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Organic Grains that Weren’t; Wire Fraud Convictions
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A Missouri farmer pled guilty to a  a major fraud scheme involving the misrepresentation of soybeans, corn, and wheat as “organic” when, in fact, they were not.  The scheme lasted more than seven years and involved $140 million worth of crops.  

 

The term organic refers to food produced without the use of chemical fertilizers, pesticides, or other artificial agents.  The US Department of Agriculture (USDA) oversees the proper use of the term, and certifies qualifying producers. To satisfy the USDA’s organic regulations, farmers and processors must show they raise their crops using only environmentally sustainable practices.  The price for organic goods significantly exceeds that of their nonorganic counterparts.

 

The US Attorney’s office (prosecutor of federal crimes) in Cedar Rapids, Iowa charged Randy Constant with wire fraud, using an interstate communications device (such as a phone or computer) to effectuate a fraudulent scheme.  Records show that about 10% of his produce was organic while the remaining 90% was not.  The organic products were grown on farms he operated in Nebraska and Missouri for which he had the necessary organic certification.  These facilities enabled him to provide a basis for passing off other nonorganic food as organic.  He purchased the non-organic products from other, non-certified farmers who used pesticides on their crops.   Three of those suppliers have also pled guilty to the scheme and await sentencing.  They explained that they disregarded the illegality of the scam because they benefited so significantly with higher profits.  They justified their participation because they were not the ones making the untruthful claims.  They have not yet been sentenced.

 

During Constant’s plea colloquy (a specific line of inquiry by a judge to criminal defendants at the time of entering a guilty plea to ensure they understand their rights) he discussed the enormous premium he received from selling the fake goods.  His sentence includes disgorging (forfeiting, giving up) more than $128 million and 70 pieces of farm equipment including tractors, combines, and big trucks.  These implements were likely purchased with ill begotten funds.  Constant also faces up to 20 years in prison.

 

Among the victims were individuals as well as food companies that purchased from Constant. Some of the business customers processed the grains into other products that were in turn marketed as organic. They and their customers thus paid higher prices than were warranted.          

                                                                      

The scheme was busted by an organic-industry watchdog called Cornucopia Institute which tested Constant’s supposedly organic grain and discovered the ruse.  A spokesperson said, “The magnitude [of the scheme] is jaw-dropping in scale.”   He said the USDA lacks the resources to police the organic food industry.  Most products don’t change in appearance when grown organic or non-organic so detection of fraud requires skilled investigators.  They follow an audit trail back to trace all the farm chemicals used to produce a crop.  Due to the limited number of government inspectors, scrupulous organic farmers are hurt.

 

To constitute wire fraud, the scheme can include statements, promises, misrepresentations, deceptions, or any kind of falsehood designed to deprive a victim of something of value.   Wire fraud is a federal crime. Penalties include fines and up to 20 years in prison for a single act.  If the fraudulent scheme is related to a disaster or emergency declared by the president, which are times when many people are in need and particularly vulnerable, the potential penalties increase sharply to a one million dollar fine and up to 30 years in prison. 

 

Note: Customers who were misled by the organic misrepresentation can also sue Constant for civil fraud seeking damages in the amount they overpaid.  Given the scope and duration of the deception, punitive damages (money awarded to a plaintiff in excess of the amount needed to compensate, the purpose being to punish the defendant) might also apply.

 

DISCUSSION STARTER:

  • What remedies are available to the victims of fraud?

 

  • What should the three suppliers have done when Constant first solicited their participation in this scheme?