Monday, March 13, 2023, 7:44 pm
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In a remarkable escalation of the nasty litigation in the fall-out of Express Grain's bankruptcy, attorney Don Barrett, representing farmers in Tallahatchie and Holmes Counties, has accused Horne LLP, the former auditors of EG, of contributing to the huge losses by the farmers, who delivered grain to EG, but were never paid for it.
Federal law prohibits the farmers from filing suit against EG to recover their losses, since the company is bankrupt.
The new lawsuits were filed in state court, where no doubt Mr. Barrett anticipates operating in more friendly venues.
The farmers in Tallahatchie County who are suing are:
Sunnyside Planting Co.
Edward E. Shook
Murrah B. Hardy, Jr
Berry Ann Allison
Twin Bayou Farms
Carty and Ashley Tillman Farms
Moore Farms Partnership
Kelsie Fennell Tribble
The farmers from Holmes County who are suing are:
Howard Turner d/b/a Triple Tee Farms
Killebrew Cotton Co.
UMB Bank and Horne both immediately removed the cases to federal court.
The Holmes County case has been assigned to Southern Federal District Court Judge Henry Wingate, who already is presiding over the original Barrett-led suit against UMB Bank filed in 2021.
The Tallahatchie County case has been assigned to Northern Federal District Court Judge Michael Mills.
As is now very clear, EG defrauded its creditors, including unpaid farmers, vendors, banks, and financial lenders. Its debts far exceeded its assets. In the end, more than $210 million in claims were filed against EG, while the company liquidated for just under $85 million.
But Barrett is going after other EG creditors, including UMB Bank and Horne, claiming that they helped EG further its fraudulent scheme:
Express Grain perpetrated this fraud on Plaintiffs [the farmers] and its other customers by making affirmative representations about its financial stability while it was teetering on the brink of financial ruin. In order to collect fees, Defendants [UMB Bank and Horne] provided banking and accounting services that enabled and sustained Express Grain's fraud but turned a blind eye to Express Grain's impending collapse. Without Defendants' services, the Express Grain scheme could not have succeeded. Defendants furthered Express Grain's fraud by lending credibility to the misrepresentations Express Grain was making to farmers, including Plaintiffs.
EG cheated UMB Bank out of $70 million, but it has been able to recover almost half of that from the sale of EG's assets.
According to EG's bankruptcy filings, it owed Horne $29,000 for accounting services when it collapsed.
The accusations made by Barrett and the farmers are similar, but not identical, to those made in the previous federal court lawsuit that Barrett filed in 2021 against UMB Bank. That case has been bogged down since June 2022, awaiting a ruling by Judge Wingate on whether to dismiss the lawsuit.
To read our original reporting on the previous suit, see here: Farmers' Attorney Don Barrett continues to pursue UMB Bank in Express Grain debacle
Complicating the farmers' lawsuits is the fact that EG forged Horne's audit reports going back to 2018, and submitted fabricated audits to the Mississippi Department of Agriculture and Commerce (MDAC). EG also submitted fabricated audit reports to UMB Bank, along with falsified grain inventory figures.
MDAC discovered the forgeries when Horne auditors showed up in Commissioner Gipson's office with copies of the original, truthful audit reports. The altered audits were discussed in a State Senate Agriculture hearing about the EG collapse, which streamed on the internet on December 15, 2021.
MDAC held hearings and found that EG had submitted the forged, fraudulent audits to MDAC, which had resulted in EG's licenses being renewed. MDAC revoked EG's licenses to carry on business in Mississippi as a grain warehouse and grain dealer. See our original reporting here: Mississippi Department of Agriculture VOIDS Express Grain warehouse licenses due to fraud
EG's president John Coleman has since been indicted on multiple counts of fraud by both state and federal grand juries. He pleaded not guilty on all counts, and has not yet gone to trial on these charges. See our reporting here: Express Grain president John Coleman arrested by the FBI, indicted on multiple federal counts of wire fraud
Horne's authentic audits were peppered with warnings and explanatory notes calling into question how EG could continue to operate. But EG removed most of that information, and doctored other information, to paint a more flattering picture.
But Barrett and the farmers demand that Horne should have done more:
Horne never performed any investigation as to why EGT continued to receive a warehouse license in light of Horne's designation of EGT as a going concern [a term of art referring to Horne's repeated audit warnings that EG might fail].
The farmers do not cite any statute requiring Horne to conduct such an investigation. But Barrett argues that Horne had a professional duty to do so.
The lawsuit claims that Horne should have resigned as EG's auditor when it discovered that EG was selling beans to finance companies, beans that did not actually exist.
But a review of Horne's audits indicates that Horne was unaware that the beans didn't actually exist. Instead, Horne appears to have believed the beans had been purchased and removed from inventory.
The lawsuit claims that:
Pursuant to Mississippi law, Horne had a duty to submit sworn financial reports to MDAC, but Horne never did.
But the Mississippi statute that Barrett cites doesn't say that:
Section 75-44-43. Annual inspection of warehouse financial statement
(2) Every grain warehouse shall at least annually send to the commissioner a copy of its financial statement prepared by an accountant licensed by the State of Mississippi and sworn to by the accountant and grain warehouseman.
Thus, Horne had no legal duty to provide MDAC a copy of its audits; rather, EG had that legal duty.
Not only that, but Horne's auditor, Joseph Green, did not know that EG was required to submit audits to MDAC to secure its licenses. This came out at MDAC's hearing, where Mr. Green testified at length, walking the Agriculture Commissioner through the numerous alterations and forgeries that appeared in the audits that EG submitted to MDAC. To see that transcript, view here: MDAC Transcript of February 4, 2022 hearing re: Express Grain licenses
MDAC Hearing Exhibits
The sad thing is, that the farmers and Barrett appear to have a stronger lawsuit against MDAC, since it had the oversight duty, and failed to detect the fraud that EG perpetrated against it.
In all, the new lawsuits accuse UMB Bank and Horne of:
aiding and abetting fraud
intent, negligence, negligence per se and gross negligence
To read the new complaints, see here:
Holmes County Farmers' Complaint against Horne/UMB Bank
Tallahatchie County Farmers' Complaint against Horne/UMB Bank
Needless to say, UMB Bank and Horne strongly object to the accusations raised in these two new lawsuits. Horne states that it has no duty to anyone but its client, EG, and that none of the farmers actually obtained or read any of its audits before EG went bankrupt, so they could not have relied upon the audits to their detriment.
Horne also had no ethical duty to resign as EG's auditor, since it did not discover any fraudulent activities in auditing EG's books.
To read Horne's Motion to Dismiss the complaint, see here: Horne's Motion to Dismiss
UMB Bank has not yet filed a response to the lawsuits.
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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