By Phillip O'Connor
ST. LOUIS POST-DISPATCH
03/15/2009
Martinsburg, Mo. -- Like the railroad tracks that cut through the center of this quiet farm town, a Wall Street-style financial scandal is dividing many who live here. A trusted advisor delivered above-average returns to a growing number of clients for a few years until one day, almost without warning, the scheme collapsed, and some of the investors were jilted.
This wasn't a slick tycoon who manipulated stock portfolios, but a well-liked farm wife who bought and sold the corn, soybeans and wheat grown by her friends and neighbors.
Now, just like those who trusted Bernard Madoff, who pleaded guilty last week to bilking investors of billions, many of the hundreds of farmers who trusted Cathy Gieseker face financial disaster.
Late last month, state authorities seized the assets of T.J. Gieseker Farms and Trucking after a routine audit raised several red flags about Gieseker's grain-trading business. Both the Audrain County prosecutor and the attorney general's office are considering criminal charges and civil action.
"It's kind of like the Midwest Madoff to a certain extent," Department of Agriculture official Chris Klenklen said. "There's a lot of indications that a lot of fraud was involved."
Gieseker transported crops from grain farmers, promising that she would later pay them a high return for their yield. And, for a while, she delivered on her word. But the collapse of her company has many folks in northeastern Missouri speculating that Gieseker was operating a pyramid scheme, whereby she used money from new investors to pay higher returns to earlier investors.
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So far, more than 140 farmers expect to be hit with losses that could total more than $15 million. Over the past decade, fewer than 100 Missouri farmers have been victims of grain fraud. That number could more than double with the Gieseker case, Klenklen said.
Soon after the state seizure of her company, Gieseker was hospitalized for an undisclosed treatment. She could not be reached for comment.
"She's right now trying to sort out kind of what the state is alleging," said her attorney, Travis Noble, who said Gieseker was living at an undisclosed location.
"She has a pretty compelling story about what transpired," Noble said. "I can't really say yet what that is. (It) is something that is not her fault. The truth will come out."
'TOO GOOD TO BE TRUE'
Gieseker, 44, grew up in the area. She serves on the local school board and was active with her two daughters in 4-H.
Acquaintances said there were no indications she lived a lavish lifestyle. Known for a salty tongue, she lives in a modest farm home off a gravel road a few miles north of town. She drives a Ford Expedition. She did most business by phone from a home office that shared space with a washer and dryer.
"She spent some money, but not to the tune of millions of dollars," said Steve Hobbs, a farmer who grew up with Gieseker and her family.
Gieseker and her husband ran the grain and trucking business for more than a decade before he died in 2007 from cancer. That year, the company reported about $30 million in sales, making it one of the largest companies of its kind in Missouri.
Gieseker's company would promise to pay farmers for their grain in advance. In some cases, she paid 30 percent above what the area elevators were paying.
Once delivered and sold, a grain elevator company would pay Gieseker, who then would issue a check to the farmer.
"Her business plan worked real well as long as the grain prices were going up," Klenklen said. "But when the prices dropped like they have the last six months, that operation doesn't seem to work very well."
Even many who lost substantial amounts say Gieseker alone can't be responsible and point fingers at Archer Daniels Midland, the giant grain company. Farmers said Gieseker often told them she was doing business with ADM, which seemingly enhanced her credibility.
"Everybody assumed she had a contract with ADM, and the volume she did is why she could pay a higher price," said Derek Stuckenschneider, who claims Gieseker owes his grandfather $10,000 for soybeans.
ADM said it did business with Gieseker but had no forward contracts with her company that would have guaranteed her a price for future deliveries. Any grain she sold the company would have been purchased at the spot price on the day it sold.
Farmers should have been alarmed when Gieseker began delaying payments, Klenklen said. But no one contacted the agriculture department. He speculates some may have been reluctant to put an end to what had been a profitable venture.
Some of Gieseker's customers stirred animosity when they boasted about the prices. Others, however, said they had their suspicions and avoided doing business with her.
