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UMB Bank levels new fraud accusations against John Coleman and Express Grain

Tuesday, January 25, 2022, 7:00 pm News Flash Archive

On January 24, UMB Bank filed new papers in the personal bankruptcy case of John Coleman, the president of Express Grain, which is also in bankruptcy.

In these new papers, UMB Bank alleges that Coleman filed numerous falsified reports to UMB Bank indicating repeatedly that EG owned more beans than it actually did, counting beans sold to others as EG's property, for purposes of obtained credit from UMB Bank that it was not entitled to under their loan agreement.

UMB Bank also discloses, for the first time, that the audit report provided to UMB Bank by John Coleman and Express Grain differed substantially from what Horne LLP, the company's auditors, had prepared and provided to Express Grain.

The new filing may be seen here: Complaint against John Coleman

This new filing by UMB Bank is called an "adversary proceeding" because UMB Bank is seeking to have the bankruptcy court refuse to discharge the $70 million debt that Coleman and Express Grain owe the bank, based upon alleged fraud by Mr. Coleman.

Normally, a personal bankruptcy case when concluded, leaves the individual free and clear of his remaining debts, because they are "discharged" "by the court's final order. This leaves his creditors at least partially unpaid.

However, in certain cases, the creditors can file an "adversary procedure" to carve out the debt owed to them by the debtor, so that the bankruptcy does not provide the debtor any relief, but rather, he is left still owing the debt, which the creditor can then pursue to collection.

UMB Bank points out that both John Coleman and Dr. Michael Coleman signed personal "guaranty agreements" in which they promised to pay back UMB Bank for any money that EG failed to repay. In other words, they personally backed up the corporate loans made by UMB Bank to EG.

Under these agreements, UMB Bank can go after both Colemans personally if EG ends up failing to pay back in full the $70 million that it owes UMB Bank.

To see the guaranty agreement, click here: Guaranty Agreement

UMB Bank explains the importance of accurate inventory reports here:

... the amount that Borrowers [i.e., Express Grain] could borrow under the Revolving Loan was determined in part by the amount of Borrowers' eligible inventory under the terms of the Loan Agreement. To be included within eligible inventory for purposes of the Borrowing Base, the inventory must be owned by a Borrower free and clear of any assignment, claim, or lien except a first-priority lien in favor of UMB....

But UMB Bank claims that John Coleman falsely reported inflated figures of EG-owned grain in order to borrow more money:

Debtor [John Coleman], as an officer of Borrowers, materially misrepresented the amount of eligible inventory on Borrowers' Borrowing Base Certificates and supporting documentation. Debtor, as an officer of Borrowers, reported that as of June 30, 2020, EGT was holding 2,080,000 bushels of soybeans subject to warehouse receipts not held by UMB (the "NonUMB Warehouse Receipts"). This statement was false.

UMB later learned that the actual amount of Non-UMB Warehouse Receipts outstanding as of June 30, 2020 was 5,680,000 bushels of soybeans.

Thus, in this instance, Mr. Coleman assured the bank that EG held 3,600,000 more bushels of grain than it actually owned.

UMB Bank then walks through the next 12 months, accusing Coleman and EG of vastly inflating the amount of grain actually owned by EG each and every month.

As previously reported by The Taxpayers Channel, UMB Bank says it found out about this manipulation and false reporting on September 22, 2021, when a "corporate representative" informed them that the grain numbers were inaccurate. See our reporting here: UMB Bank: insider contacted us about suspicious Express Grain filings

UMB Bank now states: "This was the first time UMB knew of the Debtor's misrepresentations."

UMB Bank then explains:

As a result of Debtor's [John Coleman's] misrepresentations about the amount of Non-UMB Warehouse Receipts, Debtor overstated the amount of the Borrower-owned commodities and eligible inventory. In other words, Debtor falsely represented to UMB that the commodities it sold and were subject to Non-UMB Warehouse Receipts were still owned by Borrowers. The company owned inventory reported by Debtor, as an officer of Borrowers [Express Grain], in the borrowing base certificates was also therefore misstated, and the Borrowers' availability under the Revolving Loan was also therefore overstated on the Borrowing Base certificates.

Further, the company-owned inventory reported by Debtor, as an officer of Borrowers, in Borrowers' compliance certificates and financial statements were also misstated and materially false.

The Mississippi Department of Agriculture and Commerce have commenced an investigation into possible fraud by EG regarding the audit reports submitted in support of its warehouse license renewals. See here for our reporting on MDAC's investigation: Express Grain docs show apparent cover up of huge loss in 2020

After MDAC had the audit reports unsealed on January 19, 2022, UMB Bank says that it then discovered that the audit report John Coleman had submitted to the Bank was different from the original audit prepared by EG's auditing firm, Horne LLP, in much the same manner as MDAC had discovered regarding the audit report submitted by Coleman and EG to the Department:

On January 19, 2022, the Department [MDAC] filed the Auditor's Copy [of the EG Audit Report] with the Court. Upon review and comparison of the Auditor's Copy to the copy of the financial statements for the same period that Debtor provided to UMB in February 2021 ("UMB's Copy"), UMB notes several material differences. Among other things, the differences include:

a. UMB's Copy does not contain the "Emphasis of Matters Regarding Going Concern" that is on page 2 of Auditor's Copy the Independent Auditor's Report;

b. The letterhead for Horne, LLP is different on the Auditor's Copy than on UMB's Copy;

c. The Auditor's Copy lists an operating loss of $20,988,306 for the year ended June 30, 2020, and UMB's Copy lists operating income of $763,576 for the year ended June 30, 2020;

d. The Auditor's Copy lists a net loss of $21,226.386 for the year ended June 30, 2020, and UMB's Copy lists a net loss of $1,318,354 for the year ended June 30, 2020;

e. The first paragraph under 'Plan of Operation' on the Notes to Combined Financial Statements in the Auditor's Copy does not match the first paragraph of "Plan of Operation" in UMB's Copy;

f. The inventory amount listed on the Auditor's Copy does not match the inventory amount on UMB's Copy; and

g. Note 4 on the Notes to Combined Financial Statements on the Auditor's Copy does not match Note 4 on UMB's Copy.

According to UMB Bank, EG and the Colemans owe the bank over $70 million.

UMB Bank accuses John Coleman of "actual fraud":

The Borrowers obtained money, property, services, or an extension, renewal, or refinancing of credit from UMB by Debtor employing false pretenses, false representations of material facts that Debtor knew to be false at the time the representations were made, and/or actual fraud other than by a statement representing the financial condition of Debtor including, without limitation, to making misrepresentations as to the nature, value, and amount of the grain owned by Borrowers.

Upon information and belief, the misrepresentations made by Debtor were made with the intention and purpose of deceiving UMB.

The Bank also accuses Coleman of making "Materially False Financial Statements" and "Willful & Malicious Injury."

The Bank concludes:

UMB prays for entry of a judgment finding that UMB's claims against Debtor [John Coleman] are excepted from any discharge received by Debtor in his bankruptcy pursuant to the provisions of 11 U.S.C. Section 523(a)(6) and for such other and further relief as the Court deems just and equitable.

No court date has been set for a hearing on UMB Bank's petition.


Here are four exhibits that UMB also filed with its complaint against John Coleman:

Fourth Loan Agreement

Revolving Note

Term Note

Guaranty Agreement

 

John Pittman Hey
The Taxpayers Channel

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