Jeffrey Nicholas Mccown and Jeanette Sabina Mccown Plead Guilty in U.S. Federal Cour
The United States Attorney's Office announced that during a federal court session in Missoula, on January 7, 2011, before U.S. District Judge Donald W. Molloy, JEFFREY NICHOLAS McCOWN, age 40, and JEANETTE SABINA McCOWN, age 40, residents of Bozeman, pled guilty.
JEFFREY McCOWN pled guilty to conspiracy to commit fraud and wire fraud and JEANETTE SABINA McCOWAN pled guilty to wire fraud. Sentencing has been set for April 7, 2011. They are currently released on special conditions.
In an Offer of Proof filed by Assistant U.S. Attorney Ryan M. Archer, the government stated it would have proved at trial the following:
Country Classic Dairy (CCD) is a co-op that is based in Bozeman and owned by the dairy producer members. It is governed and operated by a Board of Directors, and the daily operations of the company are overseen by corporate executives. In 2007-2008, during the times charged in the indictment, JEFFREY McCOWN was a manager in the trucking and transportation LLC arm of the company, and JEANETTE McCOWN (Jeff's wife) was the bookkeeper.
Evidence would have shown that in approximately 2004, the CEO ordered company credit cards for all JEFFREY, JEANETTE, himself and another individual. These cards were ordered after an auditor suggested credit card spending would better track expenses. However, the Board of Directors of CCD never authorized the use or acquisition of any company credit cards and was unaware that any employee had access to credit cards. Company cards were held with both American Express and Advanta.
By at least 2007 JEFFREY McCOWN and JEANETTE McCOWN embezzled from CCD by using company funds to purchase goods and services for their own personal use and enjoyment. They used CCD funds to purchase these items without the knowledge or consent of the Board of Directors who governed the company that was supposed to distribute profits to the co-op members.
JEFFREY McCOWN embezzled money in three main ways:
JEFFREY McCOWN used his company credit cards to make personal purchases. When the credit card statements came into the company, JEANETTE McCOWN coded them in the company books and records in a way that made them appear to be legitimate expenses.
JEFFREY McCOWN used CCD funds to personally reimburse himself for personal expenditures. He would submit receipts from personal vacations or other purchases and claim them as business related expenses in order to get reimbursed.
JEFFREY McCOWN used CCD accounts payable to directly pay vendors for personal goods and/or services. For instance, he would have the vendor submit an invoice to CCD and then claim that it was business related in order to get compensated.
In the end, the conspiracy defrauded CCD out of over $1 million.
Toward the middle of 2007, the employee who typically handled the credit card billing went on maternity leave. JEANETTE McCOWN took over and maintained the billing after that. She would then code the personal expenditures in the CCD books as legitimate business expenses as she was instructed by the CEO and her husband, JEFFREY McCOWN. For instance, JEFFREY McCOWN would make a personal purchase on his credit card, which was used to buy items from Costco, for work on his R.V., yearly vacations to Calville Bay at Lake Mead, Nevada, and other expenses, and it would be coded into the books and records by JEANETTE McCOWN as "accidents and damages" or some other expense that appeared legitimate.
JEFFREY McCOWN even used his credit card checks to make $75,000 in payments on his and a co-defendant's personal trucks. While the trucks were used for work-related duties mileage reimbursement was claimed as compensation. The CCD Board never knew or authorized JEFFREY McCOWN to make monthly payments on the personal vehicles with company funds. In order to conceal the personal nature of the expenditures, they were coded as "leased equipment" in the company books by JEANETTE McCOWN.
During the Lake Mead trips, JEFFREY McCOWN claimed that they would invite clients and employees as an "incentive" program. While a select few employees did come, they said that they never saw any clients there, and no clients were listed on the roster of guests at the rented house boat. One year an employee was invited to Lake Mead because of his hard work. JEFFREY McCOWN filled up his vehicle with gas for the trip using his CCD card. The employee said that he should not use the CCD card for a personal vacation because the dairy farmers were entitled to profits from the company. JEFFREY McCOWN said the farmers "owe us."
The Personal Reimbursement Scheme
A co-defendant provided a statement to law enforcement and admitted that he submitted several receipts for personal expenses to be reimbursed by CCD. The purchases were never legitimized and they were just paid by the company. Toward the end, JEFFREY McCOWN told the co-defendant to use the personal reimbursement method more than his credit card for personal expenses.
The CCD auditor has uncovered several hundred thousand dollars in what appears to be inappropriate personal reimbursements.
The Accounts Payable Scheme
In many instances, JEFFREY McCOWN would arrange for purchases of personal goods and services from various vendors that supplied CCD. Despite the personal nature of the purchase, JEFFREY McCOWN requested the vendor to bill CCD. The purchase would then be coded as a normal business expense and the vendor would be paid.
For instance, Belgrade Auto Parts did a lot of business with CCD in order to maintain and repair their milk delivery trucks. JEFFREY McCOWN would purchase parts for his personal vehicle and charge it to CCD. JEFFREY McCOWN was rebuilding a 1977 Ford pickup that he kept at the CCD shop. On many occasions he would task CCD employees with working on his truck. The Belgrade Auto owners informed law enforcement that JEFFREY McCOWN requested his 1977 Ford parts to simply be invoiced as "shop parts." This seemed odd to the owner, but he had been doing this for years at JEFFREY McCOWN's request. The Belgrade Auto owner was shown numerous invoices and with the assistance of his employees he identified numerous purchases for JEFFREY McCOWN's 1977 pickup. All of these parts were invoiced as simply "shop parts" and were included as single expenses in a long list of otherwise legitimate business expenses at Belgrade Auto.
The evidence shows that JEFFREY McCOWN took clear steps to conceal the true nature of his personal purchases from the Board of Directors through mis-coding and general invoicing. And on other occasions, such as the purchase of JEFFREY McCOWN's truck, the Board was directly lied to and never informed that CCD funds were used for personal purchases.
In all, JEANETTE McCOWN charged tens of thousands in personal expenses on her business credit card and mis-coded the purchases in the company books and records. Several members from the Board of Directors have been interviewed and confirmed that the Board never authorized any of these payments and was stunned to discover this misuse of company funds.
They each face possible penalties of 20 years in prison, a $250,000 fine and 3 years supervised release.
The investigation was a cooperative effort between the Federal Bureau of Investigation and the Criminal Investigation Division of the Internal Revenue Service.
A copy of the Offer of Proof can be obtained by contacting Sally Frank at (406) 247-4638.