WASHBURN, N.D. — A former North Dakota grain trader was arrested Thursday, April 4, on a felony theft charge brought this week in McLean County.
Hunter Hanson’s Devils Lake-based businesses were shut down by the North Dakota Public Service Commission last year after he failed to make payments to farmers and others from which he had purchased grain. Claims against the businesses now top $7 million.
McLean County State’s Attorney Ladd Erickson confirmed Hanson’s arrest Thursday, but declined to say when or where or he was arrested or where he would be taken.
At 1 p.m., Hanson had appeared in court in Stanley, N.D., on a non-sufficient funds charge in Mountrail County. State’s Attorney Wade Enget alleged Hanson’s Midwest Grain Trading wrote a check to United Quality Cooperative for $94,480.41. According to the Mountrail clerk of court, Hanson had declined a jury trial and filed an Alford plea, in which the defendant does not admit guilt but acknowledges there is enough evidence to convict.
Hanson’s attorney Lucas Wynne of Fargo, declined to comment.
Meanwhile, on Wednesday, April 3, Erickson filed a criminal felony theft complaint against Hanson of theft by deception. In the lengthy complaint, investigators said he operated a grain business run as a Ponzi scheme.
Hanson, 21, recently has lived in Leeds and West Fargo, and had been ordered to not leave North Dakota because of the Mountrail County case. From 2017 to 2018, Hanson did business as Midwest Grain Trading as a “roving grain buyer” and in 2018 added NoDak Grain, with a warehouse license with rural facilities at Tunbridge, near Rugby, and at Rohrville, northeast of Devils Lake.
The PSC in November 2018 issued a cease and desist order against Hanson. District courts in Bismarck and Devils Lake named the PSC as a trustee in the claims against his businesses. More than 50 claims exceeding $7.3 million have been filed and claims are due April 8.
In the criminal theft complaint, District Judge Bruce Romanick reviewed the affidavit and found probable cause to sign it.
Erickson also serves as state’s attorney in Sheridan County, and started an investigation because of complaints in that county. In his county, McClusky Cooperative Elevator had sold $770,000 in wheat to Hanson but two checks for partial payment bounced.
In the affidavit, Craig Zachmeier, a special agent with the North Dakota Bureau of Criminal Investigation, describes how in an AgweekTV interview, Hanson blamed his problems on a broken sump pump at his Rohrville elevator that led to damaged grain.
Hanson in the video said he was hoping insurance might cover losses and that complaints of non-sufficient funds checks were “just a mixup or misunderstanding.” In watching the interview, Zachmeier said Hanson exhibits “numerous known signs of deception in his nonverbal communication.”
Erickson asked Dale Pittman, a fraud investigator for the North Dakota Insurance Department, to look into the case. Pittman talked to the insurance company that said Hanson had “made a claim but had not followed through in providing the claims adjuster with a requested sworn statement.” According to the affidavit, the insurance carrier told Pittman they didn’t think the claim was “valid” under his policy. Hanson has ignored the carrier’s request for an “under oath examination.”
Starting Jan. 7, Erickson worked with the Public Service Commission and North Dakota State and Local Intelligence Center, a part of the attorney general’s office.
Intelligence analysts confirmed Hanson had registered businesses with the Secretary of State’s Office using vacant lots and third party addresses. Analyst Rachel Bitz discovered that in January 2018, a North Dakota bank had filed a report with the U.S. Department of Treasury reporting “possible money laundering/check kiting activity.” A second North Dakota bank filed a similar report in September 2018. The affidavit doesn’t indicate a conclusion of those complaints.
The Intelligence Center analyzed records from North Star Credit Union and First International Bank and Trust, both in Rugby, both of which had company accounts. The Intelligence Center and Zachmeier said it appeared Hanson was “playing the float on checks between the banks consistently in 2018.”
“In essence, a check is written from one account to another account at a second bank where it is deposited and funds are withdrawn from the receiving account before the check can clear, or not, at the first bank,” Zachmeier writes. “In addition, titling both accounts as Midwest Grain Trading or NoDak Grain at each bank allowed (Hanson) to further supplement his ‘float’ scam because businesses he sold grain to would write their checks to one of the … businesses -- allowing him to decide which bank to deposit the check with, depending on the status of a particular float he was playing at the time.” The bank activity accelerated from Oct. 2, 2018, to Nov. 4, 2018.
