Last week, jurors in North Dakota found brothers, Aaron and Derek Johnson, guilty of defrauding the government of roughly $2 million. Their crime? Conspiring to receive illegal payments and making false claims in order to collect crop insurance money.
Prosecutors in the case say the Johnson brothers engaged in a scheme designed to compromise the government’s crop insurance program, which helps farmers financially recover from crop losses they incur due to issues like bad weather or the wet breakdown crops, much like potatoes go through after harvest. In this case, the Johnson brothers intentionally destroyed their potato crop in order to collect insurance money.
According to the Associated Press, the Johnsons allegedly threw frozen and spoiled potatoes in with their own crop and stored the potatoes in a warehouse they heated to 80 degrees in an attempt to deteriorate the crop. Prosecutors say they also used a chemical called Rid-X in order to speed up the deterioration process. Rid-X is used primarily for dissolving solid materials in septic systems.
This case was successful in large part due to the community of farmers who provided testimony on the condition of their potato crop at the time the Johnson brothers were receiving money from their fraudulent insurance claim. While this was a criminal matter, False Claims Act cases involving crop insurance fraud are more common than you might think.
Supreme Group B.V. and several subsidiaries pleaded guilty to major fraud charges on Monday in connection with a contract to provide food and water to U.S. military forces in Afghanistan. The defense contractor will pay $288.36 million in fines and penalties stemming from the criminal case, and will pay $101 million to resolve civil allegations made in a whistleblower lawsuit.
In 2005, Supreme Foodservice AG (now called Supreme Foodservice GmbH, a Supreme Group subsidiary) entered into a contract to provide troops in Afghanistan with food and water. According to the Justice Department, the company devised and executed a scheme that forced the U.S. to overcharge for the goods provided, specifically Local Market Ready goods (referred to as LMR). Supreme used a United Arab Emirates company called Jamal Ahli Foods Co. (“JAFCO”) that it controlled as a middleman to artificially mark up prices on locally-produced products sold to military forces.
Incriminating emails between Supreme executives show that the company was aware they were marking up prices on goods at margins of around 60 percent. One particular email from a Supreme executive says the company shouldn’t raise prices any more than they already have because they didn’t want to raise suspicions with their government customer.
In 2007, a Supreme entered into a “separation agreement” with a Supreme executive, who was paid 400,000 Euros to keep quiet on the fraud scheme. A former Supreme employee brought the scheme to a stop in 2009 by notifying the government about JAFCO and the inflated prices on goods in Afghanistan.
The civil case against Supreme was predicated on whistleblower claims made by a Supreme executive, who accused the company of violating the False Claims Act when it knowingly overcharged the government for goods. The whistleblower also claimed that Supreme received rebates from suppliers that it failed to pass on to the government.