Witnesses say fraud in Postville occurred for years
BY GRANT SCHULTE • Des Moines Register
Sioux Falls, S.D. - The eastern Iowa meat plant founded on an immigrant's dream was spiraling toward disaster years before federal agents arrested one-third of the company's workers, according to witnesses in the fraud trial of its former top executive.
Details of an alleged financial scheme have come to light in the past two weeks of testimony in Sholom Rubashkin's 91-count fraud and laundering trial. Testimony from 28 government witnesses centered on corruption that long preceded the May 2008 immigration raid and stretched well beyond Rubashkin, who managed the plant's day-to-day operations.
Witnesses painted a picture of an Agriprocessors Inc. that survived on poor record-keeping, under-the-table deals, inflated salaries for top executives and leadership that tried to expand the kosher meat producer beyond its means.
Bank officers who lent the plant millions may have looked the other way while managers cut corners and hired cheap, illegal-immigrant workers, witnesses implied.
Rubashkin's father, who founded the slaughterhouse two decades ago in Postville, Ia., pushed to build a meat-rendering plant and other facilities that the company could scarcely afford, according to former employees.
Then came the May 2008 immigration raid, and the arrest of 389 workers. Production froze. Sales crumbled. And Agriprocessors, the titan of kosher meat, tumbled into bankruptcy.
Long list of charges
Rubashkin, who turns 50 Thursday, has pleaded not guilty to charges of mail, wire and bank fraud, money laundering, and ignoring an order to pay livestock providers in the 48-hour window required by law.
His first federal trial could lead to a possible 1,280-year prison term if the South Dakota jury convicts him of all 91 financial fraud charges.
Rubashkin then faces document fraud and immigrant-harboring charges during a second federal trial expected to last four weeks. He faces a maximum 715-year sentence if convicted on all 72 immigration-related counts.
Rubashkin's lawyers acknowledge that the plant operated on dangerously thin margins and a day-to-day executive who, they say, knew little about meatpacking. Their argument hinges on the notion that Rubashkin's behavior was sloppy - even unethical - but not illegal.
Many government witnesses who detailed the corruption also recalled Rubashkin as a generous, excitable, well-intentioned man. Some testified only after being subpoenaed.
Rubashkin lent employees money and helped workers' relatives find jobs, one witness testified. Another remembered when Rubashkin threw a company party, invited even the lowest assembly-line workers and water-skied on the Mississippi River.
False sales invoices
Sholom Mordechai Rubashkin walked into Agriprocessors' customer service department with a yellow legal pad and a pen, a former plant employee testified.
At a cubicle sat Darlis Hendry, a sales coordinator from Postville who had worked at the plant since 1999. It was August 2007 and Hendry had just replaced a longtime employee who had died.
Rubashkin asked to talk in private, Hendry told jurors. In a conference room, he requested her help writing sales invoices for meat products he claimed to be selling on the side.
It started slowly. Rubashkin visited one or two times a week, with a customer name and a dollar figure scribbled on the pad, Hendry testified.
Hendry said she took the number - usually rounded, always more than $25,000 - and wrote invoices with made-up orders for cutlets, meat from Uruguay, whatever happened to fit.
"I didn't think much of it, at first," she testified. The requests seemed odd, "but it wasn't for me to question him."
Prosecutors say the fake sales records were part of a broader scheme to mislead First Bank Business Capital, the plant's St. Louis lender, and collect advances on a $35 million credit line.
Rubashkin paid relatives and several top executives under the table, said former financial officer Yomtov "Toby" Bensasson, who pleaded guilty in August to a conspiracy charge.
He testified that he collected $1,000 per week, after taxes, but also received at least $750 each week that was not reported to the Internal Revenue Service. He said he also was given a monthly $1,805 "completion check" for his role in the alleged fraud.
Scrambling after raid
The collapse began the morning of May 12, 2008, when federal agents with M-16s and bulletproof vests stormed Agriprocessors and detained 389 illegal immigrant workers.
Bensasson, the top financial officer, was in his office around 9 a.m. when he heard shouting. A federal agent burst through his door and shouted, "Freeze!"
The women in the customer service department were crying, he said. One agent was trying to break into a nearby office. A heavyset man walked up, and told him: "This is an ICE raid. You have to show me right now how to shut the plant down."
