Click here to subscribe Make us your homepage
Published February 14, 2014, 09:35 AM

Northwood potato growers charged with insurance fraud

GRAND FORKS, N.D. -- Two Northwood, N.D., brothers have been charged in federal court in Fargo, N.D., with defrauding the government of $840,000 by intentionally spoiling their stored potatoes to collect insurance and then lying and saying it was natural ruination.

By: Forum News Service, Forum News Service

GRAND FORKS, N.D. -- Two Northwood, N.D., brothers have been charged in federal court in Fargo, N.D., with defrauding the government of $840,000 by intentionally spoiling their stored potatoes to collect insurance and then lying and saying it was natural ruination.

The alleged induced spud spoiling happened on the 2006 crop, but two weeks ago a grand jury, working behind closed doors, indicted Aaron Johnson, 50, and Derek Johnson, 47. This week the case was unsealed and made public.

They face possible sentences of years in prison, restitution and fines if convicted of the felony charges. They have not yet appeared in court, but have been summoned to do so later this month and are not in custody.

The brothers are being represented by Grand Forks attorney Alex Reichert, who this week filed a request to postpone their first court appearance beyond the scheduled Feb. 20 because of a conflict.

Their business, Johnson Potato Co., also is charged in the case.

The Johnson brothers’ home farm is south of Northwood where both attended high school. But they have had a larger irrigated potato operation near Cooperstown, about 50 miles southwest of Northwood.

They have relatively small farming operations in Grand Forks, Steele, Traill and Barnes counties but the bulk of their operation is in Griggs County near Cooperstown, according to federal crop subsidy records online.

Charges

According to the charges:

The Johnson brothers and others they directed, after harvesting potatoes in the fall of 2006, stored them in a warehouse near Cooperstown. The spuds were “unsold,” according to Assistant U.S. Attorney Nick Chase. Most potatoes in the Red River Valley are grown under contract to buyers such as Simplot.

The brothers and others they directed, applied chemicals — including “Rid-X,” designed for dissolving solids in septic systems — and smaller amounts of already frozen or spoiled spuds to the undamaged potatoes in the warehouse. Using portable heaters, they cranked up the temperature inside to hotter than 80 degrees “to accelerate the spoilage process in the potatoes.”

The brothers then lied to insurance agents, saying the crop was lost to “naturally caused diseases” such as “soft rot,” according to Chase.

They received $680,399 in federally backed insurance payments on the spuds in January 2007, plus Aaron Johnson applied for and, in January and February 2008, received $159,400 in federal disaster payments for those 2006 ruined spuds, for a total of $839,799 in alleged fraud, Chase said in his charges.

As late as May 5, 2009, the brothers still lied about the damage to the 2006 spuds, according to the charges.

Potatoes are a high-value specialty crop grown by relatively few farmers in North Dakota and Minnesota not covered by the traditional farm subsidies that have been available in the past for wheat, corn and soybeans. And federal crop insurance typically doesn’t cover storage problems in those mainstream crops.

But the charges say the Johnson brothers used the special Northern Potato Crop Provisions in the federal crop insurance program that covers naturally caused spoilage in stored potatoes.

Besides the first count of felony fraud against the federal government, each brother faces felony counts of lying about the alleged scheme to U.S. Department of Agriculture officials and to law enforcement.

The grand jury also indicted them on a forfeiture allegation, claiming if any of the proceeds traceable to the fraud can’t be found or were hidden in some way, the government can go after other property owned by the Johnson brothers to make up the difference.

Tags: