PORTLAND — A federal judge has ordered an Oregon grass seed company to pay $78,775 in restitution and a $5,000 civil penalty for committing misprision of a felony in concealing its role in a fraud.
Proseeds Marketing of Jefferson, Ore., must also serve a one-year term of probation under the sentence imposed by U.S. District Judge Karin Immergut in Portland on Nov. 29.
“I want to be sure this kind of event doesn’t happen again,” Immergut said at the hearing.
The company has “absolutely” learned its lesson from the case, which was its “first stumbling block” after more than 40 years in business, said Richard Olson, its CEO.
“This is taken very seriously,” he said. “The industry’s never seen anything like this in the past.”
The company has agreed to the terms under a plea agreement with the U.S. Department of Justice. It faced a maximum term of five years probation and a $500,000 fine for committing misprision of a felony, which involves failing to report a felony to the authorities.
In this case, Proseeds Marketing admitted to brokering transactions that were part of a broader scheme to defraud Jacklin Seed, a Washington-based grass seed company now owned by the J.R. Simplot Co.
The federal government filed criminal charges against Proseeds earlier this year, alleging that the company facilitated bogus sales by Chris Claypool, Jacklin’s former general manager, who was sentenced to three years in prison for fraud.
Federal prosecutors claimed that Proseeds bought grass seed from Jacklin and then immediately sold it back at a higher price, generating commissions for Claypool.
Proseeds also served as an “unnecessary middleman” for Jacklin’s sales of grass seed to foreign customers, charging marked-up prices and helping Claypool earn commissions, the government said.
Claypool normally wouldn’t be entitled to sales commissions as a salaried employee and thus relied on Proseeds and “straw corporate entities” to circumvent this restriction, the government said.
The fraudulent scheme generated about $475,000 in ill-gotten gains, netting Proseeds $78,775 in profit, prosecutors said.
Olson, the CEO of Proseeds, said the company thought it was being sufficiently “protective” by sending purchase and sales orders to the J.R. Simplot Co., notifying it of every transaction.
“Obviously, we should have taken it one step farther,” Olson said.
The federal government prosecuted the case partly to discourage grass seed dealers from such “informal arrangements” in which they paid “gratuities” to employees of partner organizations, said Ryan Bounds, assistant U.S. attorney.
“We wanted to get the message out to the Oregon grass seed industry,” in case such deals are more “pervasive,” Bounds said.
In a sentencing memorandum, the government said Proseeds admitted to knowing Claypool was defrauding his employer but nonetheless participated and concealed the scheme.
Proseeds said in court documents it took responsibility for brokering transactions that were “unusual” and “suspicious,” but claimed nobody at the company knew Claypool was defrauding Jacklin.
The company said the strange transactions should have prompted it to “ask additional questions and investigate further” and “contact the authorities to report the suspicious conduct.”
Proseeds said some of the sales “theoretically” could have helped the company “get a foot in the door in the international market,” but claimed the transactions resulted in “very little cognizable benefit.”
The company was founded in 1990 by its CEO, Richard Olson, and contracts for about 25,000 acres of grass seed production with farmers in the Northwest.
“ProSeeds regrets its actions and hopes that this case can serve as an example to other companies to act with vigilance when engaging in commercial transactions, even with trusted partners,” the company said in its sentencing memorandum.