CEDAR RAPIDS, IOWA — Kenneth Ehrp, former general manager of a Sioux Center, Iowa, US, grain cooperative who directed subordinate managers to blend oats into soybeans has been sentenced to three months in federal prison, according the Department of Justice.

Mr. Ehrp, 76, from Dakota Dunes, SD, received the prison term after a Nov. 2, 2020, guilty plea to one count of conspiracy to commit a prohibited grain practice.

In a plea agreement, and at guilty plea and sentencing hearings, Mr. Ehrp admitted he was the general manager at a large, federally licensed grain warehouse that is headquartered in Sioux Center but has satellite locations in Iowa and elsewhere. In July 2015, Mr. Ehrp agreed with Calvin Diehl and others to add lower-value oats to soybeans and sell the mixture as soybeans. During the fraud, the individuals involved also made false statements and executed false certificates to USDA inspectors, layered soybeans on top of oats in both storage bins and trucks to deceive USDA inspectors and customers about the quality and quantity of the grain, and made false entries and adjustments in reports provided to the grain warehouse’s bank, according to the DOJ.

The DOJ said that in March 2017 one of Mr. Ehrp’s subordinates instructed a warehouse manager in Worthing, SD, to blend more oats with soybeans. As a result, approximately 30 truckloads of what were supposed to be soybeans were “spiked” with oats.  After the customer happened to discover the badly “slugged” or “spiked” loads, one of the customer’s managers called Mr. Diehl and told him to stop blending oats into soybeans.

The DOJ said the manager warned Mr. Diehl that “someone can go to jail for this.” Mr. Diehl feigned surprise, apologized, and falsely promised that the practice would not happen in the future, according to the DOJ. However, at Mr. Ehrp’s direction, Mr. Diehl and others continued to blend oats into soybeans (even directing subordinates to remix one of the “slugged” loads) and sell them to the same unwitting customer. Mr. Ehrp drove to the location manager’s office in Worthing and ordered him to continue blending oats.  As a result, the Worthing location manager designed a new system for blending oats into soybeans, involving an auger and a conveyer, which sprinkled oats into the semi-trucks’ hoppers and ensured the loads leaving Worthing would remain hidden, the DOJ said.

After learning of the conspiracy, the USDA conducted a search of grain bins at the cooperative’s various locations in Iowa and South Dakota. Of the estimated 87,996 bus of grain in the bins at these locations, the bins actually contained only 34,354 bus of soybeans even though all of these bins had been certified as soybeans.

Mr. Ehrp was sentenced in Sioux City by US District Court Chief Judge Leonard T. Strand. Ehrp was sentenced to three months’ imprisonment and fined $50,000. He was ordered to pay $4,089.73 in costs of prosecution, and he also must serve a one-year term of supervised release after the prison term.  There is no parole in the federal system.

Earlier this year, Mr. Diehl also was sentenced to three months’ imprisonment for his role in the grain blending scheme.