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Grafton, N.D., farmer suspected in multi-million fraud case

FARGO -- A Grafton, N.D., farmer who grew two large farming operations in Texas and then Colorado in the past three years is mired in a remarkable blur of lawsuits, counter- and cross-claims, among former partners and lenders.

The central figures in the businesses, Thomas M. and Mari Grabanski -- and separately their grain elevator -- filed for Chapter 11 bankruptcy in late July. Lenders and some former partners are alleging various kinds of misrepresentations. The word "fraud" appears in the allegations.

A few months ago, Grabanski moved his young family to Texas.

Claims total in the tens of millions of dollars. Operations on several farms totaling tens of thousands of acres in three states reportedly are downsized, with sales of land and/or equipment.

Lenders at PHI Financial Services of Johnstown, Iowa, says Grabanski established a complex network of entities that own or lease land and operate farms. The firm complains that he improperly intermingled activities and "loans" among these entities without proper documentation.

When the elevator defaulted, Farm Credit Services AgCountry of Fargo said it tried to take grain pledged as collateral, but found Grabanski had sold the grain and diverted the income to insiders.

Various creditors and debtors so far have tried in vain to depose Grabanski about the inner workings of the operations. Such interviews initially were scheduled and postponed four times since September and most recently were set Nov. 24. The courts allowed earlier delays, with Grabanski citing "anxiety attacks" and depression-related problems, as creditors confiscated property "down to personal transportation."

None of this is normal for Grafton, a quiet farming town of about 4,500 people.

Aggressive growth

Grabanski, 42, is the youngest of five children of Merlyn and Dolores Grabanski, and they have at least shared efforts on farms, near Grafton. The parents are in their 70s and are involved as guarantors in some of his loans. In the past several years, Tom Grabanski also has been a crop insurance agent and has run a trucking business.

Between 2006 and 2008, he began a series of aggressive farming enterprises, including a partnership in a Texas farm operation, a separate partnership in a Colorado farm operation and Grabanski Grain L.L.C., a commercial elevator.

Today, he faces claims totaling $7 million from PHI and $3.5 million from AgCountry. At least 13 farmers dealing with the elevator may be owed money, and former partners say lenders are holding them responsible for debts they claim they didn't know about.

Agweek attempted to reach Tom and Mari Grabanski but the couple's phones are disconnected. Family members haven't responded to phone messages. Other partners in the deals have declined comment, as have their lawyers. For now, only court records offer a glimpse into how the farms got started.

In Texas

Among the first of the Grabanskis' forays into Texas farming was with John and Dawn Keeley, who farm near Grafton. In a recent "adversary" action in the Grabanski bankruptcy, the Keeleys recount that the two couples formed Keeley Grabanski Partnership in 2006, leasing 4,000 acres. High yields the following year allowed the partners to pay off the operating line and, they were told by Grabanski, to buy 4,900 acres, most of it in Texas. In 2008, the partners bought some 2,300 acres.

The Keeleys and Grabanski formed a new partnership, G&K Farm, in the same year to rent and farm land from Kelley Grabanski Partnership. The entity got financing from Choice Financial of Grafton. By 2009, G&K carried more than $3.5 million in operating debt and, it appears from documents, either the Keeleys or Grabanskis wanted to end the partnership.

The Keeleys say Tom Grabanski told them in May 2009 he'd pay all of G&K's liabilities and expenses if the Keeleys assigned their partnership interests in both G&K Farms and the Keeley Grabanski Partnership to him. Documents show the agreement was formalized in September, but with a provision to make it "effective" six months earlier.

Instead, the Keeleys contend Grabanski "transferred G&K Farm's assets, including crop proceeds, crop insurance proceeds, and equipment for the benefit of Grabanski and Grabanskis' other farming entities while intentionally acquiring debt in G&K Farms."

Documents describe a particular transaction in 2009 where Grabanski traded two corn planters and a tractor owned by G&K for two air seeders owned by Texas Family Farms, which is owned by other Grabanski entities and not the Keeleys. Meanwhile, Grabanski, through Texas Family Farms, borrowed to cover G&K's debt, with the intention of repaying with 2010 crops from Texas Family Farms.

On April 12, 2010, the Keeleys say they were told by PHI that they, as partners in G&K, were liable for a $7.2 million debt, an obligation they claim they knew nothing about.

The Grabanskis filed for Chapter 11 bankruptcy July 22, 2010.

In Colorado

As the Texas farms moved ahead, the Grabanskis also extended their farming into Colorado.

In 2008, they formed Colorado Farms, which included Jeffrey, Amanda, Brian and Ranell Hanson, associated with Hanson Auto and Implement, and farmers James and Carol Tallackson, all from Grafton. All but the Tallacksons formed another partnership called Hanson-Colorado Farms.

