Twin Cities farm co-op settles fraud allegations as regulators sue former trader
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The Securities and Exchange Commission on Friday sued a former CHS trader over allegations that he fabricated hundreds of transportation contracts and inflated the agribusiness cooperative's income by $124 million over five years.
Among other things, CHS, based in Inver Grove Heights, markets grain, sells fertilizer and fuel, and provides financial services to farmers and ranchers. As part of its grain-trading operations, CHS buys and sells contracts with railroads to haul corn, wheat, soybeans and other commodities.
In a civil lawsuit against David Pope, 55, of Lakeville, the SEC alleges that he “falsely manipulated the valuations” of transportation contracts while overseeing the rail freight desk as a senior trader. Pope, who could not be reached for comment by MPR News, is not facing criminal charges in the case.
Regulators also allege that from 2014 to 2018, Pope, "fabricated hundreds of fictitious rail car contracts," and received pay bonuses “that were higher than he would have received, but for his misconduct.”
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The SEC says in August 2018, a company executive reviewed one of Pope’s bid sheets and found the values to be “grossly incorrect.” The next month, Pope allegedly told his managers that he based the valuations on his personal opinions about freight prices, “while ignoring the current, substantially-lower market prices,” according to the federal lawsuit.
Investigators also contend that Pope “doctored” emails from a railroad and forwarded them to an external auditor in an effort to keep the auditor from confirming details of a contract.
Regulators say that Pope’s work was “not substantively reviewed by other CHS employees,” and his actions forced the company to revise five years’ worth of public financial statements. For 2017 in particular, CHS’s net income was overstated by 43 percent.
In its lawsuit, the SEC is asking a judge to fine Pope and order him to “disgorge ill-gotten gains.” The suit comes on the same day that CHS reached a settlement with the agency and pledged to improve internal controls.
The agreement does not require CHS to pay a fine.
In a statement to MPR News, the company said that it’s pleased to have resolved the matter and that it has “taken the necessary actions to remediate the issues that led to the investigation and we feel confident that we have effective internal controls and oversight in place.”
The SEC’s agreement notes that CHS initiated an internal investigation upon learning of the problems and notified regulators. The agency also commended the company for “promptly” firing Pope, later firing or disciplining other employees who were supposed to be reviewing his work, and clawing back bonuses from 26 current or former officers and directors.
Pope asserted his Fifth Amendment right against self-incrimination and chose not to testify in the SEC’s investigation, the agency said.