Daniel F. Froman, owner of the now defunct Gallatin Grain Company, was sentenced in federal court on March 8, 2012, for a scheme that stole over $3 million from 100 northwest Missouri farmers, according to Beth Phillips, United States Attorney for the Western District of Missouri.
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Froman, 66, was sentenced by U.S. District Judge Gary A. Fenner to six years in federal prison without parole. The court also ordered Froman to pay $2,851,304.02 in restitution to his victims. Following the pronouncement of the sentence, United States marshals took Froman into custody to begin immediately serving his sentence.
Three farmers who were victims of Froman’s scheme testified how their losses have affected their lives. Keith Sutton called Froman "the Bernie Madoff of Daviess County." Froman owed Sutton over $145,000. Sutton has received a total of around $25,000 in payment (an initial payment of about $16,000 in the first Missouri Department of Agriculture (MDA) pro-rata payout and a second payment in December 2011 of about $9,000).
"We’ll never recover from this," said Sutton in a phone interview after the hearing. "We may survive it, but we’ll never recover. This was a loss not only to me and my wife, but to my heirs."
"And," Sutton continued, "Nobody’s ever said what happened to the money. The victims would really like to know where it went." Sutton also said that Froman took his daughter’s FFA project.
The other two witnesses for the government, Jim Lasher and David Taylor, had claims of over $50,000 and $6,700 respectively, for which they received about 12-cents on the dollar.
Total claims against Gallatin Grain Company were in excess of $4.5 million, as announced at an administrative hearing held by the MDA on May 28, 2009. Storage claims totaled $1,530,488; grain dealer claims totaled $1,799,253; ineligible claims totaled $201,227; and withdrawn claims totaled $1,164,418.91. Withdrawn claims were those where claimants accepted assets in exchange for their withdrawal from the claim process.
The government maintained that the Fromans ran an elaborate scheme in order to stay in business when faced with an audit. Lead attorney Jane Brown said that even after the defendant accepted responsibility through a plea agreement, he continued to write bad checks after he was released on bond. Keith Sutton said that he knows that some people are still holding outstanding insufficient funds checks from Gallatin Livestock Auction that date to December 2011. Froman was the owner/operator of Gallatin Livestock Auction until Dec. 31, 2011 when his license expired.
Froman’s attorney, Joel Pelofsky, said that the misuse of farmers’ funds was not an elaborate scheme to defraud customers of money, but that his client had simply gotten in over his head and was unable to keep up with the constant influx of funds from buying and selling large amounts of grain.
Froman claims that he has paid nearly $100,000 in "under the table" restitution, by providing free cattle and by taking out and maintaining a life insurance policy in the victims’ names.
Sutton said that the under-the-table restitution made to claimants through Gallatin Livestock Auction makes it unfair to the 80 to 90 claimants who didn’t get anything. "I thought we were all floating in the same boat, but evidently we weren’t," he said.
Testifying on Froman’s behalf were Larry Beverlin, Dick Worrell and Froman’s daughter Kelly Warren.
Froman will not be eligible for parole until at least 85% of his sentence has been served. Upon completion of his incarceration, he will begin three years probation.
On Daviess County charges of sexual assault and tampering with a witness, Froman is scheduled to appear in Daviess County Circuit Court on March 22 to plead guilty on an Alford plea and to receive sentencing, according to Daviess County Prosecutor Annie Gibson. An Alford plea is a plea in which the defendant does not admit the act, but admits that the prosecution could likely prove the charge. Daviess County deputies will pick up Froman from Leavenworth, Kan., for this hearing.
In the grain case, Froman pleaded guilty in federal court to mail fraud on Oct. 18, 2011. Froman operated Gallatin Grain Company on State Highway 6, which stored and bought grain from farmers in northwest Missouri. Froman admitted that he defrauded over 100 farmers whose grain was stored at his business by selling their grain in order to pay his debts.
Froman’s wife and co-defendant, Pauline K. Froman, 66, pleaded guilty on Nov. 10, 2011, to conspiracy to commit mail fraud. Pauline Froman was co-owner of Gallatin Grain Company. She is scheduled to be sentenced on April 17, 2012.
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, Froman emptied the storage space at Gallatin Grain, loading 1,200-1,300 bushels of soybeans and corn into four tractor trailers. 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.
The mail fraud charge involves a fraudulent financial statement that Daniel and Pauline Froman mailed to the Missouri Department of Agriculture (MDA), 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 the grain dealer or warehouse licenses with a negative net worth. The false financial statement was used to borrow operating funds from BTC Bank.
The MDA 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. Daniel Froman was required to waive any interest he has 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.
This case was prosecuted by Assistant U.S. Attorney Jane Pansing Brown. It was investigated by the FBI, the Missouri State Highway Patrol, the Missouri Department of Agriculture Grain Regulatory Services, the Missouri Attorney General’s Office, the Daviess County Prosecutor’s Office and the Daviess County Sheriff’s Department.