Warm Southern Breeze

"… there is no such thing as nothing."

Former Alabama business owner convicted of defraduing employees & federal government

Posted by Warm Southern Breeze on Tuesday, January 29, 2013

Greed, avarice, theft… they’re all related to each other.

It begs the question, however, and that question is:

“How much is enough?”

Former CEO of bankrupt Adams Produce Co. enters plea agreement to fraud and other charges

By Kent Faulk | kfaulk@al.com
on January 29, 2013 at 4:43 PM, updated January 29, 2013 at 5:19 PM

BIRMINGHAM, Alabama – Scott David Grinstead, former chief executive officer of Adams Produce Company, today was charged with fraud against the now bankrupt company, failure to report a felony against the government, and failure to file federal income tax returns, federal authorities announced.

Grinstead, 45, who also today entered a plea agreement with federal prosecutors, is the second Adams Produce employee to be charged in a criminal probe of the long-time Birmingham-based company, which shut down after declaring bankruptcy last year.

Adams Produce was founded in 1903 by Edwin Calvin Adams. The Adams family sold the company to executives and a private equity firm in 2010.

Grinstead, under the terms of his plea agreement, is to pay $450,000 in restitution to the bankruptcy estate of Adams Produce for the benefit of the company’s employees who were not fully paid because of Adams’ abrupt closing and its filing for bankruptcy last year, according to a statement from U.S. Attorney Joyce White Vance, FBI Special Agent in Charge Richard D. Schwein Jr. and IRS Criminal Investigation Division Acting Special Agent in Charge Veronica Hyman-Pillot.

“This case involves the chief executive officer of a company who allowed officers and employees to continue cheating the government on contracts involving military bases and schools while, at the same time, he continued to steal from the company,” Vance said. “This plea holds him responsible for criminal acts that harmed the government and his company. We are pleased that resolution of this case will bring some compensation to the employees who lost their jobs and did not receive their final paychecks from Adams Produce,” she said. “The investigation of wrongdoing by former officers and employees continues, and any who have committed crimes will be held accountable.”

Brian Walding, attorney representing the Ad Hoc Committee of Non-Insider Employees in the bankruptcy, said it appears that former employees may receive “virtually” 100 percent of what they are owed for the unpaid wages when the proposed chapter 11 plan of liquidation filed in the bankruptcy case is combined with the money to be paid by Grinstead under his plea arrangement.

“Payment is contingent upon approval of the proposed plan of liquidation by the bankruptcy court and approval of the plea arrangement by the federal district court,” Walding said. “However, there are finally proposals in place that may provide payment to Adams Produce’s former employees, who are the most innocent victims of the devastation caused by Adams Produce’s financial collapse.”

Grinstead’s attorney, Bill Athanas, said this afternoon that “while no individual suffered greater financial loss from the demise of Adams Produce than Scott Grinstead, he has always recognized and regretted the pain suffered by those unquestionably blameless individuals who lost their jobs when the company filed bankruptcy.”

“Scott appreciates that resolving the matter in this fashion not only allows him to begin the process of rebuilding his life and providing for his family, but also enables him to make a payment for the benefit of those 400 former Adams Produce employees,” Athanas said. “Scott will have to dedicate a significant amount of what’s left of his personal assets and incur substantial additional debt to make this payment, but takes solace in knowing that this commitment will lessen the burden on those who worked so hard for so long in the effort to make Adams Produce a success.”

Last week Christopher Alan Pfahl, a former purchasing program specialist for Adams, pleaded guilty to a charge of conspiracy to defraud the government of $481,000 on fruit and vegetable contracts. His sentencing is set for July 16. In exchange for his plea, truthfulness and cooperation, prosecutors agree to recommend to a judge that Pfahl be sentenced to three years probation.

Certain Adams employees, in the wake of the company’s financial problems, resorted to fraud involving contracts the company had with the U.S. government to provide fruit and vegetables for military bases and schools, according to court records.

Between Aug. 4, 2011, and Dec. 7, 2011, officers and employees of Adams Produce, including Pfahl, conducted at least 82 transactions with the national distributor designed to create false purchase orders and invoices, according to Pfahl’s plea agreement. “Adams Produce, during this same time period, used the false purchase orders and invoices from (the distributor) to submit false invoices to DSCP and received approximately $481,000.00 from the government to which Adams Produce was not entitled,” according to the agreement.

One of the charges against Grinstead is misprision of a felony 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, according to today’s statement from federal authorities.

Grinstead also is 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 for himself and his family, lawn care at his home, and items for a house on Lake Martin, according to the statement.

Grinstead faces two counts of failure to file a federal tax return, one for 2009 and one for 2010. The information charges that Grinstead had a gross income of about $748,801 for the 2009 calendar year and willfully failed to file an income tax return with the Internal Revenue Service. In 2010, according to the information, Grinstead received about $1,878,700 in gross income and willfully did not file a return with the IRS, according to the statement.

The FBI and the IRS investigated the case. The case is being prosecuted by Assistant U.S. Attorney George A. Martin Jr.

Updated at 5:15 p.m. Jan. 29 to note that the Adams family sold the company to a firm in 2010

Follow @krfaulk
Follow @alcomBirmingham

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