THE GRAND JURY CHARGES:
COUNT ONE
CONSPIRACY
I. INTRODUCTION At times material to this Indictment:
A. THE DEFENDANTS
- Defendant CROP GROWERS CORPORATION (hereinafter "CROP GROWERS") was a
corporation with principal offices located in Great Falls, Montana, primarily engaged in
the business of marketing and servicing federal multi-peril crop insurance and private
crop hail and other named peril insurance on behalf of insurance companies.
- Defendant CROP GROWERS was incorporated in the State of Delaware in April 1994 to act as
the holding company for corporations under common control to facilitate CROP GROWERS' June
1994 initial public offering of shares of its common stock. In forming, CROP GROWERS
became the holding company for several companies, including:
- Crop Growers Insurance, Inc. (hereinafter "CGI"), a Montana corporation, which
was primarily engaged in the business of marketing and servicing federal multi-peril crop
insurance and crop hail insurance;
- Crop Growers Software, Inc. (hereinafter "CGS"), formerly known as AgriPeril,
Inc., a Texas corporation, which was primarily engaged in the business of developing
proprietary software systems to assist affiliated crop insurance agents and farmers; and
- Prairie Mountain Insurance, Inc. (hereinafter "PMI"), a Montana corporation,
which was an independent insurance agency offering federal multi-peril, crop hail and
other lines of insurance, and was formerly known as the Hemmingson Agency, Inc.
Beginning on or about May 15, 1994, CGI, CGS and PMI were wholly-owned subsidiaries of
CROP GROWERS. These subsidiaries are not named as defendants in this Indictment.
Defendant JOHN J. HEMMINGSON (hereinafter "HEMMINGSON") was
the Chairman of the Board of Directors, Chief Executive Officer, and President of CROP
GROWERS. HEMMINGSON was Chairman of the Board of Directors, President and Chief Executive
Officer and a director of CGI. HEMMINGSON also was a director of CGS.
Defendant GARY A. BLACK (hereinafter "BLACK") was the
Executive Vice President, Chief Financial Officer, Treasurer and a director of CROP
GROWERS. BLACK also was the Chief Financial Officer and Secretary-Treasurer of CGI,
Secretary-Treasurer and a director of CGS, and the Secretary-Treasurer of PMI. BLACK was a
certified public accountant licensed in Montana.
B. THE FEDERAL AGENCIES
The Federal Election Commission (hereinafter "FEC") was the
agency of the United States Government entrusted with responsibility for enforcement of
the reporting requirements of the Federal Election Campaign Act, (hereinafter
"FECA"), and for detection, investigation, and institution of enforcement
actions against violations of FECA. The FEC was also responsible for collecting and making
available to the public specific and accurate information concerning the dates, amounts
and sources of political contributions, including the identity of the contributors, to
federal candidates such as Henry William Espy, Jr. (hereinafter "Henry Espy"),
who is not a defendant in this indictment.
- FECA governs "contributions," which include any gift, subscription, loan,
advance or deposit or anything of value made by any person for the purpose of influencing
any election for federal office. It also provides in relevant part:
(1) Corporations are prohibited sources of contributions, and it is illegal for a
corporation to make a contribution of any amount in connection with a federal election.
(2) Individuals who are United States citizens may make contributions of up to $1,000
per candidate, per election.
(3) It is illegal for an individual to contribute more than $1,000 per election per
candidate.
(4) It is illegal to make a contribution through a "conduit," that is, in the
name of another.
(5) It is illegal to reimburse an individual for making a contribution.
- Penalties, including imprisonment and fines, may be imposed for criminal violations of
FECA.
- Civil remedies, including injunctive relief and civil penalties, may be imposed for
violations of FECA.
The United States Securities and Exchange Commission (hereinafter
"the SEC") was the agency of the United States Government entrusted with
responsibility for, among other things, enforcing the securities laws of the United
States, which are designed to provide the investing public with full disclosure of all
material facts regarding the offer, sale and purchase of securities. In the performance of
its duties, the SEC required all publicly held companies which had securities traded on a
national securities exchange to file certain periodic reports.
The United States Department of Agriculture (hereinafter
"Department of Agriculture") was a department of the United States Government.
The Secretary of Agriculture, a Cabinet appointee, was in charge of the Department of
Agriculture.
C. THE HENRY ESPY CAMPAIGN
On or before January 5, 1993, Henry Espy publicly announced his
candidacy for the Democratic Party nomination for the United States House of
Representatives from the State of Mississippi in a special primary election to fill the
seat vacated by his brother, Alphonso Michael Espy, also not named as a defendant in this
indictment. Alphonso Michael Espy was resigning his Congressional seat to accept the
position of Secretary of Agriculture, for which he had been nominated by President-Elect
Clinton on December 23, 1992.
Alphonso Michael Espy resigned from the United States Congress on or
effective January 21, 1993, when he was confirmed as Secretary of Agriculture (hereinafter
Alphonso Michael Espy is referred to as "Secretary of Agriculture Espy"). He
served as Secretary of Agriculture until December 31, 1994.
In connection with Henry Espy's candidacy, and pursuant to the
requirements of FECA:
- The Henry Espy for Congress Committee was subject to the reporting provisions and the
campaign financing limitations of FECA.
- The Henry Espy for Congress Committee was required to file periodic reports with the
FEC, which reports were required to accurately identify all individuals and entities who
contribute in excess of $200 and the disbursements made for or on behalf of candidates.
On or about March 30, 1993, Henry Espy lost the special primary
election for Congress. As a result of Henry Espy's unsuccessful campaign for Congress,
campaign debts were incurred. As of June 30, 1993, the Henry Espy for Congress Committee
reported a campaign debt of approximately $144,000.
Alvarez T. Ferrouillet, Jr. (hereinafter "Ferrouillet"),
named as a co-conspirator but not a defendant herein, was an attorney licensed to practice
law in the State of Louisiana. In or about April 1993, Ferrouillet contacted Henry Espy
and volunteered to coordinate and supervise all efforts to retire Henry Espy's campaign
debt. Henry Espy accepted this offer and appointed Ferrouillet as Chairman of the Henry
Espy for Congress Committee.
