Alleged fake farmers defrauded grain elevators

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained an emergency federal court order freezing assets held by defendants Mark Alan Vanderploeg of Glendale, Ariz. and his companies, Midwest Land & Livestock, Inc. also of Glendale, SKV Farms Inc. of Omaha, Neb. and DCV Farms, Inc. of Minneapolis, Minn. The court’s order also prohibits the destruction of books and records and grants the CFTC immediate access to such documents.

The order stems from a CFTC enforcement action filed under seal on September 8, 2010, in the U.S. District Court for the District of Kansas, charging the defendants with false reporting in connection with a fraudulent scheme perpetrated on grain elevators and cooperatives (grain entities) in Kansas, Iowa, Minnesota, Illinois and South Dakota. As a result of their scheme, defendants made at least $209,000 in ill-gotten gains from grain entities in states where the price of grain decreased, the complaint alleges. Conversely, where the price of grain increased, the defendants’ scheme caused the grain entities to incur net losses of $112,400 on futures positions, according to the complaint.

Vanderploeg and his companies pretended to be farmers. In doing so, they entered into forward contracts with the grain entities for more than one million bushels of grain during the 2008 harvest, despite the fact that the defendants, unknown to the grain entities, lacked the ability to produce the contracted-for grain, according to the complaint. As part of these transactions, and to hedge risks associated with these forward contracts, the grain entities entered into “short” commodity futures contracts. Common practice in the grain industry is for grain entities to share monetary gains that may result from hedge positions with farmers when a forward contract is cancelled due to a farmer’s inability to produce the contracted-for grain, according to the complaint.

Just prior to the 2008 harvest, defendants informed many of the grain entities that the defendants would be unable to deliver the contracted-for grain, which effectively cancelled their forward contracts. The complaint further alleges that where grain prices decreased, resulting in corresponding gains in the short futures positions, in many instances the defendants successfully demanded that the grain entities share with defendants their hedging gains. However, where grain prices increased, resulting in corresponding losses in the short futures positions, in almost all instances defendants failed to deliver any grain and simply disappeared. In a few instances, defendants purchased grain and delivered it to the grain entities, according to the complaint.

Defendants ordered to appear in court on October 15, 2010

U.S. District Court Judge Eric Melgren ordered defendants to appear in court on October 15, 2010, for a preliminary injunction hearing.

In its continuing litigation, the CFTC seeks the return of ill-gotten gains, restitution to grain entities, civil monetary penalties and permanent injunctions prohibiting the defendants from engaging in any commodity-related activity and from further trading, among other sanctions.

The CFTC appreciates the assistance of the Kansas Bureau of Investigation, the Kansas Attorney General’s Office, the Iowa Attorney General’s Office and the Minnesota Attorney General’s Office.

The CFTC Division of Enforcement staff members responsible for this action are Jo Mettenburg, Peter Riggs, Jeff Le Riche, Jennifer Chapin, Stephen Turley, Rick Glaser and Richard Wagner.

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