Express Grain Terminals LLC has had its grain warehouse licenses revoked by the Mississippi Department of Agriculture, sparking a likely battle over who owns the soybeans and corn still stored at the company’s facilities.
In an order issued Thursday, Agriculture Commissioner Andy Gipson said Express Grain’s licenses for grain warehouses in Greenwood, Sidon and Minter City had been “fraudulently sought and obtained on the basis of material misrepresentations contained in applications and accompanying documents”.
Gipson’s decision comes a week after it held a hearing into the fraud allegedly perpetrated by Express Grain in May 2021, four months before it filed for Chapter 11 bankruptcy. The company had been accused of submitting a falsified audit report as part of its warehouse license renewal application.
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Gipson said Express Grain hired Horne LLP, an independent auditing firm based in Ridgeland, to perform a combined audit for fiscal years 2019 and 2020. He said Express Grain received the results on May 20, 2021 and a week later submitted to the ministry. of Agriculture what the company represented as being the audit.
Gipson said the hearing determined that the two documents were not identical but differed in several important ways, including changing the company’s operating loss from $20 million to an operating profit of $162,000, as well as removing warnings from Horne that the company was in dire financial straits and at risk of defaulting on the terms of its loans to UMB Bank of Kansas City, Missouri, Express’s largest creditor Grain.
Testimony from Joe Green, the Horne auditor who produced the report, confirmed that the document given to the state was not the one Green had prepared for the company. Gipson found that the discrepancy was “not the result of honest error, oversight, or oversight and amounted to infringement.”
He said an investigation into licenses from the previous year further showed the Express Grain fraud dated back to at least 2019.
Although the license applications were signed by John Coleman, president of Express Grain, the company was represented at last week’s hearing by Dennis Gerrard, the consultant hired to try to save the company after it asked bankruptcy protection with over $156 million in debt.
Gipson said Gerrard and his attorney neither denied nor disputed the circumstances of the two audit reports.
“Where a license or authority is sought and obtained on the basis of fraud and in violation of statutory law,” Gipson said, “the license or authority is not merely ‘cancellable’ but is void ab initio”, i.e. from the beginning.
He said Express Grain violated the terms of his licenses “before they were even issued, due to the fraudulent misrepresentations contained in” his application.
Gipson also cited testimony from Gene Robertson, director of the department’s grain division, who said that if state regulators had seen the real audit report last year, they wouldn’t have approved the applications. of license.
Neither Gerrard nor Coleman could be immediately reached for comment.
The state attorney general’s office would conduct a criminal investigation to determine if Coleman had committed fraud in connection with the warehouse license application.
What comes next for the company and its roughly 150 employees is unclear. Gerrard is actively seeking buyers for some or all of Express Grain’s storage and processing operations.
Under Mississippi law, however, if a company has its grain warehouse licenses revoked, it must advertise for three consecutive weeks in the local newspaper the company’s intention to end the grain warehouse business. grain and for the owners of the stored grain to claim it. .
Who these owners are is the subject of an ongoing dispute. During the bankruptcy proceedings, Express Grain’s creditors – UMB Bank and other financial institutions as well as more than 200 farmers who delivered the grain but were never paid – made competing claims as to who holds the legal title to the grain.
Gipson’s order was issued less than an hour after federal bankruptcy judge Selene Maddox announced that she would not block any state administrative action against Express Grain.
In a telephone hearing, she said the Department of Agriculture had successfully argued that its regulatory powers should be exempt from the bankruptcy protections given to Express Grain.
Maddox, however, refused to convert the company’s bankruptcy filing to Chapter 7, as requested by a group of creditors. A Chapter 7 filing would force immediate liquidation of the company.
She said the farmers and producer lenders who filed the petition did not provide evidence of gross mismanagement under Gerrard, and that while they may disagree with the way Gerrard operated the company, a disagreement does not equate to poor management.
She also refused the same creditors’ request to appoint an examiner to review the company’s current finances.
Maddox said the cost of such a decision would be prohibitive, costing more than $1 million, and it would take weeks for an examiner to catch up on the nuances of the case.
– Contact Kevin Edwards at 662-581-7233 or [email protected]