Reprinted from GRAIN JOURNAL March/April 2020 Issue
By Jerry Perkins
More than 50 grain elevators, farmers, and agribusinesses are asking for $8.08 million in compensation for losses they claim they suffered from the fraudulent grain-buying spree of Hunter Hanson.
Hanson was sentenced on Nov. 12, 2019 to eight years in prison and is currently serving time in the Federal Prison Camp in Duluth, MN after pleading guilty on June 7, 2019 to wire fraud and money laundering.
From June 16 to 18, a hearing will be held in North Dakota District Court in Rugby, ND before Judge Michael Hurley on the recommendation of the North Dakota Public Service Commission (PSC) that Hanson’s financial victims be indemnified a total of $2.04 million. The claims will be paid from PSC’s trust fund and the Credit-Sale Contract Indemnity Fund. Hurley’s ruling on the claims will follow the hearing at a date yet to be determined.
The trust and indemnity funds include money collected by the PSC from selling Hanson’s grain-based assets after his elaborate commodity-buying scheme collapsed. In addition, the PSC has collected a $150,000 surety bond from CorePointe Insurance Co. of Birmingham, MI; a $165,000 surety bond from Philadelphia Indemnity Insurance Co. of Bala Cynwyd, PA; and a $400,000 surety bond from State Farm Fire and Casualty Co. of Bloomington, IL.
As of Feb. 29, the balance of the NoDak Grain trust fund totals $861,537.33, according to Konrad Crockford, director of the PSC’s compliance division, and the Midwest Grain Trading trust fund’s balance is $541,464.49, for a total of approximately $1.4 million. After expenses of $30,137 are subtracted from the trust fund assets, the net amount to be distributed from the trust fund totals $1.37 million, meaning all valid cash claimants will receive approximately 19% of the PSC’s calculated claim amount for their alleged losses.
Inspectors with the Grain Warehouse Division of the North Dakota Public Service Commission measured the grain inventory at the NoDak Grain warehouse in Rohrville, ND on Nov. 14, 2018, as part of an investigation into the grain-buying business of Hunter Hanson. Photo Courtesy of Agweek.
The Credit-Sale Contract Indemnity Fund will pay 80% of the losses claimed by the seven claimants to that fund, or a total of $669,530.49, if approved by the court.
Courthouse Hearing
The June 16-18 hearing to decide the claims made in the Hanson case will be held in the Pierce County courthouse in Rugby, ND.
In its report and recommendation filed with the court, the PSC outlined the extensive efforts made by its staff to identify, find, and dispose of the assets of Hanson, NoDak Grain, and Midwest Grain, including the commodities stored at licensed warehouses at Tunbridge and Rohrville, ND.
After complaints started pouring into the PSC in November 2018, PSC staff members conducted an inspection of the two warehouses and talked to Hanson and his lawyer. Those efforts led the PSC staff to recommend on Nov. 21, 2018, that the PSC issue a cease and desist order against Hanson, Midwest Grain Trading, and NoDak Grain because, according to the PSC report, its staff “had good cause to conclude additional sellers of grain may suffer immediate economic loss, damage or injury, and claimants may suffer additional injury if Hunter Hanson d/b/a Midwest Grain and NoDak Grain continued purchasing, selling, receiving, or delivering grain.”
That same day, the PSC issued the cease and desist order against Hanson, Midwest Grain Trading, and NoDak Grain to stop all roving grain buyer activities in North Dakota, including the purchase, sale, receipt, and delivery of grain. NoDak Grain also was ordered to cease and desist all grain warehouse activities in North Dakota, including the purchase, sale, receipt, and delivery of grain.
After its appointment as trustee, the PSC began to collect what there was of Hanson’s grain-based assets to fund the two trust funds intended to pay off his victims. The efforts were hampered by several issues the PSC notes in its court filing, including a lack of proper recordkeeping by Hanson, the withholding of records by Hanson, and operational problems at the warehouses at Tunbridge and Rohrville.
