Grain Company Owner Pleads Guilty to Mail Fraud Conspiracy; $3 Million Scheme Victimized 100 Farmers

KANSAS CITY, MO—Beth Phillips, United States Attorney for the Western District of Missouri, announced that the owner of a Gallatin, Mo., grain company pleaded guilty in federal court today to a scheme that stole over $3 million from 100 northwest Missouri farmers.

Pauline K. Froman, 66, of Gallatin, pleaded guilty before U.S. District Judge Gary A. Fenner to the mail fraud conspiracy charge contained in an April 21, 2011, federal indictment.

Her husband, Daniel F. Froman, 66, also of Gallatin, pleaded guilty to mail fraud on Oct. 18, 2011.

The Fromans operated Gallatin Grain Company, 107 State Highway 6, Gallatin, which stored and bought grain from farmers in northwest Missouri. They have each admitted that they participated in a scheme that defrauded 100 farmers whose grain was stored at the business by selling the farmers’ grain in order to pay their debts.

Pauline Froman admitted that she acted knowingly in this scheme and that she deliberately avoided knowing the truth. As the bookkeeper, she was aware of a high probability that the scheme was defrauding farmers, and that a 2007 financial statement submitted to the Missouri Department of Agriculture and BTC Bank falsely reported the net worth and working capital of Gallatin Grain Company.

The Missouri Department of Agriculture has collected $400,000 in assets from the Fromans, which has been distributed to the victim farmers on a pro rata basis. The remaining loss, according to the Missouri Grain Regulatory Services, is $2,903,610. Under the terms of their plea agreements, both Daniel and Pauline Froman also waived any interest they have in the $100,000 bond posted in the case filed by the state of Missouri in Daviess County for 22 counts of stealing grain and three counts of filing false reports. Those funds will be turned over to the state for distribution to the victims.

On Feb. 6, 2009, Gallatin Grain Company’s attorney called the Missouri Department of Agriculture Grain Regulatory Services to report that the company no longer had any grain, trucks or assets. Two days later, Daniel Froman emptied the storage space at Gallatin Grain, loading 1,200-1,300 bushels of soybeans and corn into four tractor trailers. Daniel Froman transported the stolen grain as well as some farm equipment to Falls City, Neb., where the grain, farm equipment and tractor trailers were all sold for $100,000. Pauline Froman was not involved in this transfer or payment.

The mail fraud involves a fraudulent financial statement that the Fromans mailed to the Missouri Department of Agriculture, Grain Regulatory Services. The financial statement falsely reported a net worth of more than $662,000 in December 2007, when in reality Gallatin Grain Company had a negative net worth of $936. The Fromans would have been ineligible to maintain their grain dealer or warehouse licenses with a negative net worth. The false financial statement was used to borrow operating funds from BTC Bank.

Under federal statutes, Pauline Froman is subject to a sentence of up to five years in federal prison without parole, plus a fine up to $250,000 and an order of restitution. Daniel Froman is subject to a sentence of up to 20 years in federal prison without parole, plus a fine up to $250,000 and an order of restitution. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.

This case is being prosecuted by Assistant U.S. Attorney Jane Pansing Brown. It was investigated by the Federal Bureau of Investigation, the Missouri State Highway Patrol, the Missouri Department of Agriculture Grain Regulatory Services, the Missouri Attorney General’s Office, the Daviess County, Mo., Prosecutor’s Office and the Daviess County, Mo., Sheriff’s Department.