In September, several disastrous months later, the Rubashkin family met with New York lawyer and family friend Bernard Feldman in Postville. Feldman testified that Rubashkin's father, Abraham Aaron Rubashkin, wanted a new face for his company.
Top managers, meanwhile, were scrambling to sell stored meat at what one plant salesman described as "ridiculous" low prices. Rubashkin's brother, Heshy, approached several customers about bulk purchases of kosher meat out of the company's freezers.
Hendry, who has not been charged in the case, said that after the raid, Rubashkin began to visit her several times a day, sometimes with as many as 20 invoice requests. By then, she said, she knew the sales records were fake.
Farmers called Agriprocessors, angry that they had not yet received payment for cattle. Elvira Rowland, a bookkeeper, told jurors that she asked Rubashkin and Bensasson what she should say.
"Did the defendant give you an elaborate explanation?" Assistant U.S. Attorney C.J. Williams asked.
"He said they were in the mail," she replied.
Invoice folder vanishes
On Oct. 30, 2008, U.S. Attorney Matt Dummermuth announced federal immigration charges against Rubashkin. The financial allegations would come later, as investigators plunged deeper into the plant's books.
Rubashkin turned himself in and appeared before a federal judge in Cedar Rapids. He walked out past a throng of reporters with a monitoring bracelet strapped to his ankle.
Later that day, at the plant, Hendry said she opened the filing cabinet for the blue folder marked "Sholom" that held the allegedly fake invoices.
The folder was gone, Hendry testified. She called her boss.
"I asked if he took them," Hendry testified. "He said yes, but not to worry, I'm not in trouble and I didn't do anything wrong."
Rubashkin had been in the sales office that morning, shortly after 6 a.m., and appeared more nervous than usual, customer service employee Verla O'Shaughnessy testified.
She testified that she had seen the invoices Hendry produced for Rubashkin. The numbers, she knew, could not be real.
Prices were incorrect. Some reported shipments were too large to fit on a truck. One record showed a sale to a customer she handled, which she knew had never taken place.
Investigators discovered the financial problems when the plant's court-appointed bankruptcy trustee tried to collect customer debts shown in the company's records.
Prosecutors showed Eleazer Meyer, a Brooklyn, N.Y., businessman, a sales invoice showing that he had bought $44,325 worth of meat. But Meyer, a Rubashkin family friend for at least 40 years, owned a clothing store. His debts to Agriprocessors, he testified, had never totaled more than $10,000 at a time.
More details to come
Today will be the eighth day of Rubashkin's trial in Sioux Falls.
On Thursday, both sides showed signs of fatigue. Defense lawyer Guy Cook nursed an energy drink and fought the sniffles. Matt Cole, one of the three U.S. attorneys assigned to the case, had just returned from a sick day. Lawyers traded objections, and the back-and-forth seemed testy at times.
"It's been a long week," said U.S. District Chief Judge Linda Reade. "Everyone go home and rest up."
Rubashkin watched, expressionless, as witness after witness described the alleged scams. At times he jotted notes on a white legal pad, whispered to his attorneys, and stroked his beard. At one point, Bensasson testified about his earlier statements to a federal grand jury.
"You told the grand jury that one mistake Sholom made was, he was too good," Cook said.
"That's the thing about the Rubashkins," Bensasson replied. "They don't realize that, when you're too good, you get stepped on."
How the alleged bank fraud worked
Allegedly bogus records created the appearance that customers owed Agriprocessors money but had not yet paid their debt. First Bank, as a result, was willing to lend Agriprocessors more as long as the debt was less than 60 days old.
The customer payments - from kosher meat stores, animal feed companies and others - were supposed to go directly into a Decorah Bank and Trust "sweep" account, before they were wired to First Bank.
But Sholom Rubashkin allegedly routed the money to a different eastern Iowa bank, and used the cash to pay the plant's operational costs. He referred to big-dollar payments as "his own s---, his own stuff, his 'tootsies,' " former financial officer Yomtov "Toby" Bensasson testified.
Prosecutors say Rubashkin covered his tracks with two organizations he controlled: the Torah Educational Program and the Kosher Community Grocery Inc. in Postville.
Rubashkin sent money to the school and the grocery store, Bensasson said. He then allegedly had both organizations write checks back to Agriprocessors, creating a false "customer payment" that could go to First Bank undetected.
Notice that the Register makes no mention of the abuses of Agriprocessors undocumented workers.