The violations of FECA alleged herein related to the making,
receiving and reporting of contributions that aggregated more than $2,000 during each of
the calendar years 1993 and 1994.
D. CROP GROWERS - THE PUBLIC COMPANY
CROP GROWERS decided to sell its stock to the public by conducting an
initial public offering of common stock. On or about April 11, 1994, in connection
therewith, CROP GROWERS filed a Registration Statement on Form S-1 with the SEC in the
District of Columbia.
On or about June 23, 1994, CROP GROWERS became a publicly-held
company, and its common stock began trading on the National Association of Securities
Dealers Automated Quotation System (hereinafter "NASDAQ"), a national securities
exchange.
In connection with its initial public offering of 2,500,000 shares of
common stock to raise approximately $17,437,500, CROP GROWERS filed a prospectus with the
SEC in the District of Columbia and with NASDAQ. In November 1994, CROP GROWERS conducted
a second offering of 1,400,000 shares of common stock to raise approximately $18,326,000
for the company.
As a publicly-held company with securities traded on a national
securities exchange, CROP GROWERS was required by federal law to accurately report
financial information to the SEC.
As a publicly-held company, CROP GROWERS, as well as its
subsidiaries, were required by federal law to make and keep books, records and accounts
which, in reasonable detail, accurately and fairly reflected its transactions and the
disposition of its assets. Financial statements are a summary of the books, records and
accounts of a company, and themselves are books, records and accounts of that company.
E. MULTI-PERIL CROP INSURANCE
In calendar years 1991 through and including 1995, CGI derived
substantially all of its revenues from marketing and servicing federal Multi-Peril Crop
Insurance (hereinafter "MPCI"), a program within the jurisdiction of the
Department of Agriculture and Secretary of Agriculture Espy.
Defendant CROP GROWERS, and defendants HEMMINGSON and BLACK, as its
two largest shareholders, had a substantial financial interest in the MPCI program.
Defendants CROP GROWERS, HEMMINGSON and BLACK recognized that it was
within the power of the Department of Agriculture to reduce or eliminate the funding of,
discontinue, or otherwise significantly change the MPCI program.
During 1993 and early 1994, the Department of Agriculture and
Secretary of Agriculture Espy were considering potential legislation that would change the
MPCI program. Defendants CROP GROWERS, HEMMINGSON and BLACK recognized that the MPCI
program might change in a manner that would adversely affect the financial condition of
CGI and CROP GROWERS. & In or about April 1994, through and including
June 1994, and thereafter, defendant CROP GROWERS published certain "Risk
Factors" in certain filings with the SEC, which were subsequently available or
disseminated to prospective shareholders and shareholders, which stated in part, the
following:
[T]here can be no assurance that Congress will not decide in the future to reduce or
eliminate funding of, or discontinue or otherwise significantly change, the MPCI program.
Additionally, there can be no assurance that the degree of federal support of the MPCI
program . . . will not be changed in the future in a manner that would materially
adversely affect the MPCI market as a whole or the results of operations and financial
condition of the Company.
. . . Although Crop Growers views the proposed Federal Crop [Insurance] Reform Act [of
1994] in its entirety favorably, . . . the volume of premium serviced by the Company would
likely be adversely affected if large numbers of farmers presently in the program obtained
basic coverage directly from USDA offices and did not elect to purchase additional
coverage through private companies. . . . No assurance can be given that any ultimate
enactment or implementation of the Federal Crop [Insurance] Reform Act [of 1994] . . .
will not materially adversely affect the Company's results of operations and financial
condition.
II. THE CONSPIRACY
Beginning on a date unknown to this Grand Jury, but no later than
January 30, 1993 as to defendants HEMMINGSON and BLACK, and beginning on April 11, 1994 as
to defendant CROP GROWERS, and continuing until on or about December 31, 1995, in the
District of Columbia and elsewhere, the defendants CROP GROWERS, HEMMINGSON, and BLACK,
did knowingly and willfully combine, conspire, confederate and agree with one another and
with others, both known and unknown to the Grand Jury, to commit offenses against the
United States, to wit:
- To defraud the United States, and in particular the Federal Election Commission, by
impairing, obstructing, impeding and defeating its lawful governmental functions and
duties under the Federal Election Campaign Act in connection with a scheme to make illegal
corporate campaign contributions to the Henry Espy for Congress Committee in the
approximate amount of $46,000; and
- To violate Title 15, U.S.C. § 78m(b)(2)(A) and Title 15, U.S.C. § 78ff(a) by failing
to make and keep books, records and accounts, which, in reasonable detail, accurately and
fairly reflected the transactions and dispositions of the assets of CROP GROWERS; and
- To defraud the United States, and in particular the Securities and Exchange Commission,
by impairing, obstructing, impeding and defeating its lawful governmental functions and
duties under the Securities Act of 1933 [Title 15, U.S.C. § 77, et seq.], specifically in
the offer of and in connection with sales of common stock by CROP GROWERS; and
- To violate Title 18, U.S.C. § 1001 by making and using false writings and documents, by
making statements that were false by omitting to state material facts, and by falsifying,
concealing and covering up by trick, scheme and device material facts, in Registration
Statements, Prospectuses and an annual report filed with the Securities and Exchange
Commission; and
- To violate Title 15, U.S.C. § 77q(a) and Title 15, U.S.C. § 77x, in the offer and sale
of securities, by using means and instrumentalities of transportation and communication in
interstate commerce, and by the use of the mails, to employ a device, scheme and artifice
to defraud; to obtain money by means of omissions to state material facts; and to engage
in transactions, practices and courses of business which would operate as a fraud and
deceit upon the purchaser.
