At
company Brian Kemp backed, unpaid debt and possible ‘felony’, By Alan Judd - The Atlanta
Journal-Constitution, 10/3/18.
When
it needed a loan, Hart AgStrong, a grain processor partly owned by
Republican gubernatorial candidate Brian Kemp, put up as collateral thousands of bushels of canola and
sunflower seeds. The problem was, AgStrong didn’t own them.
Later,
AgStrong used an insurance settlement from two fires at its plant in northeast
Georgia to pay the same lender — not the farmers whose grain had been
destroyed.
The
company’s actions “may be a felony under Georgia law,” an attorney for the
state Department of Agriculture wrote to AgStrong in April. The letter
threatened to revoke AgStrong’s licenses to do business with Georgia farmers,
collect a $70,000 fine, and liquidate the company’s assets to compensate
farmers.
“I
was heavy-handed,” the attorney, Ashley Sellers, wrote in a separate email to
Agriculture Commissioner Gary Black and others on April 10, “but I think the
options are clear.”
Six
months later, AgStrong is
still in business, although its situation seems precarious. It can no longer
accept grain from farmers without paying up front. As a result, its inventory
is depleted. And it is still trying to repay hundreds of thousands of dollars
to farmers in Georgia and other states, as little as $20 at a time.
One
farmer filed for bankruptcy while waiting for payment from
AgStrong. Another said he had to refinance loans to keep his farm afloat.
The
Atlanta Journal-Constitution reviewed more than 2,000 pages of Department of
Agriculture records on AgStrong. The documents depict a relatively young
company experiencing repeated setbacks, some unavoidable, some self-inflicted.
Nothing
in the records suggests Kemp was directly involved in AgStrong’s questionable
business dealings. However, some of those activities occurred while Kemp, the
Georgia secretary of state, served on the company’s board of directors and
while he negotiated to extend another loan that is now the subject of a bitterly contested
lawsuit.
His
campaign said this week that Kemp had not known the extent of AgStrong’s
troubles. He resigned from the company’s board in August of last year.
Regardless,
Kemp’s finances remain closely tied to AgStrong’s success. He invested $750,000
in the company a decade ago. More significantly, he guaranteed $10 million in
loans to AgStrong — about twice his net worth, according to disclosure
statements. The loans begin to mature next year, a few months after Kemp hopes
to move into the governor’s office.
Aides
to Kemp said AgStrong’s property and equipment back most of those loans. They
also said Kemp was not the only investor who promised to pay if the company
couldn’t.
In
a recent deposition, Kemp professed to know little about AgStrong’s operations.
A lawyer asked when he last received financial reports from the company.
“I
wouldn’t recall that,” Kemp said. “It’s been a long time.”
It
was one of at least 91 times Kemp answered questions with varying constructions
of “I don’t know,” “I don’t remember,” or “To the best of my knowledge, I don’t
recall.”
‘Over-receipted’ - One
hundred miles northeast of Atlanta, AgStrong’s eight massive grain bins, some
as tall as five-story buildings, loom over tiny Bowersville, Georgia, the
company’s home since 2009.
A
video on AgStrong’s website describes Bowersville as a quaint little town in
America’s “heartland.” In truth, it’s barely a town at all. A post office, the town hall and a community center fill the only
occupied commercial building downtown. Two others are boarded up, as is a
former Baptist church down the street.
Less
than a mile north on Main Street is AgStrong, a complex of storage bins and
processing buildings on farmland that used to belong to the town’s longtime
mayor. It emits a distinctive odor as machines crush canola and sunflower seed
into oil and meal. The smell insinuates itself into everything: clothes, hair,
skin.
But
the facility brought 10 jobs and a $5 million investment to Bowersville, aided
by government-backed loans and long-term tax breaks. The Department of
Agriculture granted AgStrong a grain warehouse license in 2009. The company’s
application listed Kemp as one of eight owners.
Along
with the license, AgStrong obtained what is known as a receipt book —
promissory notes that the company gives farmers when they deliver grain. The
company wouldn’t have to pay the farmer until it sells the grain on the
commodities market or otherwise processes it into consumer goods. But state
inspectors soon discovered discrepancies between AgStrong’s receipt book and
its actual inventory.
In
December 2011, according to Department of Agriculture records, had outstanding
receipts for about 248,000 bushels of canola seed. But when an inspector
measured the bins, they were more than 34,000 bushels short — “over-receipted,”
as agriculture officials put it. The company had disposed of about $275,000 in
grain without paying the growers.
The
inspector ordered AgStrong to either pay farmers or replace the grain within 10
days, according to state records. AgStrong quickly resolved the discrepancy.
But
the Department of Agriculture kept documenting similar shortages in 2014 and
2016. Payments to farmers fell behind schedule.
AgStrong
always seemed to be putting off one debt to pay another, said Phillip Douglas,
a farmer from Kinsey, Alabama, who sold more than $13,000 in sunflower seed to
the company.
