Express Grain Terminals LLC has had its grain warehouse licenses revoked by the Mississippi Department of Agriculture, setting up a likely battle over who owns the soybeans and corn still stored in 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 were “fraudulently sought and obtained on the basis of material misrepresentations contained in the applications and accompanying documents.”
Gipson’s ruling comes a week after he 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 doctored audit report as part of its application for renewal of the warehouse licenses.
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Gipson said that Express Grain hired Horne LLP, an independent auditing firm based in Ridgeland, to perform a combined audit for financial years 2019 and 2020. He said Express Grain received the results on May 20, 2021, and a week later submitted to the Department of Agriculture what the company represented to be the audit.
Gipson said the hearing determined that the two documents were not the same but different in several significant ways, including altering the company’s operating loss of $20 million to an operating profit of $162,000, as well as the removal of warnings by Horne that the company was in dire financial straits and risked failing on the terms of its loans to UMB Bank of Kansas City, Missouri, Express Grain’s largest creditor.
Testimony from Joe Green, the Horne auditor who produced the report, confirmed the document turned in to the state was not the one Green prepared for the company. Gipson found the discrepancy was “not the result of an honest mistake, inadvertence or oversight and amounted to forgery.”
He said that an investigation of prior year licenses further showed that Express Grain’s fraud went back to at least 2019.
Though the license applications were signed by John Coleman, Express Grain’s president, the company was represented at last week’s hearing by Dennis Gerrard, the consultant hired to try to salvage the company after it sought bankruptcy protection with a debt in excess of $156 million.
Gipson said Gerrard and his counsel did not deny or contest the circumstances of the two audit reports.
“When 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 ‘voidable’ but is void ab initio,” meaning from the beginning.
He said Express Grain violated the conditions of its licenses “before they were ever issued, by virtue of the fraudulent misrepresentations contained in” its application.
Gipson also cited the testimony of Gene Robertson, director of the department’s grain division, who said that if state regulators had seen the true audit report last year, they would not have approved the license applications.
Neither Gerrard nor Coleman could be immediately reached for comment.
The state Attorney General’s Office is reportedly conducting a criminal investigation into whether Coleman 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 pursuing buyers for either parts or all of Express Grain’s storage and processing operations.
According to Mississippi law, though, if a company has its grain warehouse licenses revoked, it must advertise for three consecutive weeks in the local newspaper of the company’s intention to discontinue the grain warehouse business and for the owners of the grain in storage to claim it.
Who those 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 for it — have made competing claims as to who has legal title to the grain.
Gipson’s order was released less than an hour after federal Bankruptcy Judge Selene Maddox announced she would not stand in the way of any administrative action by the state toward Express Grain.
In a telephonic hearing, she said the Department of Agriculture had successfully argued that its regulatory powers should be exempt from the bankruptcy protections afforded Express Grain.
Maddox declined, however, to convert the company’s bankruptcy case to Chapter 7, as a group of creditors had requested. A Chapter 7 filing would force the company’s immediate liquidation.
She said that the farmers and production lenders who made the motion had not provided evidence of gross mismanagement under Gerrard, and that while they may disagree with how Gerrard has operated the company, a disagreement is not tantamount to mismanagement.
She also declined the same creditors’ request to appoint an examiner to look into the company’s current finances.
Maddox said the cost of such a move 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 kedwards@gwcommonwealth.com.
