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MDA sues bankrupt Express Grain, claims falsified audit reports were submitted to obtain $750,000 grant

Thursday, June 2, 2022, 12:56 pm News Flash Archive

This morning, the Mississippi Development Authority filed an adversary petition against Express Grain, asking the bankruptcy court to rule that the $750,000 that EG owes MDA is "non-dischargeable," meaning that the debt would survive the discharge of EG's debts at the close of the bankruptcy case. In other words, if the request is granted by the court, EG would remain liable to repay the $750,000 even after the estate is closed.

The basis for MDA's request is the falsification by EG of the audit reports that it submitted as part of its grant application.

The Taxpayers Channel previously reported that EG filed an application for a development grant from MDA, and that MDA had awarded a grant of $750,000 to EG. The grant required EG to create 100 new jobs and spend $18 million in the expansion of new manufacturing facilities and associated infrastructure.

But EG went bankrupt instead, failing to comply with the grant conditions. MDA filed a claim against EG for $750,000. See our reporting here: Mississippi Development Authority files claim against bankrupt Express Grain for $750,000

According to today's complaint filed by MDA:

Miss. Code. Sect. 57-1-16, requires grant applicants to submit financial statements for the three (3) years immediately prior to the application for the purpose of showing that the expanded business maintains a strong financial condition and minimal credit risk.

As part of its application, Express Grain submitted to MDA its Audited Combined Financial Statements for 2017-2018 and 2018-2019, which included Independent Auditor Reports issued by Horne, LLP ("Horne"), a public accounting firm. The Horne Audit Reports were dated January 8, 2019 and December 31, 2019....

Based on Express Grain's grant application and the Audited Combined Financial Statements and Internal Auditor Reports of Horne submitted with the application, MDA entered into a Grant Agreement with Express Grain, on or about February 27, 2020, in which MDA disbursed Ace Funds directly to Express Grain in the amount of $750,000.00.

But according to MDA, EG defaulted on its obligations under the terms of the grant:

As of the Petition Date, Express Grain failed to satisfy the investiture and job creation requirements, among other terms and conditions of the Grant agreement, and it has failed to repay any portion of the $750,000.00 of Ace Grant funding back to the State.

Things got worse once the Mississippi Department of Agriculture and Commerce discovered that EG had forged the financial audits it submitted to gain renewal of its grain warehouse and dealer licenses. Ultimately, MDAC revoked those licenses due to fraud committed by EG.

That's what gave MDA the idea that EG did the same thing to obtain the grant. And MDA discovered:

After reviewing the [MDAC] Commissioner's findings and the evidence and testimony presented to this Court, MDA became aware that Express Grain and John Coleman similarly secured the Ace Fund grant in the amount of $750,000.00 by materially altering its Audited Combined Financial Statements and the original Internal Audit Reports of Horne that were submitted with its grant application.

MDA suggests that criminal intent on the part of EG may be involved here:

As set forth above, the Debtor may have materially altered the Audited Financial Statements and Internal Auditor Reports of Horne that were submitted with its grant application with the intent to deceive MDA as to Express Grain's true financial condition and credit risk.

The Debtor's conduct in this regard may have violated 11 U.S.C. Section 1141(d)(6)(A) and/or (B), which excepts from discharge money owed to a domestic governmental unit that was obtained by false pretenses, a false representation, or actual fraud. If so, the Debtor's indebtedness to MDA in connection with the Ace Fund grant in the amount of $750,000.00 constitutes a nondischargeable debt.

MDA concludes with this prayer for relief:

MDA respectfully requests that this Court enter a judgment against the Debtor determining that the Debtor's indebtedness to MDA in connection with the ACE Fund grant in the amount of $750,000.00, as of the Petition Date, plus interest accrued on said amount to the date of payment, constitutes a nondischargeable debt pursuant to 11 U.S.C. Section 1141(d)(6)(A) and/or (B), and grant MDA any such other relief as the Court may consider appropriate.

MDA's complaint against EG may be seen here: Mississippi Development Authority complaint against Express Grain


To read all our coverage of the Express Grain bankruptcy case, see here: Index of Express Grain articles

 

John Pittman Hey
The Taxpayers Channel

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