Business

Feds investigate Idaho farm business over nonorganic alfalfa seeds

Federal prosecutors want access to this house and farm property in Buhl, following an investigation of Saul Farms.
Federal prosecutors want access to this house and farm property in Buhl, following an investigation of Saul Farms. Times-News

Federal investigators believe a routine inspection by the Idaho State Department of Agriculture last year turned up a case of organic-farming fraud in Southern Idaho.

Prosecutors are seeking to seize vehicles, farming equipment, cash and other property belonging to Saul Farms and its owners, Bernard and Roza Saul, of Bliss, under suspicion the property was purchased with fraudulent proceeds. They say the Sauls repeatedly bought nonorganic seed and resold it as organic, which commands higher prices.

Prosecutors also want a federal judge to grant them access to a $1 million property that includes a residence and 438 acres in Buhl purchased by the Sauls, though they are not seeking to seize that property.

No charges have been filed. The Sauls did not respond to Statesman attempts to obtain comment.

The owners of businesses in other states that bought what they thought was organic alfalfa seed told the Statesman they now are scrambling to find new suppliers. Farmers and seed-handlers that bought from Saul Farms or its sister company, Bliss Seed, supply dairy and beef operations across the Midwest, the East Coast and the Southeast.

The U.S. Attorney’s Office on Feb. 11 filed a legal complaint in U.S. District Court in Twin Falls County to seize the property, based on events Boise-based FBI agent Drew McCandless recounted in an affidavit.

“Since May 5, 2015, I have been investigating what appears to be a scheme to defraud farms and seed companies that purchase organic alfalfa seed for use or resale,” McCandless wrote, adding that he found “probable cause” of mail and wire fraud.

HOW IT BEGAN

Here is what happened, according to the complaint and affidavit:

Since at least January 2010, Saul Farms regularly bought conventional alfalfa seed from suppliers that it then sold as organic seed to customers.

Although alfalfa grown from conventional seed might not be treated with fertilizers or pesticides, those or other synthetic chemicals in the seed itself can carry into the alfalfa plants. To qualify as organic, the seed must be grown with only organic inputs.

Saul Farms delivered “organic” seed to Summit Seed Coatings, a seed-coating business in Caldwell, for nearly three years, supplying about 75 percent of the organic alfalfa seed going through Summit. Summit’s manager told the Statesman that Summit does not own any of the seed that it handles on its way to customers.

The deliveries included an estimated 300,000 pounds over eight months before the State Department of Agriculture sent an inspector to Summit last March 26 to conduct an organic-handler inspection. The inspector noticed several loads of alfalfa seed that had come from Bliss.

STATE GETS SUSPICIOUS

A manager told the inspector the seed was provided by Bernard Saul. But the shipments did not seem to match state records showing Saul Farms could grow only 38,400 to 43,200 pounds of the seed each year.

Inspectors took samples of the Saul Farms seeds on April 15 and Aug. 20 and sent them to a laboratory in Portland. They both tested positive for pesticides and fungicides.

Investigators later talked to the owners of Andrew’s Seed Co. in Ontario and United Seed Service in Caldwell. They said they had sold conventional, nonorganic alfalfa seed to Bernard Saul for up to five years. They sold Saul up to 170,000 pounds per year or growing season.

“A review of Bernard and Roza Saul’s personal and business bank accounts held at Columbia Bank from January 2010 through September of 2015 revealed numerous outgoing checks to seed distributors for the purchase of conventional alfalfa seed,” McCandless wrote.

MONEY TRAIL

The affidavit lists about $7.6 million in checks deposited to various bank accounts between January 2010 and August 2015 from sales of conventional seeds Saul Farms said were organic.

Among them were checks totaling more than $500,000 deposited in the Saul Farms account in November and December 2013 from wholesalers that specialize in organic seeds. Ledgers the Sauls provided to inspectors in 2014 included neither those sales nor the Summit Seed Coatings shipments.

Saul Farms sold the “organic” seed for an average of $3.75 a pound, McCandless wrote. Saul Farms purchased nonorganic seeds for an average of $2.50 a pound, he wrote.

