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Justice News

Department of Justice
U.S. Attorney’s Office
Eastern District of North Carolina

Friday, April 11, 2014

Whiteville Farmer Sentenced For Mail Fraud And Grain Theft Scheme

NEW BERN – United States Attorney Thomas G. Walker announced that yesterday in federal court, United States District Judge Louise W. Flanagan sentenced JOHN PAUL SMITH , aged 48, of Whiteville, North Carolina to 24 months imprisonment, followed by 3 years of supervised release.

SMITH was sentenced after pleading guilty to committing mail fraud, in connection with a scheme to defraud Murphy Brown, LLC, which is the Warsaw, North Carolina, based pork production subsidiary of Smithfield Foods. 

In 2008, SMITH, who was a farmer and grain broker operating in Whiteville, North Carolina, entered into a business relationship with Murphy Brown, LLC, whereby he served as a grain broker, purchasing corn and soybeans from local farmers for Murphy Brown’s hogs.  Under the terms of their agreement, local farmers from whom SMITH purchased corn and soybeans were to make deliveries to SMITH’s grain elevator in Whiteville.  In turn, Murphy Brown would take delivery of corn and soybeans from SMITH’s Whiteville grain elevator. 

Over the course of their business relationship, Murphy Brown discovered unexplained shrinkage in their supplies of corn and soybeans that SMITH had allegedly purchased on their behalf. 

Evidence presented to the Court established that SMITH began “shorting” Murphy Brown with respect to the corn and soybeans that he had been purchasing for the company.  Essentially what SMITH did was charge Murphy Brown for corn and soybeans which he never delivered to them.  The Court found that, from 2010 and 2011, SMITH purloined 38,645 bushels of soybeans worth approximately $387,000.00 and corn worth approximately $735,000.00 that was paid for by Murphy Brown, but never delivered to them.  This amounts to over 200 truckloads of grain.  The Court also found that Murphy Brown suffered a “hedging loss” in the amount of approximately $375,000.00.  By the time Murphy Brown realized that a substantial amount of its corn was missing, the price of corn had increased, and the company was forced to replace it at a higher market value. 

SMITH has been ordered to report to prison no later than July 15, 2014. 

The case was investigated by the Federal Bureau of Investigation (FBI) and the North Carolina State Bureau of Investigation (SBI).  Assistant U.S. Attorney Evan Rikhye handled the prosecution of this case on behalf of the Eastern District of North Carolina.

Updated July 14, 2015