The Securities and Exchange Commission has seized the assets of a Fort Worth-based cattle company, and charged them with violating federal securities law.
Agridime promised big returns on investors who purchased cattle contracts. But the SEC said last week that the company was actually running a Ponzi scheme.
Chris Clayton, ag policy editor for DTN/Progressive Farmer, spoke with the Texas Standard about the alleged fraud.
This transcript has been edited lightly for clarity:
Texas Standard: Tell us a little bit about how this alleged Ponzi scheme worked.
Chris Clayton: Well, it was very interesting. Basically, first they were offering these contracts and stated that investors could receive returns ranging from 15% to 20%. And if you bought a lot of the contracts, they said they could go as high as 32% on the profits. You know, you spent $2,000 per head on animals with them and they claimed that they would feed them out and then market them as quality beef.
So let’s turn to what Agridime was doing here. Did they own any cattle at all, or was it all hat, no cattle? What was the story, from what you understand?
Well, there must have been some cattle or beef involved because Agridime has a consumer website that sells meat products directly to to consumers. And actually, it’s been weird because I’ve been getting, on social media, their advertisements for those in the past several days.
But the volumes that were involved I think definitely made some suspicion among the SEC. And this case actually began with some state regulators – state regulators in Arizona and North Dakota particularly were the ones way back in the spring, apparently, that began sending out notices of cease and desist orders to Agridime saying “you need to stop trying to sell your securities to people in our states.”
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Well, now, who are the victims here? Mostly ranchers, commodity traders, newcomers to the idea of commodity trading? Who were they?
I believe right now they would be mostly investors. If the losses were as high as the SEC claimed, eventually I think we’ll have to see a liquidation bankruptcy filing, because the SEC claimed that they had $191 million of trades; they had contracts requiring them to pay investors for more than $123 million. They only had $1.5 million in actual liquid cash.
There’s not been a filing that spells out how many actual cattle were involved. And we’ll eventually see more coming out. What’s interesting, too, is so far, other than these actions taken by the states of Arizona and North Dakota, I haven’t seen any actual court cases filed by anybody else as of yet, other than the SEC’s case. So, you know, there’s a lot to be learned about just kind of what was going on here.
Typically, of course, if it goes to bankruptcy court, investors would be very lucky to get pennies on the dollar. If you had any kind of banks involved out there who had loans, securities or something, you know, they would be first in line for any kind of credit.
As you pull back and think about what this means, what, if anything, does it say about the agriculture industry or cattle ranching?
Well, you really got to know who you’re trading cattle with. And I have written a lot of cattle fraud stories over the years. I became an agriculture reporter over 20 years ago by learning about a cattle fraud case. So that’s how I got involved into this business.
And I have been amazed over time of the different kinds of ways people figure out how to scam people on cattle. And anytime somebody says, “you know, we’ll raise the cattle for you and I guarantee you’ll make money,” you really need to have your eyebrows raised at that point.
