The sad and shocking story of multimillion dollar embezzlement at the Ashby Farmers Cooperative Elevator (AFCE) in Minnesota keeps getting worse. CoBank and its regulators didn’t perform their due diligence, and now CoBank’s farmer-owners are set to receive only a small fraction of their investment in restitution.
CoBank is the largest financial institution in the Farm Credit System (FCS) with more than $138 billion in total assets. It alone has the authority to lend to cooperatives which provide services related to agriculture, and AFCE is one of those cooperatives.
Last year, AFCE closed its doors because its manager, Jerry Hennessey, embezzled money from the cooperative for years, “with much of the money spent on big-game hunting trips around the globe.” During all of this time, CoBank had maintained a financial relationship with AFCE, lending it millions of dollars.
With Hennessey convicted and with a judge now awarding damages, it looks like CoBank won’t receive the compensation its farmer-owners deserve. Prosecutors estimate that CoBank should likely receive $7.67 million in damages. Based off of the amount that Hennessey is willing to forfeit, CoBank will receive $2.85 million. That’s not even 40 percent of what it should rightly receive.
There are no winners here. Hennessey is to blame for embezzlement, but CoBank isn’t without some blame. It failed to perform its due diligence. Now a business is bankrupt, its customers are without its services, and CoBank’s farmer-owners have lost millions of dollars.
As a lender, CoBank needs to examine its investments. It won’t catch every problem, that’s for sure. But it’s surprising that CoBank didn’t notice anything wrong at AFCE during the span of its financial relationship. That it didn’t see any red flags suggests that it didn’t pay careful enough attention. That should worry CoBank’s farmer-owners.
It should also worry CoBank’s regulator, the Farm Credit Administration (FCA). The FCA’s Office of Examination is responsible for reviewing CoBank’s portfolio. Did the FCA’s examiners do their job? Did they not see anything wrong?
It’s important to remember that, whoever’s fault this is, there are long-lasting consequences. Many people lost a lot of money because of Hennessey, but that could have been prevented had CoBank better exercised its auditing authority. Fortunately, the solution to this is simple: Congress needs to conduct yearly oversight hearings of the FCA to determine whether it has the resources necessary to regulate the FCS. And from there, Congress needs to make sure the FCA cracks down on the FCS when it isn’t doing its job. Without that, more cooperatives like AFCE will be at risk.