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Forensic Audit Ordered But No Answers Yet in Turner Grain Collapse

6 min read

More than a year after the collapse of Turner Grain Merchandising Inc., farmers and other creditors still don’t know what happened to tens of millions of their dollars.

Even the former owners of the Brinkley grain jobber may not know what happened to the money. The best hope for explanation may come from a forensic audit that has finally been approved by the judge in Turner Grain’s bankruptcy case, which was converted to a liquidation in May.

Attorneys for the creditors, whose 111 claims against Turner Grain total $39.7 million, would like to place former owner Jason Coleman under oath to get some answers but haven’t been able to. One of his attorneys, Jeff Rosenzweig of Little Rock, said in a bankruptcy court hearing that Coleman would assert his privilege against self-incrimination and not answer questions involving the company.

“I don’t think there is any dispute that there is a federal criminal investigation going on at some as yet unknown pace,” Rosenzweig said at the hearing in April.

As of last week, Coleman had not been charged with any crime.

A group of farmers received good news last month when a bankruptcy judge allowed their case involving Turner Grain and other defendants to move out of bankruptcy court and back to Lonoke County Circuit Court, where it started almost a year ago. The lawsuit, filed by 22 plaintiffs, including 17 rice farmers, had been put on hold because of the Turner Grain bankruptcy.

Turner Grain was forced into receivership in September 2014 after farmers started suing the company to collect on millions of dollars owed on crops. Turner Grain then filed for Chapter 11 bankruptcy protection in October 2014. Its bankruptcy case was converted in May to a Chapter 7 liquidation, where it remains.

Turner Grain hasn’t conducted any business nor has it had any employees since October 2014. Attorney Kevin Keech of North Little Rock, who was the court-appointed receiver for Turner Grain, said in a June meeting of creditors that Turner Grain had a little more than $1.5 million in assets.

Keech said he had spoken to Coleman several times since late 2014. Keech told the bankruptcy court that he didn’t think Coleman knew what had happened to the money that should have been used to pay creditors.

Keech then added: “I have to take what I hear from people with a grain of salt. I don’t always believe everything that I’m told.”

Before Turner Grain’s case was converted to a Chapter 7, Keech said he had wanted a forensic accountant to comb through Turner Grain’s books, but money to pay for the audit wasn’t available. But now it is. In August, U.S. Bankruptcy Judge Phyllis Jones agreed to trustee Richard Cox’s request to hire Lain Faulkner & Co. of Dallas, which does forensic accounting.

Neither Cox nor Keech returned a call for comment.

Dale Bartlett, a former business partner of Coleman’s and a former owner of Turner Grain, filed for personal bankruptcy in October 2014. Bartlett, of Marvell (Phillips County), said in the June meeting of creditors in his Chapter 7 liquidation that he didn’t know what happened to the money that Turner Grain received for the sale of grain — money that was supposed to be forwarded to the farmers who grew the crops.

“I wish I knew,” said Bartlett, who said he sold his interest in Turner Grain to Coleman in February 2014 for $5,000, about six months before the collapse of the company. Bartlett has been questioned about the timing of his decision to transfer nearly all of his assets to his wife just before Turner Grain’s financial problems were exposed and why he continued to work at the company when he no longer had an ownership interest in it.

Bartlett said in the June creditors’ meeting that he continued to work at Turner Grain until July 2014 when he was fired for questioning Coleman about company checks.

Bartlett said he noticed in the summer of 2014, just before the company collapsed, something unusual with the company’s checks.

“It appears that there was some money moved around,” Bartlett said in the creditors’ meeting, a recording of which Arkansas Business reviewed.

He said he saw checks made out in even amounts, such as $200,000 or $300,000, which was unusual because “that wouldn’t be in the course of ordinary business.”

Coleman’s attorney, Lisa Ballard of North Little Rock, told Arkansas Business last week that Bartlett’s suggestion that check kiting was going on at Turner Grain was wrong.

“We absolutely deny any type of allegation like that,” she said. “In fact … I’m not aware of anybody associated with Turner Grain who did anything remotely like that.”

She also said Bartlett has changed his story about his exit at Turner Grain several times. “So nobody really knows what story Dale Bartlett is going to tell from day-to-day really,” Ballard said.

Ballard also said “there were many contracts” not paid to Turner that were sold to other companies.

“And Turner was not able to collect on those contracts,” she said. “I know that significantly impacted their ability to stay in business.”

Ballard also said that grain brokerage companies — which handle millions of bushels of grains — could suffer significant losses if the price of grain drops by just a few cents.

Turner Grain was not technically a broker, whose role is limited to taking a commission for matching sellers with buyers. Turner was what the industry refers to as a “principal” or “jobber,” actually contracting to buy and taking possession of the farmer’s grain and delivering it to the ultimate buyer.

Holding grain can be risky because of swings in commodity prices.

“I think everybody’s mind jumps to theft and embezzlement and all those horrible things. That doesn’t necessarily need to be in place for large sums of money to be lost,” Ballard said, but she wasn’t speaking specifically about Turner Grain.

Ballard declined to say what Coleman was doing these days.

Moving Forward

After waiting most of a year, a number of farmers in Lonoke County get to move forward with their case against Turner Grain, Bartlett, Coleman and other defendants, including Coleman’s uncle, Neauman Coleman, and K.B.X. Inc. of Benton, which had worked with Turner Grain to buy grain from farmers.

The farmers said that Turner Grain and related entities acted as a broker between them and K.B.X., the purchaser of the grain.

Here’s how the farmers say the business relationship worked:

K.B.X. would notify Turner of its guaranteed offer to buy rice from any farmer or other company with which Turner could broker a deal. Turner would then contact potential sellers and let them know of K.B.X.’s offer.

If a seller agreed to the price, Turner would call K.B.X. to say the farmer had accepted the offer. After the rice was delivered, K.B.X. would pay Turner Grain, which took its commission and then was supposed to pay the farmers.

But the farmers say Turner Grain didn’t pay them for deliveries made to K.B.X.

The amount of money allegedly owed wasn’t listed in the lawsuit. The farmers alleged several counts against the defendants, including fraud, breach of contract and theft by deception.

K.B.X. denied allegations of wrongdoing in its court filings.

On Sept. 4, Jones, the bankruptcy judge, ordered that the case be returned to Lonoke County Circuit Court, where it is pending.

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