Adams Produce CEO Sentenced to 16 Months in Prison

BIRMINGHAM—A federal judge late Tuesday sentenced the former CEO of Adams Produce Company to 16 months in prison for fraud against the company, failure to report a felony against the government, and failure to file federal income tax returns, announced U.S. Attorney Joyce White Vance, FBI Special Agent in Charge Richard D. Schwein, Jr., and IRS-Criminal Investigation Special Agent in Charge Veronica Hyman-Pillot.

Scott David Grinstead, 45, chief executive officer of the now-defunct Adams Produce company, pleaded guilty to the charges in April. Grinstead agreed, as part of his plea agreement with the government, to pay $450,000 in restitution to the bankruptcy estate of Adams Produce to benefit the company’s employees who lost pay when Adams closed abruptly and filed for bankruptcy in 2012. As part of Grinstead’s sentence, U.S. District Judge Karon O. Bowdre ordered him to perform 20 hours of community service.

“This defendant, while CEO of Adams Produce, 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. “Prison is deserved punishment for his criminal acts, which harmed the government and his company, but we also 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.

"Financial fraud at this company harmed employees, customers and U.S. taxpayers,” Schwein said. “The FBI remains committed to investigating corporate fraud and seeing its perpetrators brought to justice.”

"Individuals who earn income should accurately report their income to the IRS," Hyman-Pillot said. "The sentence today should reassure Americans that those individuals who willfully and intentionally violate their known legal duty of filing and paying their fair share of taxes will be prosecuted."

Three other officials of Adams Produce—David Andrew Kirkland, Christopher Alan Pfahl, and Stanley Joel Butler, II—have been charged and pleaded guilty, and another employee, Michael John O'Brian, was indicted in August in connection with fraud at the Birmingham-based company that had been a leading distributor of fresh fruits and vegetables across the Southeast for decades. Adams Produce was founded as a family owned business more than 100 years ago. The family sold the company to executives and a private equity firm in 2010.

The federal government, through the Defense Supply Center Philadelphia, was one of Adams’ customers. The supply center contracted with Adams Produce to provide fresh fruits and vegetables to military bases, public schools systems, junior colleges, and universities. Adams Produce entered into contracts with the government worth millions of dollars, according to court records.

Kirkland, O'Brien, Butler, and Pfahl conspired to create false records that reflected a higher purchasing cost for fruits and vegetables from a national distributor than Adams Produce actually paid. The inflated costs were presented to the government, which had agreed to pay a certain amount over Adams cost for produce.

Between August 4, 2011 and December 7, 2011, the Adams' employees and officers conspired to conduct at least 82 transactions with the national distributor that were designed to create false invoices and purchase orders. Through those false invoices submitted to the Defense Supply Center, Adams Produce fraudulently received about $481,000 from the government.

One of the charges Grinstead pleaded guilty to is misprision of a felony for knowing of the fraud that other officers 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.

Grinstead pleaded guilty to 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.

He pleaded guilty to two counts of failure to file a federal tax return, one for 2009 and one for 2010. According to court records, 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, he received about $1,878,700 in gross income and willfully did not file a return with the IRS.

The FBI and the IRS investigated the case, and Assistant U.S. Attorney George A. Martin, Jr. is prosecuting it.