A. PURPOSES OF THE CONSPIRACY
The conspiracy was undertaken, at least in part, for the following
purposes:
- To generate money to be used for illegal corporate campaign contributions to Henry Espy,
the brother of Secretary of Agriculture Espy, for the purpose of gaining access to
Secretary Espy in order to favorably influence his decisions concerning matters affecting
CROP GROWERS before the Department of Agriculture;
- To make and conceal the illegal corporate campaign contributions to the Henry Espy for
Congress Committee without the Federal Election Commission detecting the illegal source of
the contribution;
- To falsify the financial books and records of CROP GROWERS and its subsidiaries in order
to conceal the illegal campaign contributions;
- To conceal from CROP GROWERS' outside independent auditors the creation and existence of
false books, records and accounts;
- To conceal from the Securities and Exchange Commission certain material facts by
omission in connection with CROP GROWERS' offerings of common stock and in an annual
report; and
- To conceal from the purchasers of CROP GROWERS' common stock certain material facts by
omission.
B. MEANS AND METHODS OF THE CONSPIRACY
The unlawful combination, conspiracy, and agreement was to be and was
accomplished by the means and methods, and in the following manner:
Access to Secretary of Agriculture Espy
Defendants, CROP GROWERS, HEMMINGSON, and BLACK, along with others,
would and did make and cause to be made illegal contributions to the Henry Espy for
Congress Committee to gain access to Secretary of Agriculture Espy for the purpose of
favorably influencing him on issues of concern to defendant CROP GROWERS.
The Illegal Corporate Campaign Contributions in 1993
Defendants, HEMMINGSON and BLACK, along with others, would and did
set in motion a scheme to use corporate assets of CGI, CGS and PMI to make illegal
corporate campaign contributions to the Henry Espy for Congress Committee.
Defendants, HEMMINGSON and BLACK, along with others, would and did
solicit contributions from persons affiliated with CGI, CGS and PMI as part of a scheme by
which such persons who contributed to the Henry Espy for Congress Committee, and in
certain instances, the spouses of such persons (hereinafter sometimes referred to
collectively as "conduits"), would be reimbursed for their campaign
"contributions."
Defendants, HEMMINGSON and BLACK, along with others, would and did
cause conduits each to prepare and transmit personal checks in the amount of $1,000 as
contributions to the Henry Espy for Congress Committee. Defendants HEMMINGSON and BLACK,
and others, delivered the checks to the Henry Espy for Congress Committee.
At the direction of defendants HEMMINGSON and BLACK, during the
period February 1, 1993 through September 23, 1993, corporate funds were used for the
purpose of reimbursing the conduits.
From February 1, 1993 through September 23, 1993, defendants
HEMMINGSON and BLACK would and did cause CGI, CGS and PMI to reimburse conduits from
corporate funds.
As a result of the conduit scheme, the Henry Espy for Congress
Committee would and did falsely report to the Federal Election Commission contributions by
individuals described above, rather than by CGI, PMI, and CGS.
The Illegal Corporate Campaign Contribution in 1994
Defendants, CROP GROWERS and HEMMINGSON, together with Ferrouillet,
in order to assist with the retirement of the campaign debt of Henry Espy, would and did
use CROP GROWERS' corporate funds to make an additional illegal corporate contribution to
the Henry Espy for Congress Committee in 1994.
Ferrouillet would and did create and transmit to defendants CROP
GROWERS and HEMMINGSON a fictitious attorney-client engagement letter.
Defendant HEMMINGSON, for and on behalf of CROP GROWERS, would and
did purportedly execute, and caused to be executed, the fictitious engagement letter
calling for the payment of a $20,000 "retainer" in order to conceal and disguise
the fact that the $20,000 "retainer" payment was instead a contribution to the
Henry Espy for Congress Committee.
By this device, defendants CROP GROWERS and HEMMINGSON, on or about
July 26, 1994, would and did make, and caused to be made, an illegal corporate campaign
contribution of $20,000 to the Henry Espy for Congress Committee.
Falsification of Records to Conceal the Illegal Corporate
Campaign Contributions
Defendants, HEMMINGSON and BLACK, would and did cause CGI, CGS and
PMI to create false and fictitious records of corporate expenses. Thereafter, defendants
HEMMINGSON and BLACK did cause CROP GROWERS to create and maintain these false and
fictitious records of corporate expenses, thereby falsifying CROP GROWERS' financial books
and records.
Defendants, HEMMINGSON and BLACK, would and did direct certain
conduits to create:
- false vouchers, specifically check requisitions for travel reimbursement;
- false invoices, specifically increasing bills submitted to CGI; and
- fictitious entries;
all in order to make the illegal corporate campaign contributions appear as legitimate
expenses.
Defendants HEMMINGSON and BLACK, would and did cause the false
vouchers, invoices, and fictitious entries to be made in the financial books and records,
including the subsidiary and general ledgers of CGI, CGS and PMI, knowing that these
ledgers would be the financial books and records from which CROP GROWERS would prepare its
financial statements.
Audit of Crop Growers Financial Statements for
Initial Public Stock Offering
In preparing to conduct a public offering of stock, defendants CROP
GROWERS, BLACK and others, would and did create and cause the creation of financial
statements, which were a summary of the financial books and records of CROP GROWERS, and
were false, in part, in that they failed to accurately reflect the transactions and
dispositions of assets of CGI, CGS and PMI, knowing that CROP GROWERS' outside independent
auditors would review these financial books and records during the course of its 1993 and
1994 audits.
On or about March 25, 1994 and on or about March 28, 1995, defendants
HEMMINGSON and BLACK, would and did make, and caused to be made, false written
representations to CROP GROWERS' outside independent auditors.
Crop Growers Sells its Stock to the Public
Defendants, CROP GROWERS, HEMMINGSON and BLACK, would and did file
and deliver, and caused to be filed and delivered, with the SEC, to shareholders and
others, Registration Statements and amendments thereto, prospectuses, and the 1994 annual
report of CROP GROWERS which were false in that they omitted to state certain material
facts, including:
- CROP GROWERS violated FECA by making illegal corporate campaign contributions;
- a material contingent liability existed for potential criminal and civil penalties as a
result of the FECA violations;
- that the financial statements were misleading;
- that it had maintained false books and records; and
- that CROP GROWERS, CGI, CGS and PMI and their key officers faced potential criminal and
civil sanctions in addition to those possible under FECA, and that these corporations were
potentially subject to restrictions on their ability to operate as a result of the illegal
conduct.
