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Tuesday, Feb. 08, 2011

Washington winery owner, farmers plead innocent in fraud case

YAKIMA - A prominent Pasco farmer and winery owner pleaded innocent Monday to federal charges related to an alleged attempt to defraud the government of insurance payments for potato crops. And three other Mid-Columbia farmers face similar allegations.

Jeffrey J. Gordon of Gordon Brothers Cellars was indicted by a grand jury in January on one count of conspiracy, nine counts of false application and one count of mail fraud.

Also indicted were Lynn J. Olsen II of Pasco and his company Olsen Ag Inc.; Mark G. Peterson of Richland and his company Poco LLC; and Blake T. Bennett of Pasco and his company Tri-Cities Produce Inc.

Olsen, Peterson and Bennett, and their companies, pleaded innocent at an arraignment in Yakima on Friday, federal court documents said.

Gordon and Bennett did not respond to messages left by the Herald at their offices Monday. A message also was left on Gordon's cell phone.

No one answered the phone number listed for Olsen. No number is listed for Peterson or Poco LLC.

The indictment documents filed Jan. 11 in the U.S. District Court for the Eastern District of Washington in Yakima allege that from 2001-06, the four men and their companies conspired to make false reports to the Federal Crop Insurance Corporation to defraud the corporation of more than $9.5 million in insurance payments.

Documents said Olsen, Peterson and Gordon grew Norkotah Russet potatoes -- a variety not typically suited for processing -- and entered into contracts to sell the potatoes to Peterson, Bennett and Tri-Cities Produce for processing.

Peterson acted sometimes as a farmer and sometimes as a buyer, documents said.

The contracts reportedly required the potatoes to have attributes the indictment described as "exceedingly high," such as a specific gravity of 1.078 or 1.079 or more, and to be 80 percent to 90 percent bruise-free.

"It would be highly unlikely that Norkotah Russet potatoes could have ever met these requirements," the indictment said.

When the potatoes failed to meet the requirements, the contracts allegedly required the growers to sell the potatoes for a fraction of fresh pack market value.

The contracts are alleged to have contained no provisions for how much the growers would be paid if the potatoes did meet the requirements.

"The Norkotah Russet potatoes failed to meet the contract requirements each and every time the purported processing contracts were entered into," the indictment said. "Yet the conspirators continued to enter into these virtually identical purported processing contracts year after year."

The indictment alleges the contracts were designed to manufacture false revenue losses for the growers, who then submitted insurance claims seeking to recoup the losses from selling at bargain basement prices.

The defendants also are alleged to have made false insurance claims based on heat damage.

Although their crop insurance was provided by private companies, those companies in turn were backed by the Federal Crop Insurance Corporation -- an agency of the U.S. Department of Agriculture. The indictment alleges the federal government ultimately lost more than $9.5 million to the fraudulent claims.

The indictment also claims the men and their companies overvalued their expected potato crop revenues when filing annual farm reports to the federal crop insurance program, knowing they would receive lowball prices from the processing contracts.

No trial date has been set.