In April 2019, PSC staff was informed that law enforcement officials had obtained a box of documents that Hanson had asked to be destroyed. This box of documents was being held as evidence with respect to criminal charges against Hanson and, through the cooperation of law enforcement officials, PSC staff members were able to obtain and make copies of the documents for use in the insolvency proceedings. These records, the PSC report states, were much more relevant to its analysis of claims than the records previously obtained from Hanson or his attorneys.
After being appointed trustee by the court, PSC staff began to determine how to liquidate the grain located at the Tunbridge and Rohrville warehouses. The sale of all of the grain at both warehouses totals $531,675.10. Other assets and bonds yielded a total of $1,403,001.82 for reimbursement of Hanson’s victims, as of Feb. 29.
The Top 10 Claimants
Listed below are the top 10 claimants to the two trust funds established by the PSC and the North Dakota Credit-Sale Contract Indemnity Fund, the amount of the claim submitted, the PSC’s recommendation of the pro-rata payment from the trust fund accounts, and the amount represented by the proportionate allocation of funds. (The amounts that might be awarded by Judge Hurley will be slightly higher than what is noted because of interest earned on the accounts since they were submitted to the court on Nov. 1, 2019.)
• Ray Farmers Union Elevator Company of Ray, ND submitted a claim for $993,182.86. PSC recommends that the court recognize Ray Farmers Union as a cash/check claimant in the total amount of $784,258.69 against the Midwest Grain Trading/NoDak Grain trust fund and pay the company 10.82% of the trust fund’s assets, or $148,448.39.
Italgrani USA entities, the McLean Elevator Co., the Powers Lake Elevator Co., and the Renville Elevator Co., submitted three separate claims totaling a little more than $3 million. The PSC noted that all three of the companies are owned by Italgrani USA of St. Louis, MO. “However,” noted the PSC, “each entity is a separately registered corporation with the North Dakota Secretary of State.”
• Renville Elevator Co. of Tolley, ND submitted a claim for $1,449,056.79. PSC recommends that the court recognize the Renville Elevator Co. as a cash/check claimant in the total amount of $710,378.26 against the Midwest Grain Trading/NoDak Grain trust fund and pay the company 9.8% of the trust fund’s assets, or $134,463.94.
The PSC also recommends the Renville Elevator Co. receive 80% of the amount payable on its portion of the credit-sale contract from the Credit-Sale Contract Indemnity Fund in the amount of $112,087.34.
• McLean Elevator Co. of Benedict, ND submitted a claim for $763,041.01. PSC recommends that the court recognize the McLean Elevator Co. as a cash/check claimant in the total amount of $390,339.34 and pay the company 5.39% of the trust fund’s assets, or $73,885.38. The PSC also recommends that McLean’s claim regarding the loss on its contracts related to undelivered grain be denied. Further, the PSC recommends that McLean Elevator Co. receive 80% of its claim from the credit-sale contract indemnity fund in the amount of $177,601.58.
• Powers Lake Elevator Co. of Powers Lake, ND submitted a claim of $527,933.07. The Commission recommends that a portion of Powers Lake’s claim be denied because it is a claim for losses on unshipped grain. Such losses are not recoverable in trust proceedings, the PSC states, because Powers Lake is not a receipt-holder in relation to losses on grain not delivered to Midwest Grain Trading. “To the extent Powers Lake may have a claim against Hanson related to the unshipped grain, it is outside the scope of these insolvency proceedings,” the PSC states. The PSC recommends that the court recognize the Powers Lake Elevator Co. as a cash/check claimant in the total amount of $388,226.11 and pay the company 5.36% of the trust fund’s assets, or $73,485.37.