Defendants, CROP GROWERS, HEMMINGSON and BLACK, and others not
charged herein, would and did conduct these activities in a manner calculated to conceal
and cover-up the fraudulent nature of their transactions and otherwise mislead and deceive
the FEC, SEC and others.
C. OVERT ACTS IN FURTHERANCE OF THE CONSPIRACY
In furtherance of this conspiracy and to accomplish the objects
thereof, the defendants, CROP GROWERS, HEMMINGSON, and BLACK, and the unindicted
co-conspirators, committed and caused to be committed in the District of Columbia and
elsewhere the following overt acts, among others:
Overt Acts in 1993 and 1994, Preceding the 1994 Illegal Corporate
Campaign Contribution
(1) On or about March 4, 1993, defendant HEMMINGSON met in the District of Columbia
with a consultant concerning a future meeting with Secretary of Agriculture Espy.
(2) On or about March 19, 1993, that consultant wrote to defendant HEMMINGSON and
proposed the text of a draft letter from HEMMINGSON to Secretary of Agriculture Espy which
stated in part:
"Perhaps, at some time in the future, we will be able to arrange a Mississippi
tour for you and Congressman Henry Espy if our efforts on his behalf are successful (this
part has to be subtle)."
(3) On or about April 7, 1993, defendant HEMMINGSON sent a letter to Secretary of
Agriculture Espy in the District of Columbia that thanked him for an appointment on April
14, 1993, and requested the opportunity "to discuss a number of points related to
crop insurance/disaster assistance." Enclosed with the letter were "talking
points" which referenced four policy positions attributed to Secretary of Agriculture
Espy that were of concern to the crop insurance industry, as follows:
- "Crop insurance is not a sound program and must be changed."
- "Disaster assistance is a preferred method of providing financial assistance to
farmers adversely impacted by natural catastrophes."
- "The area yield plan, advocated by OMB [the Office of Management and Budget], will
be substituted for individualized coverage currently provided to farmers."
- "That you are not inclined to appeal the 1994 House appropriations bill markup that
reduces crop insurance by $105 million, an amount that could cripple the effectiveness of
the program."
(4) On or about March 24, 1993, defendants HEMMINGSON and BLACK caused the Treasurer of
the Henry Espy for Congress Committee to file a false Report of Receipts and Disbursements
with the FEC in the District of Columbia for the period covering January 1, 1993, through
March 10, 1993.
(5) On or about April 14, 1993, defendant HEMMINGSON and Henry Espy met with Secretary
of Agriculture Espy in the District of Columbia.
(6) On or about August 24, 1993, defendant HEMMINGSON wrote to Secretary of Agriculture
Espy in the District of Columbia concerning the potential "drastic" effect on
private insurers of proposed legislation for the Agricultural Stabilization and
Conservation Service ("ASCS") to deliver MPCI.
(7) On or about August 24, 1993, defendant HEMMINGSON faxed to Henry Espy the August
24, 1993 letter to Secretary of Agriculture Espy, with a cover note stating that
"these thoughts are for Mike's consideration in response to the recent rumors
regarding the ASCS involvement in the crop insurance program."
(8) On or about August 31, 1993, defendants HEMMINGSON and BLACK caused the Treasurer
of the Henry Espy for Congress Committee to file a false Report of Receipts and
Disbursements with the FEC in the District of Columbia for the period covering March 11,
1993 through April 19, 1993.
(9) On or about September 17, 1993, defendant HEMMINGSON and Henry Espy met with
Secretary of Agriculture Espy in the District of Columbia.
(10) On or about February 22, 1994, defendant HEMMINGSON and Henry Espy met with
Secretary of Agriculture Espy in the District of Columbia.
$20,000 Contribution in 1994 To The Henry Espy Campaign
(11) On or about March 31, 1994, defendant HEMMINGSON attended a fundraising dinner in
the District of Columbia for Henry Espy at the 116 Club. In attendance, in addition to
HEMMINGSON, were Henry Espy, Ferrouillet and various others who had business before the
USDA. The attendees were urged to raise $10,000 or more each in order to assist with the
retirement of Henry Espy's campaign debt.
(12) On or about July 26, 1994, defendant CROP GROWERS, through CGI, over the signature
of defendant HEMMINGSON, issued a $20,000 check payable to Ferrouillet.
(13) On or about July 26, 1994, false records were created in the financial books and
records of defendant CROP GROWERS as follows:
- a voucher, specifically an entry on the $20,000 check, falsely recorded the payment to
Ferrouillet as "legal fees;" and
- a false entry in the general ledger of CGI reflecting a "debit" for legal fees
in the amount of $20,000 to Ferrouillet.
(14) Between on or about July 28, 1994 and August 19, 1994, the $20,000 check was
negotiated as follows:
- On or about July 28, 1994, Ferrouillet traveled to a grocery store in Algiers,
Louisiana, delivered the $20,000 check from CGI that was payable to him, and received
partial payment of $5000 cash.
- By on or about August 8, 1994, Ferrouillet obtained the remaining $15,000 in cash from
the same grocery store.
- On or about August 8, 1994, Ferrouillet deposited $10,000 cash into a bank account of
the Henry Espy for Congress Committee in Kenner, Louisiana.
- On or about August 10, 1994, Ferrouillet deposited $9,000 cash into the same bank
account of the Henry Espy for Congress Committee in Kenner, Louisiana.
- On or about August 11, 1994, Ferrouillet deposited $1,000 cash into the same bank
account of the Henry Espy for Congress Committee in Metairie, Louisiana.
- On or about August 19, 1994, Ferrouillet transferred by wire $21,000 from the bank
account of the Henry Espy for Congress Committee in Louisiana to a bank in Clarksdale,
Mississippi.
Crop Growers' SEC Filings
(15) On or about March 25, 1994, defendants HEMMINGSON and BLACK issued a letter to the
accounting firm that audited the financial statements of CGI, CGS and PMI as of December
31, 1993 in preparation for CROP GROWERS' public offering that contained, in substance,
the following representations concerning CGI:
- "There have been no . . . [i]rregularities involving any member of management or
employees who have significant roles in the internal control structure."