The complaint says The Intelligence Center said Hanson diverted funds from grain business accounts to personal use or to other businesses instead of paying grain creditors. Hanson had established Hanson Motors as a business at an address on the Turtle Mountain Indian Reservation in Belcourt.
The affidavit says Hanson wrote a $144,000 check from the accounts to Hanson Motors in July 2018 and a $140,000 check to the car dealership on Oct. 27, 2018. “Those checks were written at a time when his grain businesses were incurring millions of dollars in debt.” On Nov. 13, 2018, he closed a Midwest Grain Trading account. On Nov. 14, 2018, he deposited $168,311.66 from that account into a Hanson Motors account at the Rolette State Bank.
Zachmeier says that his investigation indicated that Hanson had used ‘proceeds from grain transactions to purchase multiple vehicles he owned for a short time -- sometimes for only one day.”
The investigator says a manager at MJ McGuire Ford in Rugby said Hanson had purchased vehicles and “immediately traded those vehicles to other people” and the manager believed he was “losing thousands of dollars on some of these vehicle deals.”
Zachmeier’s affidavit said “a former law enforcement officer” that worked for Hanson starting in November 2018 was transferred to Hanson Motors employment after the PSC cease-and-desist order. The employee said Hanson was buying cars, selling them at a loss and that it appeared he was “using vehicles to launder money.” The investigator says the employee said Hanson planned to let “civil judgments from his grain trading business build up against him, and then he will file bankruptcy.” Zachmeier notes that bankruptcy doesn’t protect assets acquired by fraud.
The affidavit says Mike McNamee, a PSC employee and former grain elevator manager, analyzed transactions by Hanson businesses from October 2017 to September 2018. During that period, Hanson businesses transacted more than 2 million bushels of grain. Of that, 1.25 million bushels were transacted in August and September of 2018.
For the 10 months starting in October 2017, Hanson’s businesses transacted 75,000 bushels of grain per month, but in August and September 2018, Hanson averaged 625,000 bushels of grain transactions per month.
McNamee found that Hanson’s transactions “commonly” lost money on the deals. In one example, he bought grain at the Ray Farmers Elevator for $5.74 per bushel on Aug. 3, 2018, and sold it to an ADM elevator on Aug. 8, for $5.30, after incurring a 75 cent per bushel trucking fee and other costs, giving him a $1.59 per bushel loss.
Farmers and other grain sellers were getting premiums in the market and Hanson was “picking up trucking costs. As long as people got paid at some point, they had no reason to alert the PSC to an “ever expanding Ponzi scheme.”
Zachmeier said a Ponzi scheme starts with a “confidence phase” when people are getting payments and benefits. Payments are made from business from “new clients or ‘marks,’” and “commonly termed ‘robbing Peter to pay Paul.’” This is followed by a “bust out” or “take down” phase, where confidences are “exploited to steal assets.”
Issuing non-sufficient funds checks gave Hanson “a couple days for the checks to be in the mail, then some time before the grain sellers deposited the checks, then some days of 'float' before the check was dishonored by his bank, and then if the grain sellers would contact Hanson he told them it was just a screw-up by his bookkeeper and he’d send another check.
“It all added days he could scam more grain from people around the state before the PSC stepped in,” Erickson says.
During this time, the delays mattered because “each day he could pick up grain from people was all profit because he wasn’t paying for it anymore.”
Erickson quotes Brian Larson, general manager at McClusky Co-op Elevator, saying that in August, the Midwest Grain payments got behind the 30-day period. Shauna Throndsedt, Midwest Grain’s bookkeeper, visited the McClusky elevator, where the co-op’s bookkeeper “tried to teach her how to do settlements.”
Separately, Throndsedt earlier testified in a Mountrail County criminal case that she used a “stamp” to put Hanson’s name on checks. In court, Hanson’s defense was that he feels “insulated from floating NSF checks because his bookkeeper stamps his name, he doesn’t sign them and she does so at a third party’s direction,” Zachmeier writes, in the affidavit.