McCLUSKY, N.D. - Brian Larson is general manager of the Co-op Elevator of McClusky - ground zero for elevators that took a big hit with the Hunter Hanson grain scam in 2018.
Hanson, 22, will be sentenced Nov. 12 after pleading guilty to fraud and wire fraud charges. Hanson likely will serve 6.5 to eight years in prison and has agreed to pay $11.1 million in restitution for defrauding farmers in a Ponzi scheme.
Larson's business was hit for $768,370.40, accounting for 126,110 bushels of hard red spring wheat.
"I think he should receive the maximum allowable penalty," the manager says. "You go through the whole range of emotions, the anger. My board of directors believed the way I handled it was proper."
Based on the co-op's loss, Ladd Erickson, the state's attorney for McLean and Sheridan counties, started a theft investigation. Those felony charges got Hanson off of the street on April 4 and led to a federal case.
On a separate, parallel track, the North Dakota Public Service Commission was stripped of grain regulation, except for following through on the Hanson case. The PSC has recommended a payment of about 19 cents on a dollar on qualifying claims, an amount that won't be available to creditors until a judge in Pierce County, N.D., approves it after hearings set for June 16-18, 2020, in Rugby.
Larson, 51, the manager of the McClusky co-op for 20 years, says he wouldn't have been involved with Hunter Hanson if not for East Central Grain Marketing, a company with addresses in South Dakota and Minnesota.
ECGM owner Dan Stommes has declined an interview with Agweek, and didn't respond to texts and emails.
Larson says he trusted East Central, which he had dealt with since 2013, to vet Hanson, but doesn't blame Stommes.
In March 2018, the co-op sold 45,000 bushels of spring wheat through ECGM to Hanson, a roving grain buyer operating as Midwest Grain Trading company of Devils Lake, N.D. Hanson was offering large protein premiums.
But in August 2018, Larson realized that "several thousand bushels" of July sales were "getting past 30 days" overdue, but Midwest Grain Trading was picking up contracted grain from McClusky at a "very fast pace."
Desperate to get current, the co-op in late August invited Hanson's bookkeeper - Shawna Thronsedt, of Devils Lake - to come to McClusky. The McClusky co-op's bookkeeper, Bobbie Anderson, tried to explain "how to do settlements." Anderson was taken aback when Thronsedt said she didn't have experience and had just gotten a scanner or printer set up in the office.
Chris Peters, Hanson's office manager, was supposed to send checks the following Friday. But that Friday, Peters said Hanson only wanted to pay half and pay the other half the next Friday. The co-op received a check for $332,000. It took time for the bank to notify the co-op the check was not-sufficient funds. Before that, the second check came.
There were excuses from Hanson's people and neither check was good.
Nov. 15 call
The PSC got its first calls on Hunter Hanson in the first week of Nov. 1, 2018.
Larson waited to notify his board until he had more answers. "I didn't want to alarm the patrons. The trust in the co-op was crucial to the survival of the business," Larson says. The co-op was strong enough to make good on customers who had prepaid crop input expenses or deferred payments for grain.
State's Attorney Erickson's phone logs say his first call from Larson came on Nov. 15, 2018. Erickson immediately initiated the state criminal investigation. In March, Erickson coordinated with the FBI and the U.S. Attorney's Office. On April 4, Hanson was arrested and jailed in Washburn. The case later was dismissed with money laundering and wire fraud charges instead being filed in federal court.
Erickson says the case is the biggest ag-related scam he's investigated.
To get a line on how specialty crop transactions worked, Erickson went to a friend and local farmer Don Streifel, a Washburn farmer who is a former president of the Northarvest Bean Growers Association, for help in understanding the transactions.
Streifel led Erickson to check with Dakota Dry Bean Co., a pea marketer at Crary, N.D., where Hanson had sold most of the peas. He subpoenaed Dakota Dry Bean records that were critical in showing Hanson was losing money on every transaction. But that was irrelevant to Hanson.
Hanson was "making 100% profit by not paying his bill," Erickson says. "At some point, he knew he was stealing from people, and he kept going."
Further, Hanson used "counter-measures" of delaying payments and moving money around, to keep customers and regulators from realizing what he was doing, so he could do more deals and steal from people.
Erickson sees grain trading as a "casino," with roving grain traders, brokers and others dealing in "private markets that aren't exposed." Essentially, a lot of that is "gambling," Erickson says.
If Erickson was in the Legislature, he'd put up a bill that "bans roving grain trading, and bans dark market brokers, right?" Erickson says. That would force those players to come to the table and justify why they are needed, especially for certain crops.
"There probably are benefits - market making, liability reduction, margin level increases," Erickson acknowledges. It may be that in specialty crops, like buckwheat, they have a place, but possibly not for spring wheat, where markets are established and public.
Big hit on Sheridan County
Erickson said he expects the federal judge will look at Hanson's age, and whether he can be rehabilitated. But he hopes the judge sees the effect of taking $780,000 out of the McClusky co-op, one of the biggest businesses in Sheridan County. "It's Christmas presents," he says. "It's dividend payments, and retirement for a broad section of people."
He weighed that against Hanson's actions.
"When you're blowing out these farmers and you decide it's time to take a trip to Paris for a week with your girlfriend, right?" he says, referring to an August 2018 trip Hanson took. "You're buying all these brand new pickups and cars, with all this money you stole from them. You want your bonds changed so you can go to the Vikings-Packers game, when people are wondering whether they can keep the farm because of what you did to them. I want that federal judge to think about that stuff."
Erickson said he doesn't blame farmers or the elevator managers. He says some of the top human minds in history, including Sir Isaac Newton, have fallen victim to huge scams - "the finest analytical minds to walk the face of the earth."
Larson, while stung by Hanson, worries about "too much interference" from government. Some blame East Central Grain Marketing, but Larson doesn't and the McClusky co-op has continued to trade flax and barley through ECGM.
Says Larson: "I don't see it. I blame Hunter."