United States Attorney Benjamin B. Wagner
Eastern District of California
Bakersfield Man Pleads Guilty To Fraud Through Sales Of Over $40 Million Of Fertilizer Falsely Represented As Organic
|FOR IMMEDIATE RELEASE||
Monday, August 6, 2012
Docket #: 1:11-cr-096-AWI
FRESNO, Calif. — Kenneth Noel Nelson Jr., 59, of Bakersfield, pleaded guilty today to four counts of mail fraud in connection with a scheme to defraud organic farmers and other customers of his organic fertilizer businesses, announced United States Attorney Benjamin B. Wagner.
In his guilty plea, Nelson admitted that from 2003 to January 2009 he defrauded customers such as organic farmers and distributors through his company Port Organic Products Ltd. and affiliated businesses such as AgroMar Inc., Sail On Ag Products Inc., Desert Organic Express Inc., Action Fertilizer, and Microbial Assisted Soil Health Inc. by manufacturing and selling fertilizers that he falsely represented were organic products permitted for use in organic agriculture. Organic farmers and distributors relied on Nelson’s representations as to the fertilizers’ organic status in purchasing the products for use in organic agriculture. The fertilizers included products labeled variations of “Agrolizer,” “Marizyme,” and “Fishilizer,” among others. Nelson represented that these fertilizers were made purely with materials authorized for organic agriculture, such as fish meal and bird guano, and had the fertilizers’ labels state that the products complied with organic certification standards and could be used by certified organic growers. Nelson admitted that he actually caused large amounts of synthetic materials not permitted in organic fertilizers or organic agriculture, such as aqueous ammonia, ammonium sulfate, and urea, to be used in the fertilizers.
Under the Organic Foods Production Act of 1990, the United States Department of Agriculture (USDA) established the National Organic Program (NOP) to ensure that products sold as organic are produced according to NOP standards and are produced and handled without the use of synthetic chemicals. Under NOP rules, organic farms are required to be free from synthetic chemicals, including synthetic fertilizers, for a minimum of three years before they can be certified to produce organic crops.
Nelson also admitted that he submitted false applications and documentation to have his fertilizers listed as organic by the Washington State Department of Agriculture (“WSDA”) and the Organic Materials Review Institute (“OMRI”). Organic growers rely on OMRI and WSDA listings in determining which products are permitted to be used in organic agriculture. OMRI and the WSDA provide independent listing of fertilizers and other products that meet NOP requirements. Nelson admitted that he failed to disclose that he was actually using synthetic materials including aqueous ammonia, ammonium sulfate, and urea to make the fertilizers. If he had disclosed the actual ingredients, OMRI and the WSDA would not have approved the fertilizers as organic and would not have included them in lists of approved organic products.
Nelson admitted in his guilty plea that by using synthetic materials he was able to produce the fertilizers at a lower cost than if he had used permitted organic ingredients such as fish meal and bird guano. Through this scheme, Nelson caused customers to pay more than $40 million for purportedly organic fertilizers that actually contained synthetic materials that were not permitted to be used in organic agriculture. He admitted that the total losses attributable to the scheme were between $20 million and $50 million. From 2003 through 2008 Nelson, through Port Organic and affiliated businesses, received profits of over $9 million from the scheme.
This case is the product of an extensive investigation by the USDA Office of Inspector General (OIG) and the FBI with assistance from the California Department of Food and Agriculture, USDA Agricultural Marketing Service, and the Kern County Environmental Health Services Department. Assistant U.S. Attorney Kirk Sherriff is prosecuting the case.
U.S. Attorney Wagner said: “This conviction holds the defendant responsible for his flagrant fraud in the labeling and marketing of a fertilizer product as ‘organic.’ Consumers pay a premium for organic products, and they should not be misled by companies that seek to profit by falsely categorizing their products as organic. We will continue to work with USDA investigators and with the FBI in examining production and labeling practices in the organic fertilizer industry.”
The USDA-OIG conducts investigations into allegations of fraud and other potentially criminal activity affecting USDA programs including the NOP. Special Agent in Charge Lori Chan for the Western Region of the United States stated, “The USDA-OIG is committed to bringing criminal violators who undermine the NOP program to justice in order to uphold the high standards behind the USDA organic label.”
Nelson also agreed in his guilty plea to forfeit to the United States the following assets: a 2006 Chevrolet Silverado, a 2005 Mini Cooper, a 2004 Porsche Cayenne, and a personal money judgment of $9 million.
Nelson is scheduled to be sentenced on November 5, 2012 at 10:00 a.m. The maximum statutory penalties are 20 years in prison and a $250,000 fine on each mail fraud count, and up to three years of supervised release. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory sentencing factors and the Federal Sentencing Guidelines, which take into account a number of variables.