- Members of management or employees with significant roles in the internal control
structure of CGI had not, in substance, intentionally misstated or omitted to disclose in
financial statements the effects of events or transactions; manipulated, falsified or
altered records or documents; or omitted significant information from records or
documents.
- "There have been no . . . violations or possible violations of laws or regulations,
the effects of which should be considered for disclosure in the financial statements or as
a basis for recording a loss contingency."
(16-20) In connection with an initial public offering of securities, defendant CROP
GROWERS, on or about the dates following, did file with the SEC in the District of
Columbia certain forms, each such filing constituting a separate overt act:
Overt |
Act No. |
Date |
Filing |
(16) |
April 11, 1994 |
Registration Statement on Form S-1. |
(17) |
May 24, 1994 |
First amendment to the Registration |
|
|
Statement on Form S-1. |
(18) |
June 17, 1994 |
Second amendment to the Registration |
|
|
Statement on Form S-1. |
(19) |
June 22, 1994 |
Third amendment to the Registration
|
|
|
Statement on Form S-1. |
(20) |
June 24, 1994 |
Prospectus. |
(21) On or about April 11, 1994, defendant CROP GROWERS published financial statements
for the year ended December 31, 1993, that were certified on or about March 25, 1994 by
its independent auditors.
(22) On or about May 24, 1994, in response to a comment letter from the SEC, defendant
CROP GROWERS caused a response to be sent to the SEC in the District of Columbia.
(23) On or about May 24, 1994, defendant CROP GROWERS issued to the accounting firm
that audited CROP GROWERS' financial statements a letter, signed by defendants HEMMINGSON
and BLACK, reaffirming the representations set forth in the letter of March 25, 1994
(Overt Act number 15).
(24) On or about each of June 22, 1994, June 29, 1994, and July 8, 1994, defendant CROP
GROWERS issued to the accounting firm that audited CROP GROWERS' financial statements a
letter, signed by defendants HEMMINGSON and BLACK, affirming that:
"[E]xcept as set forth in the registration statement and related prospectus, no
events have occurred that have a material effect on the consolidated financial statements
as of December 31, 1993, and for each of the years in the three-year period then ended or
that should be disclosed in order to keep those statements from being misleading."
(25) On or about June 22, 1994, Defendant CROP GROWERS' caused an amended Registration
Statement to be declared effective by the SEC in the District of Columbia, thereby
allowing CROP GROWERS' stock to be sold to the public.
(26) On or about June 23, 1994, defendant CROP GROWERS, through certain broker-dealers,
conducted an initial public offering of 2,500,000 shares of its common stock at $7.50 per
share, using securities offering documents, including a prospectus, that omitted to state
material facts.
(27) On or about June 23, 1994, the common stock of defendant CROP GROWERS commenced
public trading and did trade thereafter on the NASDAQ.
(28-31) In connection with an offering of additional CROP GROWERS securities to the
public, defendant CROP GROWERS, on or about the dates following, did file with the SEC in
the District of Columbia certain forms, each such filing constituting a separate overt
act:
Overt |
Act No. |
Date |
Filing |
(28) |
October 31, 1994 |
Registration Statement on Form S-1. |
(29) |
November 21, 1994 |
First amendment to the Registration |
|
|
Statement on Form S-1. |
(30) |
November 22, 1994 |
Second amendment to the Registration |
|
|
Statement on Form S-1. |
(31) |
November 30, 1994 |
Prospectus. |
(32) On or about November 30, 1994, defendant CROP GROWERS, through certain
broker-dealers, conducted an additional public offering of 1,400,000 shares of its common
stock at $14.00 per share, using securities offering documents, including a prospectus,
that omitted to state material facts.
(33) On or about March 28, 1995, defendant CROP GROWERS, over the signatures of
defendants HEMMINGSON and BLACK, issued a letter to the accounting firm that audited CROP
GROWERS' financial statements as of December 31, 1994 that contained, in substance, the
following representations:
- "There have been no . . . [i]rregularities involving any members of management or
employees who have significant roles in the internal control structure."
- Members of management or employees with significant roles in the internal control
structure of CROP GROWERS had not, in substance, intentionally misstated or omitted to
disclose in financial statements the effects of events or transactions; manipulated,
falsified or altered records or documents; or omitted significant information from records
or documents.
- "There have been no . . . violations or possible violations of laws or regulations,
the effect of which should be considered for disclosure in the financial statements or as
a basis for recording a loss contingency."
(34) On or about March 31, 1995, defendant CROP GROWERS filed a Form
10-K for the year ended December 31, 1994 with the SEC in the District of Columbia. (In
violation of Title 18, United States Code, § 371.)
THE GRAND JURY FURTHER CHARGES:
COUNT TWO
CAUSING FALSE STATEMENT TO BE MADE TO
A GOVERNMENT AGENCY
- Paragraphs 1 through 5 and 27 through 32 of Count One of this Indictment are realleged
and incorporated herein by reference as though set forth in full.
- On or about March 24, 1993, in the District of Columbia and elsewhere, in a matter
within the jurisdiction of an agency of the United States, the Federal Election
Commission, defendants HEMMINGSON and BLACK did knowingly and willfully cause the Henry
Espy for Congress Committee to make a material false statement, namely a false Report of
Receipts and Disbursements filed with the FEC that included the identification of
individuals in the Report as contributors, each in the amount of $1000 to the Henry Espy
for Congress Committee, when in truth and in fact defendants HEMMINGSON and BLACK then and
there well knew that the individual contributions reported were, in fact, illegal
corporate campaign contributions to the Henry Espy for Congress Committee. (In violation
of Title 18, United States Code, §§ 1001 and 2.)
THE GRAND JURY FURTHER CHARGES:
COUNT THREE
CAUSING FALSE STATEMENT TO BE MADE TO
A GOVERNMENT AGENCY
- Paragraphs 1 through 5 and 27 through 32 of Count One of this Indictment are realleged
and incorporated herein by reference as though set forth in full.
