Scott David Grinstead, who was the chief executive officer of Adams Produce Co. in Birmingham, AL, when the company declared bankruptcy last April, has entered into a plea bargain with the U.S. Attorney's office admitting fraud, according to a press release issued by the U.S. Attorney's Office in the Northern District of Alabama
The press release said that Mr. Grinstead, 45, will plead guilty to a four-count felony indictment including wire fraud, misprision of a felony, and failing to file a tax return in 2009 and 2010. Mr. Grinstead has agreed to pay $450,000 in restitution to the bankruptcy estate of Adams Produce for the benefit of the company's employees.
In addition, the press release revealed that the maximum penalty for the four counts could be as much as 24 years in prison and a maximum fine of $700,000, although there is no indication what fine or prison sentence, if any, that the court will impose.
Another employee of Adams Produce was charged previously in connection with fraud at the company. In December, the U.S. Attorney's Office charged Christopher Alan Pfahl, who was a purchasing program specialist for the firm, with conspiracy to defraud the federal government of several hundred thousand dollars through a scheme to create false invoices and purchase orders.
Mr. Pfahl pleaded guilty to the charge recently, which involved creating false records that reflected a higher purchasing cost for fruits and vegetables than the company actually paid. The inflated costs were then presented to the U.S. government, which had agreed to pay a certain amount over Adams' cost for produce.
According to the press release from the government, the misprision of a felony count against Mr. Grinstead was charged "for knowing of the fraud Pfahl and others were engaged in and allowing it to continue and end slowly, so as to avoid raising red flags with the government, rather than stopping it immediately and reporting it to authorities."
Mr. Grinstead was charged with wire fraud for wiring hundreds of thousands of dollars from an Adams Produce account to American Express to pay for clothing, jewelry, personal travel, lawn care at his residence, and items for a vacation house in Alabama, according to the press release issued by the U.S. government.
Adams Produce filed for bankruptcy protection in late April of 2012. Immediately dozens of produce companies filed PACA Trust claims in the neighborhood of $12 million.
In October, the PACA Trust portion of the case was settled with about four dozen firms receiving approximately 80 cents on the dollar. The total payout was about $8 million.
Larry Meuers of Meuers Law firm in Naples, FL, who represented a majority of the dollars owed to PACA Trust claimants, said that it is difficult to put a percentage on the amount received by each firm. He said the settlement was done on a case-by-case basis with some firms receiving a higher percentage and some less because of the specifics of their claim. However, he did say that using the 80 cents on dollar is "generally accurate."
He said this latest admission by Mr. Grinstead has no effect on the PACA claimants.
"Our case is finished," he said. "The PACA claimants, in fact, no longer own those claims on Adams. As part of our settlement, those outstanding claims were assigned back to the bankruptcy estate."
He explained that in such PACA cases there is a personal liability on the owners and their estates. Oftentimes that personal liability is negotiated as part of the settlement, as it was done in this case.
Mr. Meuers added that while produce industry claimants did quite well in this case because of the PACA Trust, other creditors of Adams Produce are still fighting over what is left.
He said the majority of the money now being divided up among other creditors are dollars coming in as a result of the BP oil spill in the Gulf of Mexico. As a business operating on the gulf when the oil spill occurred, Adams Produce, like many other firms, is in line for some restitution payments from the oil giant.
(Editor's note: This updated version of this story replaces the earlier version published on Friday, Feb. 1, which contained incorrect information regarding the allegations against Mr. Grinstead due to a reporting error.)