"Quite frankly, when people told me the deals they were getting, I thought it was too good to be true," said Hobbs, a Republican House member. "When I can't figure out how to get even close to that price, ... something had to be going on."
Still, as word of the profits spread, so did the number of Gieseker's customers. Eventually, she had a client base that covered an area east of Highway 63 and north of Interstate 70 and stretching into Illinois.
"The whole thing boiled down to greed," said Bill Fennewald, another business owner in town. "Somebody is scared somebody else is getting something that they're not."
'A HELL OF A SALESMAN'
On a damp, overcast morning last week, farmers in blue jeans and ball caps, many carrying briefcases or large manila envelopes, trickled into the Knights of Columbus Hall to file claims for their losses with the department of agriculture. Many didn't want their names published.
"I don't want people to know how stupid I am," one farmer explained. During the three days the department spent in town, 142 farmers filed such claims, and officials expect to receive more before a March 31 deadline.
In a close-knit community where families date back generations and reputations are guarded, many farmers speculated that some won't even bother. "They'd rather lose the money than be embarrassed," Hobbs said.
Klenklen, the agriculture department official, said he was unnerved to find that so many farmers lacked signed agreements that guaranteed the prices Gieseker promised.
"I'm going to commit to sell all my crops to you for the next four years and I don't need anything in writing from you?" Klenklen said. "I struggle with that. She must have been a hell of salesman."
So far, state officials have recovered about $100,000 owed to Gieseker for grain she delivered. The state also collected a $297,000 letter of credit required for her grain dealer's license. Gieseker was able to empty a $560,000 company bank account before the state could seize the money, Klenklen said. Investigators are looking for any assets to sell.
"Our priority is to get as much money back for the farmers as possible," said Travis Ford, spokesman for Attorney General Chris Koster. "We'll worry about punishments and penalties down the road."
Most farmers said they expected to receive pennies on the dollars for their losses. "Like suing the tooth fairy," one farmer said.
The loss of income comes at a crucial time, when taxes are due and many are just weeks away from planting corn. Some farmers said they were cutting back on expenses, putting off equipment purchases and meeting with lenders.
When grain prices soared last summer Linus Rothermich, who farms 900 acres in Callaway County, agreed to sell almost his entire crop to Gieseker for $358,000, substantially more than anyone else was offering. After he delivered the grain and a week before he expected to collect, the state seized the company.
"If I had a check from her, I'd have all my debts paid, money to pay taxes and maybe even enough to start thinking about putting some money away for retirement," Rothermich said.
Rothermich, 44, said he had had to take out a loan against land he had finished paying off six years ago, to continue farming. "Now I'm in a deep hole to dig out of."
'NEIGHBOR AGAINST NEIGHBOR'
If the losses are as large as rumored, many expect farmers will be forced to sell land or other assets, restructure loans or worse.
"Now they're in a situation of talking with their banker about whether they can even go to the field," Klenklen said.
Under bankruptcy laws, a judge could seek to recoup millions of dollars that Gieseker paid to farmers in the last 90 days, a time of year when large amounts of money change hands in the grain business.
"If that happens, it's going to pit neighbor against neighbor," Klenklen said. "It has to be a dilemma that everybody has on their minds."
Even more unsettling to some, if fraud is discovered, the court could go back and seek to recover even more money that Gieseker paid out.
"There's a lot of uncertainty," Hobbs said. "It's just a mess. An absolute mess."
Meanwhile, Hobbs wants a task force named that would discuss the establishment of a fund to cover such losses and legislation that would raise the minimum bond requirement for the state's 400 or so grain dealers, about half of which are elevators.
Regardless of the outcome, many say the controversy is bound to change the way business is done in a community where for as long as anyone can remember a person's word was considered his or her bond.
Said Hobbs: "Unfortunately, the community will be the worse for it because the amount of trust people put in people's words has been shaken really hard."
