SIOUX CITY—A former general manager of a Sioux Center grain cooperative who directed subordinate managers to blend oats into soybeans has been sentenced to three months in a federal prison.
Seventy-six-year-old Kenneth Lloyd Ehrp of Dakota Dunes, SD, received the prison sentence Wednesday, March 24, in Sioux City from U.S. District Chief Judge Leonard Strand.
In addition to the imprisonment, Ehrp was fined $50,000 and ordered to pay $4,089.73 in costs of prosecution.
Ehrp also must serve a one-year term of supervised release after his prison sentence. There is no parole in the federal system.
He received his prison sentence after pleading guilty on Nov. 2 to one count of conspiracy to commit a prohibited grain practice.
Ehrp is a former CEO and general manager of Farmers Cooperative Society, a large, federally licensed grain warehouse that is headquartered in Sioux Center and has satellite locations in Iowa, Minnesota and South Dakota.
Sixty-year-old Calvin Melvin Diehl of Aberdeen, SD, also has been sentenced to three months in a federal prison for his role in the grain-blending scheme.
Like Ehrp, Diehl — a former assistant general manager for FCS — directed subordinate employees to blend oats into soybeans.
Diehl, who was sentenced on Feb. 2 in Sioux City by Strand, was fined $7,500 in addition to the imprisonment.
He also must serve a one-year term of supervised release after his time behind bars.
Diehl received his prison term after pleading guilty on June 9 to one count of conspiracy to defraud the United States.
According to plea agreements in the case, Ehrp schemed with Diehl and others to add lower-value oats to soybeans and sell the mixture as soybeans.
As part of the grain-blending scheme, Diehl and other individuals acting at Ehrp’s direction:
g Made false statements and executed false certificates to inspectors from the U.S. Department of Agriculture.
g Layered soybeans on top of oats in storage bins and trucks to deceive USDA inspectors and customers about the quality and quantity of the grain.
g Made false entries and adjustments in reports provided to the grain warehouse’s bank.
In March 2017, one of Ehrp’s subordinate managers instructed an FCS warehouse manager in Worthing, SD, to blend more oats with soybeans.
As a result, approximately 30 truckloads of soybeans were “spiked” with oats, according to court documents.
After the customer happened to discover the badly “slugged” or “spiked” loads, one of the customer’s managers called Diehl and told him to stop blending oats into soybeans.
The manager warned Diehl that “someone can go to jail for this,” according to court documents.
Diehl feigned surprise, apologized and falsely promised that the practice would not happen in the future.
However, at Ehrp’s direction, Diehl and others continued to blend oats into soybeans — even directing subordinates to remix one of the “slugged” loads — and sell them to the same unwitting customer.
Ehrp himself drove to the FCS location manager’s office in Worthing and ordered him to continue blending oats, according to court documents.
As a result, the Worthing location manager designed a new system for blending oats into soybeans, involving an auger and a conveyor, which sprinkled oats into the semitrucks’ hoppers and ensured the loads leaving Worthing would remain hidden.
Diehl also instructed the cooperative’s Boyden location manager to dump other rejected loads in a bin and send the remainder to another customer who did not monitor its soybean receiving location.
In late March 2017, shortly after the “slugged” loads incident, the USDA conducted a preplanned inspection of FCS, according to court documents.
During the inspection, the cooperative’s Sanborn location manager called Diehl and stated that he had oats visible because he was mixing oats with soybeans in open view.
Diehl instructed the Sanborn location manager to cover up the oats by putting soybeans on top of the oats to hide the oats from the USDA inspectors.
After learning of the conspiracy, the USDA conducted a search of grain bins at the cooperative’s various locations in Iowa and South Dakota.
Of the estimated 87,996 bushels of grain in the bins at these FCS locations, the bins actually contained only 34,354 bushels of soybeans even though all of these bins had been certified as soybeans.
The 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.
The case was prosecuted by assistant U.S. attorneys Timothy Vavricek and Matthew Cole and investigated by the USDA’s Office of Inspector General and the FBI.