- On or about August 31, 1993, in the District of Columbia and elsewhere, in a matter
within the jurisdiction of an agency of the United States, the Federal Election
Commission, defendants HEMMINGSON and BLACK did knowingly and willfully cause the Henry
Espy for Congress Committee to make a false statement, namely, a false Report of Receipts
and Disbursements filed with the FEC that included the identification of individuals in
the Report as contributors, each in the amount of $1000 to the Henry Espy for Congress
Committee, when in truth and in fact defendants HEMMINGSON and BLACK then and there well
knew that the individual contributions reported were, in fact, illegal corporate campaign
contributions to the Henry Espy for Congress Committee totaling approximately $3,000.
(In violation of Title 18, United States Code, §§ 1001 and 2.)
THE GRAND JURY FURTHER CHARGES:
COUNT FOUR
FALSE BOOKS AND RECORDS
- Paragraphs 1 through 4, 6, 15, 17 and 18, of Count One of this Indictment are realleged
and incorporated herein by reference as though set forth in full.
- As a publicly held company, defendant CROP GROWERS made and kept books, records and
accounts which comprised the information underlying the financial statements, which were
themselves books and records, that CROP GROWERS filed with the SEC in the District of
Columbia.
- In particular, defendant CROP GROWERS adopted, incorporated and otherwise maintained and
kept as its own books and records, the various books and records previously created by
CGI, CGS and PMI for the two years prior to, and in anticipation of, defendant CROP
GROWERS' public offering of stock.
- From on or about June 23, 1994 through December 31, 1995, within the District of
Columbia, and elsewhere, defendant CROP GROWERS did knowingly and willfully fail to make
and keep books, records and accounts, and defendants HEMMINGSON and BLACK did knowingly
and willfully cause CROP GROWERS to fail to make and keep books, records and accounts
which, in reasonable detail, accurately and fairly reflected the transactions and
dispositions of the assets of CROP GROWERS by falsely recording or causing the recording
as, in substance, "travel advances," "expense advances,"
"consulting fees," "computer purchases," "advances on crop loss
adjustments," "professional fees" and "legal fees" what, in truth
and in fact, were illegal corporate campaign contributions, including reimbursements for
contributions to the Henry Espy for Congress Committee, and which were included in the
consolidated financial statements of CROP GROWERS and in other books and records, as
follows:
|
CONTRIBUTOR TO
THE HENRY
ESPY FOR
CONGRESS
COMMITTEE
AND DATE |
DATE OF,
AMOUNT OF,
AND CROP
GROWERS
SUBSIDIARY MAKING
REIMBURSEMENT |
METHOD/DESCRIPTION
OF REIMBURSEMENT
OR PAYMENT IN
CORPORATE BOOKS
AND RECORDS |
CORPORATE BOOKS
AND
RECORDS, ENTRY
DATES AND
FALSE ENTRIES |
a. |
PMI Insurance Agent, 1/31/93, $1000 |
2/1/93, $1000, PMI |
travel reimbursement |
2/1/93, accounts payable system
2/1/93, trial balance |
b. |
Officer of PMI, 2/1/93, $1000
wife, 2/1/93, $1000 |
2/1/93, $2000, PMI |
travel reimbursement |
2/1/93, accounts payable system
2/1/93, trial balance |
c. |
Reimbursement by CGI of PMI's three
contribution reimbursements |
2/3/93, $3,000, CGI |
1992 commission |
2/3/93, accounts payable system |
d. |
BLACK, 2/1/93, $1000
wife, 2/1/93, $1000 |
2/2/93, $2000, CGI |
travel advance |
2/2/93, accounts payable system
2/12/93, general ledger
2/26/93, aged trial balance
3/31/93, aged trial balance
4/30/93, aged trial balance
5/28/93, aged trial balance
6/30/93, aged trial balance
7/30/93, aged trial balance
8/31/93, aged trial balance
10/31/93, general ledger |
e. |
Administrative Vice President of CGI,
2/1/93, $1000 |
2/2/93, $1000, CGI |
travel advance |
2/2/93, accounts payable system
2/12/93, general ledger
2/26/93, aged trial balance
3/31/93, aged trial balance
4/30/93, aged trial balance
5/28/93, aged trial balance
6/30/93, aged trial balance
7/30/93, aged trial balance
8/31/93, aged trial balance
10/26/93, general ledger |
f. |
HEMMINGSON, 2/1/93, $1000
HEMMINGSON's father, 2/1/93,
$1000
HEMMINGSON's mother, 2/1/93,
$1000 |
2/2/93, $3000, CGI |
travel advance |
2/2/93, accounts payable system
2/12/93, general ledger
2/26/93, aged trial balance
3/31/93, aged trial balance
4/30/93, aged trial balance
5/28/93, aged trial balance
6/30/93, aged trial balance
7/30/93, aged trial balance
8/31/93, aged trial balance
10/31/93, general ledger |
g. |
HEMMINGSON's brother, 2/2/93,
$1000 HEMMINGSON's sister-in-law,
2/1/93, $1000 |
2/2/93, $2000, CGI |
crop loss adjustment |
2/2/93, accounts payable system
2/2/93, general ledger |
h. |
Controller of CGI, 2/1/93, $1000 wife, 2/1/93, $1000 |
2/3/93, $2000, CGI |
computer equipment |
2/3/93, accounts payable system
2/3/93, general ledger
12/31/93, general ledger |
i. |
Vice President of Hail Insurance of
CGI, 2/1/93, $1000 wife, 2/1/93, $1000 |
2/3/93, $2000, CGI |
purchase of computer |
2/3/93, accounts payable system
2/3/93, general ledger
12/31/93, general ledger |
j. |
Principal of AgriPeril, 2/2/93, $1000 wife, 2/2/93, $1000 |
2/9/93, $2000, CGS (AgriPeril) |
expense account advance |
2/9/93, subsidiary ledger
2/9/93, general ledger |
k. |
President of CGS, 2/2/93, $1000 wife, 2/2/93, $1000 |
2/10/93, $2000, CGS (AgriPeril) |
expense advance |
2/10/93, subsidiary ledger
2/10/93, general ledger |
l. |
Accountant, 2/2/93, $1000 wife, 2/2/93, $1000 |
2/3/93, $2898, CGS (AgriPeril) --
included $898 to pay estimated
personal income tax liability |
professional fees/consulting,
check included estimated tax
liability |
2/3/93, subsidiary ledger
2/22/93, general ledger |
m. |
Regional Vice President of Crop
Growers, 2/3/93, $1000 husband, 2/3/93, $1000 |
2/3/93, $2898, CGS (AgriPeril) --
included $898 to pay estimated
personal income tax liability |
professional fees/consulting,
check included estimated tax
liability |
2/3/93, subsidiary ledger
2/3/93, general ledger |
n. |
Graphics Consultant, 3/22/93, $1000 husband, 3/22/93, $1000 |
6/16/93, $1000, CGI
8/13/93, $500, CGI
9/23/93, $500, CGI |
added to monthly labor charges |
6/16/93, accounts payable system
8/13/93, accounts payable system
9/23/93, accounts payable system |
o. |
Co-founder of CGI, 3/29/93, $1000 |
3/29/93, $2300, CGI |
travel advance |
3/29/93, accounts payable system
3/29/93, general ledger
3/31/93, aged trial balance
4/30/93, aged trial balance
5/28/93, aged trial balance
6/30/93, aged trial balance
7/30/93, aged trial balance
8/31/93, aged trial balance |
p. |
CGI through un-indicted co-conspirator
#1, 7/26/94, $20,000 |
|
legal fees |
7/26/94, accounts payable system
7/26/94, general ledger |
(In violation of Title 15, United States Code, §§ 78m(b)(2)(A) and
78ff(a), and Title
18, United States Code, § 2.)
