SIOUX CENTER—A former em­­ployee for a Sioux Center-based cooperative has changed his plea to guilty in a federal case regarding illegal grain-mixing practices he is accused of conducting.

Calvin Melvin Diehl, a former assistant general manager for Farmers Cooperative Society, pleaded guilty on June 9 to one count of conspiracy to defraud the United States, according to a plea agreement.

He originally faced that charge as well as one count of willfully causing another to make a false statement.

Kenneth Lloyd Ehrp, a former CEO and general manager of FCS, has been charged with one count each of conspiracy to defraud the United States and prohibited grain practices and two counts of willfully causing another to make a false statement.

Ehrp originally was charged with one count of conspiracy to defraud the United States and two counts of willfully causing another to make a false statement.

The two men originally entered pleas of not guilty on Jan. 22 in U.S. District Court for the Northern District of Iowa in Sioux City after being indicted on Dec. 19.

However, the charges for the 75-year-old Ehrp and 60-year-old Diehl were updated with a nine-page superseding indictment filed by the federal government on May 26.

Ehrp has pleaded not guilty to the charges. His trial has been continued from July 6 to Aug. 3.

According to court documents, beginning about 2011 and continuing until about April 2017, Ehrp and Diehl “knowingly and intentionally combined and conspired to defraud the United States by impeding, impairing, obstructing and defeating the lawful governmental functions of a government agency, namely the United States Department of Agriculture, and to commit offenses against the United States.

“It was part of the conspiracy that the co-conspirators did by deceit, craft, trickery and dishonest means, defraud the United States by interfering with and obstructing the lawful governmental functions of the USDA, in that the co-conspirators did knowingly blend oats into soybeans and conceal such prohibited grain practices from USDA inspectors.”

In addition, Ehrp and Diehl were accused of:

  • Making false statements and executing false certificates to USDA inspectors, including about the amount of oats the cooperative had on site and how much was lost because of the “shrinkage” of bushels of oats.
  • Instructing the cooperative’s employees to layer soybeans on top of oats in its storage bins and its trucks to deceive USDA inspectors and its customers about the quality and quantity of the grain within the cooperative’s inventory and the quality and quantity of the grain the cooperative sold.
  • Making false entries and ad­­justments in the cooperative’s daily position reports.

The federal government alleged Diehl made a false statement on March 27, 2017, when he told a federal warehouse examiner “that he did not know why a pile of oats was located near a pile of soybeans” at one of the cooperative’s satellite facilities, according to court documents.

The scheme led to the cooperative’s grain inventory being overvalued to influence a bank’s action on a revolving operating loan the cooperative had with the financial lender.

“At all times, soybean was a more valuable commodity than oats,” according to court documents. “On March 31, 2017, for example, the market price for soybean was $9.69 per bushel. By contrast, the market price of oats was $2.39 per bushel on that date.”

The alleged practice of having cooperative employees blend soybeans with oats or layer soybeans on top of oats violates the U.S. Grain Standards Act.

“No dockage or foreign material of any origin may be added to any grain that is marketed in or exported from the United States,” according to court documents. “Prohibited foreign material includes any kind of grain other than the grain marketed or exported.”

Under the Grain Standards Act and its regulations, it is a prohibited grain practice to blend different kinds of grain together except when such blending will result in grain being officially designated as “mixed grain” or a business like a cooperative is granted an official exemption to blend different grains together, neither of which happened in this case.


CIVIL LAWSUIT:

Kenneth Lloyd Ehrp began working in 1991 for Sioux Center-based Farmers Cooperative Society as its CEO and general manager and served in the position until April 28, 2017, when its board of directors accepted his resignation.

The Dakota Dunes, SD, resident, is a plaintiff in a lawsuit filed against the cooperative that has gone through the federal and state court systems.

The petition filed in Sioux County District Court in Orange City claims the cooperative must pay Ehrp more than $600,000 in past wages and maintain his life insurance policies.

The cooperative denied the claims, filed a lawsuit of its own against Ehrp and his son Brian Ehrp, trustee for the Kenneth Ehrp Irrevocable Trust No. 2, and requested a jury trial, which has been scheduled to begin Dec. 8 at the Sioux County Courthouse in Orange City.

“Plaintiffs’ pending claims against Farmers Co-op are substantial in that they allege more than $1,584,000 in damages by Farmers Co-op,” according to court documents. “Kenneth Ehrp seeks $634,458.41 in liquidated damages, plus attorneys’ fees and court costs. Brian Ehrp seeks as much as $950,000 for the total expected value of the life insurance policies.”