With commerce comes fraud

By Leisa Boley-Hellwarth

Just weeks ago, on Feb. 14, 2023, in federal court in the Northern District of Iowa, a livestock dealer and four of his managers were sentenced in a widespread pig fraud scheme that had spanned nearly two decades and caused over $3 million in loss. 

Beginning in the early 2000s, and continuing through at least late March, 2017, Lynch Livestock’s second-ranking official directed other managers and employees to falsely reduce and downgrade the numbers, quality classifications, and weights of swine that producers and sellers had delivered to Lynch Livestock’s buying stations throughout the Midwest. These practices mostly concerned large, corporate swine producers who brought their swine for sale to Lynch Livestock. To effectuate the fraud, managers at Lynch Livestock’s headquarters created false and fraudulent scale tickets bearing the initials of the managers at the buying stations. By falsifying the producers’ accounts of purchase, Lynch Livestock and its managers created false and fraudulent invoices to pay less than what was due and owing to these producers. Lynch Livestock managers and employees then routinely shredded and burned evidence of the fraud.

Between about 2018 and March 2021, Lynch Livestock’s managers and employees used a crowbar or other similar object to manipulate the scales on which livestock producers’ swine was weighed at its buying stations. As a result, Lynch Livestock created, kept and provided to livestock producers scale tickets that contained false information because they understated the actual weight of the swine. Consequently, Lynch Livestock paid livestock producers less than what was owed.

The sentencing judge, the Honorable C.J. Williams, of Cedar Rapids, opined that “the nature of the fraud was to rip off people little by little, day by day.” This little piggy went to market but the farmer was not paid the actual amount due. This story was repeated for 20 years.

On Jan. 9, 2023, two Dubai entities and several individuals were charged in an indictment unsealed in the District of Maryland for their roles in a multi-million dollar scheme to export non-organic grain into the United States to be sold as certified organic.

The indictment alleges that between November 2015 and May 2017, the defendants operated a scheme where Hakan Agro, Hakan Organics and associated entities would purchase non-organic soybeans and corn from Eastern Europe before having it shipped to the United States as “organic.” This scheme allowed the defendants to charge the higher prices associated with organic grains as they often cost as much as 50% more than conventional grains. As this criminal proceeding is at the early stages, defendants are considered innocent until proven guilty.

Both the pig fraud and the organic grain fraud cases demonstrate that fraud is the intentional use of deceit, a trick or some dishonest means to deprive another of his or her money, property or legal right. Perhaps the hardest case to plead and prove, is one for fraud because it must be done with particularity.

Fraud can be either a civil tort or a criminal wrong. The quickest way to determine the type of fraud is

to see who is the plaintiff. If a governmental entity is suing, the matter is criminal. If a private party is taking legal action, the case is civil. The same set of facts can be both criminal and civil.

Whether criminal or civil, fraud has the following legal elements:

• Misrepresentation of a material fact;

• Knowledge on the part of the accused that they were misrepresenting the fact;

• The misrepresentation was made purposefully, with the intent of fooling the victim;

• The victim believed the misrepresentation and relied upon it;

• The victim suffered damage as a result of the misrepresentation.

Perhaps Nathan Blecharczyk, the American billionaire businessman who co-founded Airbnb said it best when he observed that “with commerce comes fraud.”

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