THE GRAND JURY FURTHER CHARGES:
COUNT FIVE
FALSIFICATION OF ACCOUNTING RECORDS
- Paragraphs 1 through 4, 6, 15, 17, and 18, and paragraphs 27 through 41 of Count One of
this Indictment are realleged and incorporated herein by reference as though set forth in
full. Crop Growers is not named in this count as a defendant.
- As a publicly held company, Crop Growers made and kept books, records and accounts which
comprised the information underlying the financial statements, which were themselves books
and records, that Crop Growers filed with the SEC in the District of Columbia.
- In particular, Crop Growers adopted, incorporated and otherwise maintained and kept as
its own books and records, the various books and records previously created by CGI, CGS
and PMI for the two years prior to, and in anticipation of, Crop Growers' public offering
of stock.
- Beginning on or about June 23, 1994 through on or about December 31, 1995, within the
District of Columbia and elsewhere, defendants HEMMINGSON and BLACK, did knowingly and
willfully falsify and cause the falsification of Crop Growers' books, records and accounts
by, among other things, causing Crop Growers to maintain books and records that
inaccurately recorded and failed to note illegal corporate campaign contributions.
(In violation of Title 15, United States Code, §§ 78m(b)(5)
and 78ff(a), Title 18 United States Code, § 2,
and Title 17, Code of Federal Regulations, § 240.13b2-1.)
THE GRAND JURY FURTHER CHARGES:
COUNTS SIX THROUGH FIFTEEN
FALSE STATEMENTS TO THE SEC
- Paragraphs 1 through 4, 6 and 42 of Count One of this Indictment are realleged and
incorporated by reference as though set forth in full.
- On or about the dates set forth in paragraph 4, below, defendant CROP GROWERS filed, and
defendants HEMMINGSON and BLACK caused CROP GROWERS to file, certain forms with the
Securities and Exchange Commission. These forms included Registration Statements on Form
S-1, amendments thereto, prospectuses, and an annual report on Form 10-K. Rules and
regulations promulgated by the Securities and Exchange Commission required affirmative
disclosure of material information relating to the condition of the corporation and
required that disclosures be complete, truthful and not misleading.
- In connection with the forms filed on each of the dates identified in paragraph 4 below,
and incorporated by reference herein, defendants HEMMINGSON and BLACK did knowingly and
willfully cause defendant CROP GROWERS to make and use documents and writings which
themselves were false and fraudulent in that they made statements that were false and
misleading and they omitted to state material facts, and defendants CROP GROWERS,
HEMMINGSON and BLACK did knowingly and willfully falsify, conceal and cover up by trick,
scheme and device material facts, including, but not limited to, the following:
- CROP GROWERS violated FECA by making illegal corporate campaign contributions;
- A material contingent liability existed for potential criminal and civil fines as a
result of the FECA violations;
- That the financial statements were misleading;
- That it had maintained false books and records; and
- That CROP GROWERS, CGI, CGS and PMI and their key officers faced potential criminal and
civil sanctions in addition to those possible under FECA, and that these corporations were
potentially subject to restrictions on their ability to operate as a result of the illegal
conduct.
- On or about the following dates in the District of Columbia, and elsewhere, in a matter
within the jurisdiction of the Securities and Exchange Commission, an agency of the United
States, defendants CROP GROWERS, HEMMINGSON and BLACK did knowingly and willfully make and
use and cause to be made and used documents and writings which themselves were false and
fraudulent in that they omitted to state material facts including but not limited to those
in paragraph 3 above, and did knowingly and willfully falsify, conceal and cover up by
trick, scheme and device material facts, including but not limited to those in paragraph 3
above, each such filing constituting a separate count of this indictment as follows:
Count |
Date |
Filing |
Six |
April 11, 1994 |
Form S-1 Registration Statement |
Seven |
May 24, 1994 |
First Amendment to the Form S-1 |
|
|
Registration Statement |
Eight |
June 17, 1994 |
Second Amendment to the Form S-1 |
|
|
Registration Statement |
Nine |
June 22, 1994 |
Third Amendment to the Form S-1 |
|
|
Registration Statement |
Ten |
June 23, 1994 |
Prospectus |
Eleven |
October 31, 1994 |
Form S-1 |
|
|
Registration Statement |
Twelve |
November 21, 1994 |
First Amendment to the Form S-1 |
|
|
Registration Statement |
Thirteen |
November 22, 1994 |
Second Amendment to the Form S-1 |
|
|
Registration Statement |
Fourteen |
November 30, 1994 |
Prospectus |
Fifteen |
March 31, 1995 |
Annual Report on Form 10-K. |
(In violation of Title 18, United States Code, §§ 1001
and 2.)