ST. LOUIS POST-DISPATCH
03/15/2009
Martinsburg, Mo. -- Like the railroad tracks that cut through the center of this quiet farm town, a Wall Street-style financial scandal is dividing many who live here. A trusted advisor delivered above-average returns to a growing number of clients for a few years until one day, almost without warning, the scheme collapsed, and some of the investors were jilted.
This wasn't a slick tycoon who manipulated stock portfolios, but a well-liked farm wife who bought and sold the corn, soybeans and wheat grown by her friends and neighbors.
Now, just like those who trusted Bernard Madoff, who pleaded guilty last week to bilking investors of billions, many of the hundreds of farmers who trusted Cathy Gieseker face financial disaster.
Late last month, state authorities seized the assets of T.J. Gieseker Farms and Trucking after a routine audit raised several red flags about Gieseker's grain-trading business. Both the Audrain County prosecutor and the attorney general's office are considering criminal charges and civil action.
"It's kind of like the Midwest Madoff to a certain extent," Department of Agriculture official Chris Klenklen said. "There's a lot of indications that a lot of fraud was involved."
Gieseker transported crops from grain farmers, promising that she would later pay them a high return for their yield. And, for a while, she delivered on her word. But the collapse of her company has many folks in northeastern Missouri speculating that Gieseker was operating a pyramid scheme, whereby she used money from new investors to pay higher returns to earlier investors.
MORE METRO
Get news, columns, photos and multimedia from the St. Louis area
So far, more than 140 farmers expect to be hit with losses that could total more than $15 million. Over the past decade, fewer than 100 Missouri farmers have been victims of grain fraud. That number could more than double with the Gieseker case, Klenklen said.
Soon after the state seizure of her company, Gieseker was hospitalized for an undisclosed treatment. She could not be reached for comment.
"She's right now trying to sort out kind of what the state is alleging," said her attorney, Travis Noble, who said Gieseker was living at an undisclosed location.
"She has a pretty compelling story about what transpired," Noble said. "I can't really say yet what that is. (It) is something that is not her fault. The truth will come out."
'TOO GOOD TO BE TRUE'
Gieseker, 44, grew up in the area. She serves on the local school board and was active with her two daughters in 4-H.
Acquaintances said there were no indications she lived a lavish lifestyle. Known for a salty tongue, she lives in a modest farm home off a gravel road a few miles north of town. She drives a Ford Expedition. She did most business by phone from a home office that shared space with a washer and dryer.
"She spent some money, but not to the tune of millions of dollars," said Steve Hobbs, a farmer who grew up with Gieseker and her family.
Gieseker and her husband ran the grain and trucking business for more than a decade before he died in 2007 from cancer. That year, the company reported about $30 million in sales, making it one of the largest companies of its kind in Missouri.
Gieseker's company would promise to pay farmers for their grain in advance. In some cases, she paid 30 percent above what the area elevators were paying.
Once delivered and sold, a grain elevator company would pay Gieseker, who then would issue a check to the farmer.
"Her business plan worked real well as long as the grain prices were going up," Klenklen said. "But when the prices dropped like they have the last six months, that operation doesn't seem to work very well."
Even many who lost substantial amounts say Gieseker alone can't be responsible and point fingers at Archer Daniels Midland, the giant grain company. Farmers said Gieseker often told them she was doing business with ADM, which seemingly enhanced her credibility.
"Everybody assumed she had a contract with ADM, and the volume she did is why she could pay a higher price," said Derek Stuckenschneider, who claims Gieseker owes his grandfather $10,000 for soybeans.
ADM said it did business with Gieseker but had no forward contracts with her company that would have guaranteed her a price for future deliveries. Any grain she sold the company would have been purchased at the spot price on the day it sold.
Farmers should have been alarmed when Gieseker began delaying payments, Klenklen said. But no one contacted the agriculture department. He speculates some may have been reluctant to put an end to what had been a profitable venture.
