborer who drove him to Iowa when Hennessey's embezzlement was discovered.

Darrell Franze of Battle Lake, Minn., a former board member of the Ashby Farmers Elevator Cooperative, was one of the seven former board members accused of being “asleep at the wheel” in their fiduciary duties. Co-op lawyers said the directors jointly $5.4 million to creditors. They say former director Jerry Hennessey is responsibility and will pay no more than the $1.5 million from a “directors and officers” insurance policy. Here, Franze speaks with farmer-patrons after saying he was disappointed with former manager Jerry Hennessey’s eight-year maximum sentence. Photo taken June 21, 2019, in Fergus Falls, Minn. (Forum News Service/Agweek/Mikkel Pates)

ELBOW LAKE, Minn. — Creditors of the defunct Ashby Farmers Cooperative Elevator Co. have settled a claim with its former board members for failing to uphold their fiduciary responsibility and monitor the actions of former manager Jerry Hennessey, who stole millions of dollars from the elevator.

The $1.45 million settlement will be paid entirely out of the cooperative's $1.5 million "directors and officers" insurance policy.

Separately, the creditors will go after the man who drove Hennessey away to Iowa in 2018, saying Hennessey in 2012 used $11,500 in co-op funds to buy the man’s home in Fergus Falls, Minn.

Hennessey remains in federal prison in North Carolina after pleading guilty to stealing $5.4 million from the elevator over at least 15 years, using the money for big game hunting trips around the world. As a result of his embezzlement, the elevator became insolvent with $10 million owed to creditors, which include area farmers.

Erik Ahlgren is the Fergus Falls, Minn., lawyer serving as the “assignee” for creditors (gatherer, liquidator of assets). For the directors and officers insurance claim, Ahlgren hired Jason G. Lina, a Morris, Minn., lawyer. In a case filed Oct. 31, 2019, Lina said the board was directly responsible for “more than $5.4 million” owed to the cooperative.


Ahlgren said former directors Gaylan Thormodson, Russell Dewey, Dennis Week, Daryl Johnson, Darrell Franze, Brad Johnson and Tom Olson — all from Otter Tail, Douglas or Grant counties — had failed in their “fiduciary duties” to “manage and supervise” the elevator and its manager. Hennessey’s largesse included “personal gifts for board members.”

Hennessey started his fraud in 2003, but only when he took flight did the board “finally look into their manager’s actions and discover his theft.”

In his demand for payment, Lina offered a chart, dating from 2011 to 2018, titled “Hennessey’s ‘income’ by year," which included 13 trips, paid for by the elevator. Jerry and his wife, Becky, went to New Zealand three times, Mexico twice, and once each to Australia, South Africa, Greenland, South Africa and Uganda. By himself, Jerry also went to Cameroon, Canada and Nepal.

The lawyer said the board members stood by as Hennessey transformed his farmstead home into a display of “prodigious taxidermy, and outrageous parties, all of which defendants had knowledge of.”

The former board members were represented by Robert Manly of the Vogel Law Firm in Fargo, who in December denied the claims, blaming Hennessey instead.

Settling for insurance

On July 21, Ahlgren entered a settlement agreement with the former directors, which was filed Aug. 11 in District Court in Grant County. Ahlgren said he believed there was a “very strong claim for damages,” but acknowledged the cost of litigation and difficulty of collecting a “substantial judgment” beyond the insurance limits and said the settlement was “in the best interest of creditors."

Ahlgren said the former directors “had to know” Hennessey's salary as a manager “could not support such a lifestyle.”

“Defendants did nothing to supervise Mr. Hennessey, continuing to allow him — for at least 15 years — to defraud their elevator by writing checks for these items and many others off the elevator checking account,” Ahlgren said. “Mr. Hennessey’s scheme was there in plain sight, and the directors did nothing. Further, the directors never questioned inventory and other financial numbers that were cooked by Mr. Hennessey.”


Elevator books showed “millions of dollars more of inventory than the elevator could hold or that crop prices would support,” Ahlgren said.

Ahlgren alleged Hennessey also used co-op money for his personal “grain speculation” — a practice that is “universally condemned” in the industry. Community members often told Agweek they believed Hennessey earned money in a side enterprise, by making his own trades. This is the first time officials have alleged he used the co-op’s money for that, too.

“Profits from this speculation would be skimmed off the top by Hennessey so that the elevator would report lower annual income,” Ahlgren said. Board members knew of Hennessey’s speculating and “many” former directors “asked him to engage in speculation for them for their own personal grain,” Ahlgren said.

Meanwhile, Hennessey would treat the former board members to “lavish Christmas parties, pick up their tabs at local restaurants” and otherwise benefit them. Hennessey told investigators that board chairman Russell Dewey told him to “do whatever he wants to keep himself happy so long as he kept Dewey happy.”

Hennessey used elevator funds to make a total of $723,865 in advance payments to former board members — interest-free loans. Those included Dewey at $130,000 and Olson at $361,000.

Lina wrote that it is “assumed” that board members “look out for the organization you are part of. It is understood that you are responsible for it. It’s expected you’ll look out for its best interest and not just be asleep at the wheel. How this Board didn’t smell something fishy is met with incredulity.”

Hennessey’s salary averaged a little over $100,000 a year, but he “participated in exotic hunting trips, built a museum to his hunts, and regularly feasted the board in his museum,” Lina said. “This board knew its manager’s salary and yet never questioned his and his wife’s lavish home or their trips to Greenland, Africa, New Zealand or Nepal, among other exotic locales.”

Buying his home

In a separate but related development, Ahlgren is going after Tim Leonard, the Fergus Falls man who Hennessey was able to convince to drive him away when Hennessey's embezzlement became known — until Leonard told Ahlgren to get out of the car at Moines, Iowa.


The co-op on June 15 filed a civil claim against Leonard, a former co-op employee, for the cost of the house the elevator purchased for him. There are no criminal charges, though Ahlgren writes Leonard should have known the transactions were illegal.

The civil case is in Eighth Judicial District Court in Grant County, at Elbow Lake, Minn. Ahlgren mailed a notice of the suit to Leonard in April 2020, including his options for legal assistance. After no response, Ahlgren contacted the Otter Tail County Sheriff’s office, which unsuccessfully attempted to serve Leonard with notice of the suit from May 3 to 13 at his residence, as well as at his place of employment on June 24, and then published notice in local newspapers.

Ahlgren said Hennessey in 2012 paid nearly $11,500 for a house where Leonard lives in Fergus Falls, Minn. In August, Zillow listed the house at $25,899, with a price range of $21,000 to $34,000. It’s tax-assessed value was $20,200 in 2018.

In an October 2018 interview, Leonard told Agweek he’d been a seasonal laborer for the co-op for about 25 years, but was not working for the co-op in 2018 when Hennessey’s fraud was detected.

According to Ahlgren, the house deal came in three parts. On June 22, 2012, Leonard purchased a home from a seller for a price of $10,000. N.F. Field Abstract Co., managed the closing, for which Leonard owed $11,492.26. The same day, Hennessey wrote a co-op check payable to N.F. Field for $11,500. On July 6, 2012, the seller executed a deed, transferring ownership to Leonard. On Oct. 31, 2012, the check was entered into the co-op’s books as “soybeans.”

Ahlgren alleged Leonard “did not contribute financially” to the house purchase and that the co-op “did not owe $11,500” to him. “Rather, Jerry Hennessey bought the house” for Leonard “in furtherance of his ongoing fraud.”

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