THE GRAND JURY FURTHER CHARGES: COUNT SIXTEEN
SECURITIES FRAUD
- Paragraphs 1 through 4, 6, 14 through 18 and 42 of Count One, and paragraphs 2 and 3 of
Counts Six through Fifteen of this Indictment are realleged and incorporated herein by
reference as though set forth in full.
- Beginning on or about April 11, 1994 and continuing through on or about December 31,
1995, in the District of Columbia and elsewhere, defendant CROP GROWERS did make, and
defendants HEMMINGSON and BLACK did cause CROP GROWERS to make, certain filings with the
SEC in the District of Columbia which were necessary to engage in the offer or sale of
securities to the public. CROP GROWERS was required to make such filings with the SEC
prior to disseminating them to the public.
- Beginning on or about April 11, 1994 and continuing through on or about December 31,
1995, in the District of Columbia and elsewhere, by the use of means and instrumentalities
of transportation and communication in interstate commerce and by the use of the mails,
defendant CROP GROWERS did, and defendants HEMMINGSON and BLACK caused CROP GROWERS to,
knowingly and willfully obtain money and property by means of an omission to state a
material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, and did engage in a transaction,
practice and course of business which would and did operate as a fraud and deceit upon the
purchaser, in the offer and sale of CROP GROWERS common stock, as follows:
- The offer and sale of Crop Growers stock was accomplished by the making and filing of
certain reports with the SEC in the District of Columbia which were available to and
relied on by potential purchasers and purchasers of Crop Growers common stock.
- Defendant CROP GROWERS did file, and defendants HEMMINGSON and BLACK did cause CROP
GROWERS to file with the SEC the Registration Statements, Prospectuses and annual report
enumerated in Counts Six through Fifteen above.
- Defendant CROP GROWERS did omit to state, and defendants HEMMINGSON and BLACK did cause
CROP GROWERS to omit to state, material facts including, but not limited to, those
material facts enumerated in paragraph 3 of Counts Six through Fifteen of this Indictment.
(In violation of Title 15, United States Code, §§ 77q(a) and 77x, and
Title 18, United States Code, § 2.)
THE GRAND JURY FURTHER CHARGES:
COUNT SEVENTEEN
FALSE STATEMENTS TO AUDITORS
- Paragraphs 1 through 4, 6, 15, 17 and 18 of Count One of this Indictment are realleged
and incorporated herein by reference as though set forth in full. Crop Growers is not
named as a defendant in this count.
- As part of the process of proposing to issue stock of Crop Growers, defendants
HEMMINGSON and BLACK, made and caused to be made statements and representations to its
outside independent auditors for the purpose, as required by law, of filing documents,
including its audited financial statements, with the Securities and Exchange Commission in
the District of Columbia.
- On or about March 25, 1994, in the District of Columbia and elsewhere, defendants
HEMMINGSON and BLACK, while officers of Crop Growers, did knowingly and willfully make and
cause to be made materially false and misleading statements which they then and there well
knew were materially false and misleading, in substance:
- "There have been no . . . [i]rregularities involving any member of management or
employees who have significant roles in the internal control structure."
- Members of management or employees with significant roles in the internal control
structure of CGI had not, in substance, intentionally misstated or omitted to disclose in
financial statements the effects of events or transactions; manipulated, falsified or
altered records or documents; or omitted significant information from records or
documents.
- "There have been no . . . violations or possible violations of laws or regulations,
the effects of which should be considered for disclosure in the financial statements or as
a basis for recording a loss contingency."
and omitted to state and caused other persons to omit to state, material
facts necessary in order to make statements made, in light of the circumstances under
which such statements were made, not misleading, to an accountant in connection with
audits of financial statements and the preparation of Registration Statements filed with
the Securities and Exchange Commission on Form S-1, Prospectuses, and an annual report on
Form 10-K on behalf of Crop Growers which defendants knew would be and were filed in the
District of Columbia and elsewhere.
(In violation of Title 15, United States Code, § 78ff(a), Title 18,
United States
Code § 2, and Title 17, Code of Federal Regulations, § 240.13b2-2.)
THE GRAND JURY FURTHER CHARGES:
COUNT EIGHTEEN
FALSE STATEMENTS TO AUDITORS
- Paragraphs 1 through 4, 6, 15, 17 and 18 of Count One of this Indictment are realleged
and incorporated herein by reference as though set forth in full. Crop Growers is not
named as a defendant in this count.
- As a publicly held company, Crop Growers, through defendants HEMMINGSON and BLACK, made
and caused to be made statements and representations to its outside independent auditors
for the purpose, as required by law, of filing documents, including audited financial
statements, with the SEC in the District of Columbia.
- On or about March 28, 1995, in the District of Columbia and elsewhere, defendants
HEMMINGSON and BLACK, while officers of Crop Growers, did knowingly and willfully make and
cause to be made materially false and misleading statements which they then and there well
knew were materially false and misleading, specifically:
- "There have been no . . . [i]rregularities involving any members of management or
employees who have significant roles in the internal control structure."
- Members of management or employees with significant roles in the internal control
structure of Crop Growers had not, in substance, intentionally misstated or omitted to
disclose in financial statements the effects of events or transactions; manipulated,
falsified or altered records or documents; or omitted significant information from records
or documents.
- "There have been no . . . violations or possible violations of laws or regulations,
the effect of which should be considered for disclosure in the financial statements or as
a basis for recording a loss contingency."
and omitted to state and caused other persons to omit to state, material
facts necessary in order to make statements made, in light of the circumstances under
which such statements were made, not misleading, to an accountant in connection with
audits of Crop Growers' financial statements and the preparation of an annual report on
Form 10-K on behalf of Crop Growers which defendants knew would be and were filed in the
District of Columbia and elsewhere.
(In violation of Title 15, United States Code, § 78ff(a), Title 18,
United States
Code § 2, and Title 17, Code of Federal Regulations, § 240.13b2-2.)
|