• Delmar Commodities Ltd., Manitoba, Canada submitted a claim of $598,019.94 in U.S. dollars (USD) and a supplemental claim in the amount of $455,576.94 in Canadian dollars. The PSC recommends that the court recognize Delmar as a cash/ check claimant in the total amount of $571,981.47 USD against the Midwest Grain Trading/NoDak Grain trust fund and that 7.89% of the trust fund’s assets be paid for a total of $108,267.50 USD.
• Co-op Elevator of McClusky, McClusky, ND submitted a claim for $768,370.40, but the PSC found that the total value of McClusky’s claim is $773,367.68 with a net claim value of $744,593.84. The PSC recommends the Court recognize McClusky as a credit-sale claimant in the total amount of $287,669.35 and that McClusky receive 80%, or $230,135.48, from the Credit-Sale Contract Indemnity Fund. The PSC further recommends that the court recognize McClusky as a cash/check claimant in the total amount of $456,924.49 against the Midwest Grain Trading/NoDak Grain trust fund for the remaining grain that was delivered and be paid 6.3% of the trust fund’s assets, or $86,488.94. On Dec. 27, 2019, the McClusky coop elevator notified the PSC that it had been able to collect a net total of $61,631.18 from Hanson and requested that its “cash/check claim” be reduced from $456,924.49 to $395,293.30, thus reducing its pro rata share by an equivalent amount.
• United Quality Cooperative of New Town, ND submitted claims of $229,964.70 for 34,323.09 bushels of durum at $6.70 per bushel and $117,975.08 for 17,222.64 bushels of yellow peas at $6.85 per bushel. United also asserted a claim for damages for unfulfilled contracts in the amount of $481,508.31 ($398,670.19 for unshipped durum and $82,838.12 for unshipped yellow peas). United asserted five trade agreements with Hanson through East Central Grain Marketing resulted in agreements to sell 250,000 bushels of durum and 62,000 bushels of yellow peas for a total of $2,101,260. The PSC recommends denial of the claims for losses on unshipped grain, because losses on unshipped grain are not recoverable in trust proceedings since United is not a receipt-holder in relation to losses on grain not delivered to Midwest Grain Trading. “To the extent United may have a claim against Hanson related to the unshipped grain,” the PSC notes, “it is outside the scope of these insolvency proceedings.”
The Commission recommends that the court recognize United as a cash/check claimant in the total amount of $346,931.71 and that the coop be paid 4.79% of the trust fund’s assets for a total of $65,668.96.
• CHS Inc., doing business as CHS Garrison, filed a claim of $509,540.33. PSC calculations of the claim led to a net claim value of $308,311.83. The PSC recommends denial of CHS Garrison’s claim for freight charges based on the grain delivered. The PSC also recommends denying CHS’s claim regarding the loss on durum after canceling the contract. The PSC recommends the court recognize CHS as a cash/check claimant in the total amount of $308,311.83 against the Midwest Grain Trading/NoDak Grain trust fund and that the company be paid 4.25% of the trust fund’s assets for a total of $58,358.80.
• Lynden Skaare submitted a claim in the amount of $749,000. The PSC recommends the claim regarding the loss on contracts related to undelivered grain be denied. The Commission recommends the court recognize Skaare as a cash/check claimant in the total amount of $255,220.85 against the Midwest Grain Trading/NoDak Grain trust fund and be paid 3.52% of the trust fund’s assets, or $48,309.47.
• Leon Schmaltz submitted a claim for $186,521.98. The PSC recommends that the court recognize Schmaltz as a cash/check claimant in the total amount of $187,827.26 against the Midwest Grain Trading/NoDak Grain trust fund and that 2.59% of the claim be paid from the trust fund’s assets, or $35,552.88. The PSC further recommends the court approve issuing a check for the proportionate value of this claim to Daniel and Margaret Hager, the Normon Yale estate, and any relevant lienholders.
The PSC also notes in its court filing that it denied nine claims and one claim was withdrawn.
The story of the Hunter Hanson grain fraud case concludes in the May/June issue of Grain Journal.
