by Troy Bishopp
ALBANY, NY — In the Northeast grain marketing business, an earthquake of fraud and deceit has caused a tsunami of anger and bewilderment amongst the agricultural community.
The news of Cargill Inc., America’s largest privately held corporation, based in Minnetonka, MN, being hoodwinked by their account manager, Diane Backis at the Port of Albany, has sent shock waves throughout the grain industry. The Greene County, New York, woman pled guilty to stealing at least $3.1 million from Cargill over 10 years and causing at least $25 million in losses. She also pled guilty to mail fraud and filing a false income tax return.
According to an announcement made on Nov. 28, 2016 by U.S. Attorney Richard S. Hartunian of the Northern District of New York; Special Agent in Charge Andrew W. Vale of the FBI’s Albany Division; and Special Agent in Charge Shantelle P. Kitchen of the Internal Revenue Service-Criminal Investigation (IRS-CI), New York Field Office: “Ms. Backis stole millions of dollars from her employer in a decade-long scheme to enrich herself so she could live beyond her means,” said U.S. Attorney Hartunian. “She stole money by diverting customer payments to her personal bank accounts and sold grain products for millions less than her employer paid, causing enormous financial losses. Her guilty plea today sends a strong message that crime does not pay.”
Backis was responsible for accounting functions in Albany related to Cargill’s grain operations, including creating customer contracts, generating and mailing invoices, and receiving and processing customer payments.
“As part of her plea, Backis admitted that she stole hundreds of customer payments sent to Cargill totaling at least $3,115,610 and deposited them into her personal bank accounts. Backis also regularly created fraudulent invoices and mailed them to Cargill’s customers. The fraudulent invoices charged Cargill’s customers prices substantially less than what Cargill paid to acquire the grain products, causing Cargill significant financial losses. The fraudulent invoices also directed Cargill’s customers to send payment directly to Backis, thereby bypassing Cargill’s corporate controls.
“To hide her activities, Backis made false entries into Cargill’s accounting software to make it appear that customers were paying prices higher than those in her fraudulent invoices and that customers owed Cargill millions of dollars for delivered grain products, only to reverse those false entries. As a result, Cargill lost at least $25 million. Ms. Backis repeatedly victimized her employer,” said FBI Special Agent in Charge Vale. “This kind of fraud is a sinister act that involves not only criminality but a willingness to cause Cargill, Inc. millions in losses.”
Farmers are saying this is a really big story, as the tentacles of fraudulent activities seep into the confusing world of “corn basis” pricing and what the potential effect is on grain farmers, grain merchants and wholesale and retail customers.
“Basis” is the difference between a futures market price for a commodity and its local cash (or street) price. Basis for storable products, like grain, is influenced by the cost of getting grain from a local delivery point to the point of use, and the local supply-demand situation. Basis is an important tool, albeit complex, for farmers choosing a contract.
The first step in making this decision is to compare the basis currently offered at the expected time of delivery to the typical basis at the time of delivery. This comparison will help to predict whether the basis will weaken (widen) or strengthen (narrow) between now and the time the grain will be delivered. Street or cash prices reflect the futures price less (or plus) the basis. Basis is adjusted by buyers to encourage or discourage delivery of grain.
Local farmers, who requested anonymity, said, “We’ve suspected for years that pricing was incorrect and that ‘basis suppression’ was going on and are saddened that it went on for 10 years. We thought the checks and balances would be better. If you figure how many tons of grain went through the port and into the Northeast dairy, livestock and ethanol markets, it’s going to cause a lot more damage than you think before the whole investigation concludes.”
“The guilty plea by former Cargill employee Diane Backis is a very significant matter for farmers in New York and New England. In admitting that she stole over 3 million dollars, she confessed to costing Cargill over 25 million in losses. However, these losses are not the full story — they do not account for the estimated 100 million dollars that farmers throughout the region have lost as a result of her scheme and Cargill’s failure to put a stop to the practice of deflating corn prices for 10 years,” said Lawyer Arend Tensen of Cullenburg & Tensen, P.L.L.C. in Lebanon, NH.
Tensen is currently representing small and large farmers in five states and throughout New York for these losses. He started working for farmers on this case long before the guilty plea and is committed to seeking justice for each of them.
“It is clear that during this period of time, the basis price for corn in this region was lowered substantially, in some cases as much as $1.05 per bushel. Even if Cargill’s claim to be a victim is accurate, Cargill also had a duty to the farming community to monitor its own employees and accounting practices. Even assuming Cargill was inexplicably unaware of the ongoing and massive fraud committed by Backis, in possible conjunction with others, Cargill should have had procedures and safeguards in place to prevent or to reduce such actions,” emphasized Tensen.
“The true victims in this case are the farmers across New York and New England, who lost millions year after year through no fault of their own. Cargill was, of course, in the best position to prevent its own losses and that of the farming community,” said Tensen. If you have information about the issues involved or would like to discuss joining the other affected farmers, please contact him at 800-371-3506 or at usfarmlaw.com.
Pete Stoddart, media relations director for Cargill, said because the case is still active he did not want to discuss it beyond what federal authorities said in the initial news release.
“What I can tell you is that Cargill has thoroughly audited its controls and trading systems and confirmed that this was an isolated incident, undertaken by one employee at a single Cargill location,” Stoddart said. “Cargill customers were not adversely affected by the fraudulent activity.” Cargill employs 120 people in its two Albany locations.
Backis faces up to 20 years in prison, a three-year term of supervised release and a fine of up to $250,000 when she is sentenced on March 28, 2017 by U.S. District Judge Mae A. D’Agostino in Albany. As part of her guilty plea, Backis has agreed to pay Cargill at least $3.5 million in restitution and to forfeiture of her house in Athens, an investment brokerage account, and her Cargill pension benefits.
A defendant’s sentence is imposed by a judge based on the particular statutes the defendant is charged with violating, the U.S. Sentencing Guidelines and other factors. The case is being prosecuted by Assistant U.S. Attorney Wayne A. Myers in the Northern District of New York.