“I
understand that,” Douglas said. “Farmers do that.”
But
he said it was AgStrong that convinced him to plant sunflowers as an
alternative to cotton. He expected to be paid for what he grew. “I stuck my
neck out and it cost me, big time,” he said. “It hurt me.”
Douglas
had to refinance the debt on his farm. All he has gotten
from AgStrong is what he called a “dribble-drabble” of small checks. At the
mailbox, he said, he might find a check for $1,000 one month, but only $100 or
$200 the next. He still hasn’t been paid in full.
‘Farmers owed
money’ - AgStrong’s problems escalated in the
last half of 2016. Two fires — one in July, then another in October — destroyed
more than 160,000 bushels of grain. The market value totaled about $1.3
million.
The
second fire broke out at a particularly inopportune time: four days before the
company was supposed to repay a $500,000 loan from a Toccoa businessman and
friend of Kemp’s, Rick Phillips.
Kemp
said in his recent deposition that he traveled to Toccoa several times in the
fall of 2016 to negotiate with Phillips for an extension. Kemp even gave
Phillips a detailed accounting of his personal finances to prove he could cover
the loan if AgStrong defaulted. Phillips extended the due date to February
2017.
According
to his campaign aides, Kemp did not know when he negotiated with Phillips that
AgStrong was about to relinquish its receipt book to the Department of
Agriculture, a move that would severely curtail its operations.
A
few weeks later, Robert Davis, AgStrong’s chief executive, notified the
department that the company had received a settlement from its insurer for the
fire losses. Although he said it would take several weeks, “this will place our
inventory back in a positive position in Bowersville.”
However,
the money didn’t go to farmers, or to buy grain to cover the fire losses, or
even to repay Phillips. Instead, the Department of Agriculture later
determined, AgStrong paid another creditor, to whom the company had pledged the
grain as collateral for a loan. Davis did not respond to requests for an
interview.
After
AgStrong didn’t repay him in February, Phillips gave the company three more
months. Finally, last October, he filed a lawsuit that seeks to force Kemp or
others to pay on the company’s behalf. The case is scheduled to go to trial
next month in Gwinnett County Superior Court.
Department
of Agriculture officials were also growing frustrated with AgStrong. “They owe
farmers for grain delivered,” Jack Spruill, then the head of the department’s
marketing division, wrote to colleagues in late October. “Whether it was
crushed and made into oil, floated down the river or burned up is not important
to the issues of farmers owed money.”
On
Nov. 15, AgStrong and the department signed a consent order that fined the
company $70,000 and placed it under close scrutiny by agency officials. The
department suspended the fine to give AgStrong time to pay farmers. To monitor
payments, the department requires AgStrong to submit copies of every check it
writes.
But
by early 2018, AgStrong had already violated the consent order. It lost nearly
$50,000 in sunflower seed when a bin collapsed, and sold other seed to cover
the loss.
At
9:23 a.m. April 11, a department employee hand-delivered a letter to Davis at the
AgStrong plant. It gave him 30 days to make good on what the company owed
farmers.
The
violation, Davis wrote to the department, was “solely a failure on our part,”
although he blamed employee turnover for some of the problems.
“Our
challenge,” Davis told the department, “is that we have been attempting to
continue operations with a negative working capital balance.”
The
department ended up giving AgStrong until the end of 2018 to catch up on farmer
payments. The agency could have shut the company down, the action it took
against a Statesboro cotton warehouse in 1998. In that case, the warehouse
owner, David Prosser, pleaded guilty to fraud charges after he used proceeds of
cotton sales to invest — badly, it turned out — in cotton futures. Farmers lost
$13.5 million, much of which was compensated by federal and state payments.
Prosser was sentenced to almost three years in federal prison.
But
if the department had closed AgStrong, said Spruill, the agriculture official,
“we wouldn’t have had the leverage to get the farmers paid.”
“Get
the farmers paid. Get the farmers paid,” Spruill said in an interview. “That
was the department’s only motive.”
AgStrong
didn’t tell Kemp about either the consent order or the later violation,
campaign aides said this week.
In
his recent deposition, Kemp said he hadn’t talked to Davis, the chief
executive, in “a very, very long time.”
“And,”
he said, “I have no knowledge of what the company is doing at the moment.”
OUR
REPORTING - The Atlanta Journal-Constitution recently reported on the political
and financial perils that Republican Brian Kemp faces from a lawsuit over a
loan he personally guaranteed for an agricultural business in which he
invested. An earlier story examined Democrat Stacey Abrams’ fundraising for two
nonprofit organizations she founded.
Norb Leahy, Dunwoody
GA Tea Party Leader
No comments:
Post a Comment