Federal Prosecutors Charge Adams Produce CEO

BIRMINGHAM—Federal prosecutors today charged the CEO of Adams Produce Company with 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 Division Acting Special Agent in Charge Veronica Hyman-Pillot.

The U.S. Attorney’s Office charged former Adams Produce Chief Executive Officer Scott David Grinstead in a four-count information filed in U.S. District Court. Prosecutors also filed a plea agreement with Grinstead, in which he acknowledges his guilt and agrees to plead guilty.

As part of his plea agreement, Grinstead, 45, of Birmingham, must 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.

“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.”

Grinstead is the second Adams Produce official prosecutors have charged in connection with fraud at the Birmingham-based company that had been a leading distributor of fresh fruits and vegetables across the Southeast for many years. In December, the U.S. Attorney’s Office charged Christopher Alan Pfahl, 41, of Birmingham, with conspiracy to defraud the federal government of several hundred thousand dollars through a scheme to create false invoices and purchase orders. Pfahl was a purchasing program specialist for Adams Produce. He pleaded guilty to the charge last week.

That conspiracy involved Pfahl and other officers and employees of Adams Produce engaging in a scheme to create false records that reflected a higher purchasing cost for fruits and vegetables than the company actually paid. The inflated costs were then presented to the U.S. government, which had agreed to pay a certain amount over Adams’ cost for produce.

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 school systems, junior colleges, and universities. Adams Produce entered into contracts with the government worth millions of dollars, according to court records.

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.

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 information.

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.

The maximum penalty for wire fraud is 20 years in prison and a $250,000 fine. For misprision of a felony, the maximum sentence is three years in prison and a $250,000 fine. The maximum penalty for failure to file an income tax return is one year in prison and a $100,000 fine.

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