by Ben Vernia | April 9th, 2014
On March 31, the U.S. Attorney for the Southern District of New York announced that his office had simultaneously filed suit and settled fraud allegations against a dairy producer and a dairy broker for misrepresentations made to the USDA. According to the DOJ’s press release:
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed and simultaneously settled a civil fraud lawsuit against a broker and a distributor of dairy products, alleging that defendants used false statements to buy federally subsidized dairy products. Specifically, the lawsuit alleges that HUGH HENLEY (“HENLEY”); two companies that Henley owns and operates, PRESTIGE PROTEINS and PRESTIGE MILK PROTEINS, LLC (collectively, “PRESTIGE”); and AGRI-DAIRY PRODUCTS, INC. (“AGRI-DAIRY”), defrauded the United States by conspiring to submit, and submitting, two false bids to the United States Department of Agriculture (the “USDA”) for the purchase of federally subsidized goods in 2009. As alleged in the Complaint, through those false bids, defendants fraudulently bought more than two million pounds of dairy products at federally-subsidized discount prices and unlawfully resold those products at market prices for substantial profits. The settlement requires defendants to admit to the false bidding, and collectively pay damages of $1,265,055. The settlement was approved Friday, March 28, 2014, by U.S. District Judge William H. Pauley.
Manhattan U.S. Attorney Preet Bharara said: “The federal government set up a program to help domestic manufacturing in the dairy industry by selling dairy products at federally subsidized low prices. The defendants engaged in lies and other deceptive conduct to skim product from this program so they could illegally sell it, rather than manufacture the intended product. Those who want to abuse federal programs should understand that such conduct will not be tolerated by this Office.”
According to the allegations contained in the Complaint filed Monday, March 24, 2014, in Manhattan federal court:
PRESTIGE, which is owned and operated by HENLEY, brokers the importation and distribution of dairy products in the United States. AGRI-DAIRY distributes dairy products in the United States. In 2009, the USDA invited qualified dairy product companies to submit bids for the purchase of discounted nonfat dry milk (“NDM”) through a federal program, the Dairy Product Price Support Program. The bidders were required to certify that they could and would domestically manufacture the product into casein, a common protein product. In particular, each bidder was required to certify that it had the facilities to manufacture casein domestically and that the bidder would use the NDM solely for domestic conversion into casein within 90 days. The purpose of the certification was to ensure that the federally subsidized NDM would be used to benefit the domestic manufacturing industry.
The defendants conspired to exploit this federal program by obtaining the federally discounted NDM and re-selling it on the open market, contrary to the program requirements and certifications. Specifically, defendants agreed that HENLEY, in the name of PRESTIGE, would submit two bids to the USDA falsely certifying that he had the facilities to manufacture the NDM into casein and would do so within 90 days. They did so knowing that PRESTIGE lacked the ability to manufacture the NDM into casein domestically. HENLEY and AGRI-DAIRY further agreed that AGRI-DAIRY would advance PRESTIGE the funds to pay the USDA for the dairy products, that AGRI-DAIRY would then sell the NDM at market prices, and that PRESTIGE and AGRI-DAIRY would split the net profits from the resale.
HENLEY, in the name of PRESTIGE, then submitted two false bids to the USDA and won the contracts each time. AGRI-DAIRY wired HENLEY the funds to allow PRESTIGE to pay the USDA, as an advance against profits from the resale of the NDM. Then, instead of converting the NDM into casein, defendants resold the NDM to AGRI-DAIRY’S customers at market prices after each purchase. Further, because the USDA required a certification of conversion to casein within 15 days of conversion as a condition of the sales, HENLEY twice falsely certified that PRESTIGE had, in fact, converted the NDM to casein, when it had not.
As a result of their conspiracy to submit false bids to the USDA, defendants collectively made a total of more than $630,000 from their resale of the discounted NDM they unlawfully acquired from the USDA.
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In connection with the settlement, HENLEY and PRESTIGE will pay the United States $632,527 in damages, and AGRI-DAIRY also will pay $632,527 in damages, for a total settlement amount of $1,265,055.
As part of the settlement, HENLEY, PRESTIGE, and AGRI-DAIRY admitted, acknowledged, and accepted responsibility for the following facts:
- On or about June 1, 2009, and November 25, 2009, Henley presented two bids to the USDA to purchase discounted NDM;
- In those bids to purchase NDM, Henley falsely certified that the NDM would be used solely for domestic conversion into casein or caseinate, one of USDA’s requirements for purchasing the NDM;
- The two false bids were made pursuant to an agreement between Agri-Dairy and Henley, by which the NDM would not be used for the purpose of domestic conversion into casein or caseinate, but instead would be sold by Agri-Dairy to third parties, with the net profits from the sales split between Henley and the Prestige entities, on the one hand, and Agri-Dairy, on the other;
- Pursuant to that agreement, the NDM that Henley acquired from the USDA in connection with the June and November 2009 bids was not converted to casein, but was resold by Agri-Dairy; the net profits from those sales were split between Henley and the Prestige entities, on the one hand, and Agri-Dairy, on the other; and
- On or about October 5, 2009, and March 9, 2010, Henley falsely certified that the NDM purchased from the USDA in connection with the June and November 2009 bids had been converted to casein or caseinate, when in fact that had not occurred.
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