STRANGE NAMES

McCandless wrote that Bernard Saul was interviewed at the U.S. Attorney’s Office last October. Three days later, the Sauls filed paperwork to transfer the Buhl property into the name of Cascade Investments, a company whose address matched the Sauls’.

The people listed in records from 2008 as president and secretary of Cascade Investments were “G. William McName” and “R.R. Podmareva.” The latter name corresponds with Roza Saul’s name on the couple’s 2004 marriage license.

“After reviewing other records relating to Bernard and Roza Saul and their business entities in the Idaho Secretary of State’s database, I found the name McName numerous times ... including ‘George MacName,’ ‘George MacNamee,’ ‘George Mac Name,’ and ‘G. William McName,’ all connected to the Sauls’ addresses,” McCandless wrote. “Attempts to locate George William McName have been unsuccessful. A search of database records for individuals in Idaho with that name or similar phonetic names turned up negative results.”

The Sauls could not be reached for comment, and the Statesman was unable to determine whether they have legal representation. A voicemail box belonging to Bernard Saul was full and could not accept messages. The Statesman left a message at a separate phone number that was listed for Saul in court documents from an unrelated lawsuit several years ago. A third phone number listed for Saul in a public-records database rang to a fax machine.

Local companies named in the complaint declined to comment.

U.S. Attorney Wendy Olson said the investigation continues. She acknowledged that forfeitures not associated with a criminal charge are unusual, though civil forfeitures are legal when authorities suspect property was involved with illegal activity.

“A lot of times you see forfeiture involved more often with a criminal case, and that’s probably the bulk of the forfeiture work that we do,” Olson told the Statesman. “But this is another tool available to the government, and as the matter unfolded, we decided that this was an action that needed to be taken at this time.

“Unfortunately, at this time I can’t really go into any more of the details than are set out in the complaint,” she said. “I can say it’s an ongoing matter, and we’ll take the additional steps that are necessary as we reach that point in the case.”

Audrey Dutton: 208-377-6448, @IDS_Audrey

John Sowell: 208-377-6423, @IDS_Sowell

Organic alfalfa and Idaho

Organic producers can be certified by the state or other organizations. Bernard and Roza Saul currently have organic certification from Nature’s International Certification Services for alfalfa, corn and Great Northern dry bean crops but not for alfalfa seed, according to U.S. Department of Agriculture records. From 2006 through 2015, Saul Farms had been state-certified for organic alfalfa seed.

An organic seed-handler inspection can take anywhere from three to 12 hours, according to said Johanna Phillips, program manager for the state’s organic program. Inspectors scrutinize records, trace the seed back to its origin and check for discrepancies between production and sales, she said.

The state had certified 232 organic operations as of Monday, Feb. 22.

IS IT REALLY ORGANIC?

U.S. consumers spend more than $35 billion on organic food each year, according to the Organic Trade Association. The vast majority of food products labeled as organic are as advertised, according to the U.S. Department of Agriculture.

In 2012, the USDA released the findings on 571 organic fruits and vegetables purchased from retail stores and tested for residue from more than 200 pesticides. The tests showed 96 percent of the fruits and vegetables complied with USDA organic regulations. Four percent were above the tolerances, which suggested some of the samples labeled as organic products were not. Other products may have been grown organically but were not adequately protected from prohibited pesticides.

ALFALFA: BIG CROP

Alfalfa ranks fourth among the most widely grown crops in the United States, behind corn, wheat and soybeans. The crop is worth $10 billion annually and is produced in all 50 states.

Idaho ranks third in alfalfa production, behind California and South Dakota, according to the USDA.

In 2012, Idaho farmers harvested 4.16 million tons of alfalfa, worth $799 million. There were 1.04 million acres planted in alfalfa, with a yield of about four tons per acre.

The crop is used as feed primarily for dairy cows but also for sheep, beef cattle, chickens and other farm animals.

It is also used as a cover crop that reduces pests and plant pathogens when rotated between corn and soybean crops. Alfalfa is valuable for fixing nitrogen in the soil, saving an estimated $457 million a year in fertilizer costs.

Demand for organic alfalfa has increased for use in organic dairy operations.

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