According to PHI, Grabanski applied for a loan on behalf of Colorado Farms and G&K that year, claiming his own net worth at $20.8 million and G&K's net worth at $6.5 million. The initial loan was $5 million with the line of credit increased to $6.5 million later in the year. In 2009, he got PHI to increase the line to $8 million, based, in part, on crop insurance guarantees for corn and sunflowers.

But the lender says that Colorado Farms planted sunflowers and pinto beans, but not corn. It also says Grabanski, Colorado Farms, G&K and an entity called Tom and Mari Joint Venture "failed to make any payments" by Dec. 1, 2009, the maturity date.

Crop insurance

During this time, Grabanski was aggressive.

Corwin Brown, owner of Brown & Associates real estate in Springfield, Colo., remembered talking to Tom Grabanski. "They approached me about buying some land, and they did quote prices considerably in excess of what values were at that time in the area. We assured them if they wanted to pay those prices they could probably buy quite a lot of land."

In Baca County, in semiarid southeastern Colorado, Grabanski was offering $700 for non-irrigated farmland, $1,500 for irrigated land and $400 for pasture land, all roughly double the going rate.

Brown said Grabanski talked about buying with a smaller-than-typical down payment, on a contract-for-deed basis. In Colorado, Brown said, that kind of deal is "more of an option than an actual purchase."

When the Grabanski groups came in to buy land, some farmers who had "farmed their whole life" decided to sell, thinking they were "never going to see those dollars (prices) again," said Nick Palmer, who sells crop insurance for P.J. Wilson Insurance in Springfield and Lamar, Colo.

According to the Department of Agriculture's Office of Inspector General, "a group of out-of-state investors" with "multiple entities" purchased or rented more than 11,000 acres, most of which were covered by GRIP, a kind of federal crop insurance. Under traditional crop insurance, their maximum payout would've been $2.7 million, but with GRIP they could receive an estimated $8 million.

GRIP, or Group Risk Income Protection, according to the USDA, insures against widespread loss of revenue from an insured crop in a county. If revenue countywide falls below a projected amount, the USDA pays up to 90 percent of that projected amount.

Set up for loss

In Baca County, the USDA offered coverage with "no-practice specified," meaning the farmer could choose to irrigate or not, and get the same payment. There was a possibility that, because of the discrepancy between the yield of non-irrigated corn fields and the expected yield countywide, the OIG said, farmers with GRIP coverage could "be guaranteed up to five times the value of the crop they produced."

"The system was almost set up that there would be a loss," Palmer said.

The GRIP program went forward in 2008, but with a lot of scrutiny by the USDA. Some farmers received no payments, others partial payments. The Grabanski entities are involved in legal actions against the USDA's crop insurance agency, the Risk Management Agency.

"The plaintiffs allege that the RMA wrongly determined that certain acres had not been planted pursuant to 'good farming practices,'" said Jeff Todd, an Oklahoma City lawyer who represents Hanson-Colorado Farms. The agency, he said, had invalidated some policies, including a large one involving "some North Dakota folks" because they had planted on land that had been in the Conservation Reserve Program. In 2008, he argued, there was no rule against doing so. "In order to limit its liability, the RMA determined that those fields weren't insurable," he said.

Colorado Farms didn't get paid anything for 2008 GRIP corn, he said.

In April 2010, PHI filed a lawsuit in North Dakota, listing among the 15 defendants all the Grabanski partners. In September, in a creditor's meeting, the lender says Grabanski testified G&K Farms "has never owned real property, contrary to the July 2008 financial statements." PHI claims the statements were made "with the intent to deceive PHI."

Grabanski-related entities auctioned off 8,700 acres in Colorado and held a farm equipment sale in the Grafton area.

The Keeleys say Crop Production Services, an agriculture input retailer, are holding them liable for $777,000, Choice Financial is holding them liable for $2 million in debt and has told them G&K has a negative net worth of $5.3 million.

The elevator

In between the initial expansion into Texas and the expansion into Colorado, Grabanski established Grabanski Grain in 2007 as a corn facility on the west side of Grafton. It grew to a capacity of 940,000 bushels.

From 2007 to early 2009, Tom and Mari Grabanski were "signatory parties" to several financial instruments connected with the facility, totaling $7 million, according to AgCountry documents. In January 2009, the lender secured personal guarantees from some of those involved in the Texas venture and others to cover $2.5 million Grabanski debt.

As of April, the grain company was in default.

By year's end, the courts had allowed AgCountry to move on its collateral, except there was a problem. The lender alleges that the Grabanskis, the grain company and some others sold and disposed of "numerous loads of crop inventory" that should have been collateral. It further alleges that the Grabanskis and their accountant, Jennifer Tibert, misrepresented the inventories, concealing $2 million in sales and diverted proceeds to insiders.

In November 2010, St. Hilaire (Minn.) Seed Co., which had an existing license for 66,000 bushels on the Grafton site, became the new operator of the facility.