Some of Gieseker's customers stirred animosity when they boasted about the prices. Others, however, said they had their suspicions and avoided doing business with her.
"Quite frankly, when people told me the deals they were getting, I thought it was too good to be true," said Hobbs, a Republican House member. "When I can't figure out how to get even close to that price, ... something had to be going on."
Still, as word of the profits spread, so did the number of Gieseker's customers. Eventually, she had a client base that covered an area east of Highway 63 and north of Interstate 70 and stretching into Illinois.
"The whole thing boiled down to greed," said Bill Fennewald, another business owner in town. "Somebody is scared somebody else is getting something that they're not."
'A HELL OF A SALESMAN'
On a damp, overcast morning last week, farmers in blue jeans and ball caps, many carrying briefcases or large manila envelopes, trickled into the Knights of Columbus Hall to file claims for their losses with the department of agriculture. Many didn't want their names published.
"I don't want people to know how stupid I am," one farmer explained. During the three days the department spent in town, 142 farmers filed such claims, and officials expect to receive more before a March 31 deadline.
In a close-knit community where families date back generations and reputations are guarded, many farmers speculated that some won't even bother. "They'd rather lose the money than be embarrassed," Hobbs said.
Klenklen, the agriculture department official, said he was unnerved to find that so many farmers lacked signed agreements that guaranteed the prices Gieseker promised.
"I'm going to commit to sell all my crops to you for the next four years and I don't need anything in writing from you?" Klenklen said. "I struggle with that. She must have been a hell of salesman."
So far, state officials have recovered about $100,000 owed to Gieseker for grain she delivered. The state also collected a $297,000 letter of credit required for her grain dealer's license. Gieseker was able to empty a $560,000 company bank account before the state could seize the money, Klenklen said. Investigators are looking for any assets to sell.
"Our priority is to get as much money back for the farmers as possible," said Travis Ford, spokesman for Attorney General Chris Koster. "We'll worry about punishments and penalties down the road."
Most farmers said they expected to receive pennies on the dollars for their losses. "Like suing the tooth fairy," one farmer said.
The loss of income comes at a crucial time, when taxes are due and many are just weeks away from planting corn. Some farmers said they were cutting back on expenses, putting off equipment purchases and meeting with lenders.
When grain prices soared last summer Linus Rothermich, who farms 900 acres in Callaway County, agreed to sell almost his entire crop to Gieseker for $358,000, substantially more than anyone else was offering. After he delivered the grain and a week before he expected to collect, the state seized the company.
"If I had a check from her, I'd have all my debts paid, money to pay taxes and maybe even enough to start thinking about putting some money away for retirement," Rothermich said.
Rothermich, 44, said he had had to take out a loan against land he had finished paying off six years ago, to continue farming. "Now I'm in a deep hole to dig out of."
'NEIGHBOR AGAINST NEIGHBOR'
If the losses are as large as rumored, many expect farmers will be forced to sell land or other assets, restructure loans or worse.
"Now they're in a situation of talking with their banker about whether they can even go to the field," Klenklen said.
Under bankruptcy laws, a judge could seek to recoup millions of dollars that Gieseker paid to farmers in the last 90 days, a time of year when large amounts of money change hands in the grain business.
"If that happens, it's going to pit neighbor against neighbor," Klenklen said. "It has to be a dilemma that everybody has on their minds."
Even more unsettling to some, if fraud is discovered, the court could go back and seek to recover even more money that Gieseker paid out.
"There's a lot of uncertainty," Hobbs said. "It's just a mess. An absolute mess."
Meanwhile, Hobbs wants a task force named that would discuss the establishment of a fund to cover such losses and legislation that would raise the minimum bond requirement for the state's 400 or so grain dealers, about half of which are elevators.
Regardless of the outcome, many say the controversy is bound to change the way business is done in a community where for as long as anyone can remember a person's word was considered his or her bond.
Said Hobbs: "Unfortunately, the community will be the worse for it because the amount of trust people put in people's words has been shaken really hard."
