MALTA RANCHER ACCUSED OF MILLION DOLLAR BANK FRAUD
The United States Attorney’s Office announced that during a federal court session in Great Falls, on May 22, 2012, before U.S. District Judge Sam E. Haddon, STEVEN LLOYD KNUDSEN, a 50-year-old resident of Malta, pled guilty to federal agricultural loan guarantee fraud and conversion of pledged or secured property. Sentencing has been set for September 10, 2012. He is currently released on special conditions.
In an Offer of Proof filed by Assistant U.S. Attorney Carl E. Rostad, the government stated it would have proved at trial the following:
KNUDSEN and his wife, Lori, began ranching in 1987 near Malta. Between January 2005, and May 9, 2008, KNUDSEN received two loans from Belt Valley Bank in the combined amount of $1,580,500. One of these loans — the January 2005 loan for $813,000 — was guaranteed by USDA/Farm Services Agency. Belt Valley Bank continued to service this loan until the KNUDSENs filed bankruptcy on June 14, 2011.
From the loan application process, and the continuing lending relationship that they had with Belt Valley Bank through the time the KNUDSENs filed for bankruptcy protection, they made numerous significant and material false representations or omissions regarding their liabilities, cattle numbers, and failed to abide by the terms of the loan agreement. Most significant was the concealment of numerous large debts which, if revealed, would have made clear that their operation could not operate profitably and pay the debts they owed. The loan would not have been approved and the federal guarantee would not have been made.
In order to obtain the loan, and the federal loan guarantee, KNUDSEN was required to pledge as collateral all livestock, equipment, government payments, and ranch-related income. The Farm Service Agency would not have approved the guarantee if the loan had not required, and KNUDSEN provided, a first priority position on all property. Investigation revealed that between June of 2005 and June of 2011, KNUDSEN sold or otherwise converted approximately $360,000 in property that had been pledged to secure the loan, including cattle sales, equipment sales, and government program payments.
In May of 2008, Belt Valley Bank and the Farm Services Agency conducted an inspection of the KNUDSENS’ cattle and equipment which had all been pledged as collateral to secure the 2005 loan. KNUDSEN had claimed to the Bank and the Farm Services Agency that he had 680 cows and leased 340 cows, and that he had about 875 cows on the ground with 80 cows left to calve. KNUDSEN represented that he had 135 yearling heifers that were to be sold in the spring and 150 head of yearling replacement heifers to breed for 2009. On May 27, 2009, the Bank and the Farm Services Agency conducted an on-site inspection on KNUDSEN’s operation and found only 243 cows and 175 calves.
On July 25, 2011, in a Meeting of Creditors scheduled by the Bankruptcy Court, the KNUDSENS represented that they had sold all their vehicles, equipment, machinery, crops, and cattle, and gave all the proceeds to Belt Valley Bank. Specifically, the KNUDSENs stated that all their cattle and calves were sold by the end of 2009, that Belt Valley Bank received all of the proceeds, that the cattle were inspected by the Montana Department of Livestock (MDOL), and most of the sales happened at Glasgow Stockyards, Superior, or to an individual. A Compliance Technician for the Department of Livestock pulled all records of sales by seller’s name, brand, or similar brand. Between May 1, 2008 — the date of the inspection, and December 31, 2009 — when the KNUDSENS said everything was sold, they had only sold 227 cows and 401 calves — facts confirmed by evidence supplied by the buyers identified.
In sum, KNUDSEN did not have the numbers of cattle represented during the servicing of the guaranteed loan, a fact which if truthfully disclosed would have caused the Farm Services Agency to take steps to protect its guarantee by demanding acceleration or greater security and the security that was pledged [cattle, equipment, government payments] was — to a material extent — disposed of without the knowledge or approval of the Bank or the Farm Services Agency, nor was the debtor Bank or guarantor agency able to apply the proceeds to the indebtedness.
Lori Knudsen pled guilty to federal charges and is awaiting sentencing.
“The failure of any family ranching or farming operation is a tragedy, but when borrowers whose operations are failing break trust with small agricultural banks like the Belt Valley Bank, who rely on the honesty and integrity of those borrowers when loaning them money, there must be accountability and consequence. Montana depends on our community banks and this office cannot let crimes against them go unanswered, particularly when a federal loan guarantee is involved and the taxpayer is also betrayed.” United States Attorney Michael W. Cotter.
KNUDSEN faces possible penalties of 5 years imprisonment, a $250,000 fine, and 3 years of supervised release on each count.
The investigation was conducted by the U.S. Department of Agriculture - Office of Inspector General.
United States Attorney
District of Montana