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Justice News

Department of Justice
U.S. Attorney’s Office
Northern District of Iowa

FOR IMMEDIATE RELEASE
Thursday, March 25, 2021

Former General Manager of Sioux Center Cooperative Sentenced to Prison in Grain Blending Scheme

Directed Employees to Blend Oats into Soybeans and Hide Oats in Grain Bins

The former general manager of a Sioux Center grain cooperative who directed subordinate managers to blend oats into soybeans was sentenced March 24, 2021, to three months in federal prison.

Kenneth Ehrp, age 76, from Dakota Dunes, South Dakota, received the prison term after a November 2, 2020 guilty plea to one count of conspiracy to commit a prohibited grain practice.

In a plea agreement, and at guilty plea and sentencing hearings, Ehrp admitted he was the General Manager at a large, federally licensed grain warehouse that is headquartered in Sioux Center but has satellite locations in Iowa and elsewhere.  No later than July 2015, Ehrp agreed with Calvin Diehl and others to add lower value oats to soybeans and sell the mixture as soybeans.  As part of the grain blending scheme, Diehl and other individuals acting at Ehrp’s direction made false statements and executed false certificates to USDA inspectors, layered soybeans on top of oats in both storage bins and trucks to deceive USDA inspectors and customers about the quality and quantity of the grain, and made false entries and adjustments in reports provided to the grain warehouse’s bank.         

In March 2017, one of Ehrp’s subordinate managers instructed a warehouse manager in Worthing, South Dakota, to blend more oats with soybeans.  As a result, approximately 30 truckloads of soybeans were “spiked” with oats.  After the customer happened to discover the badly “slugged” or “spiked” loads, one of the customer’s managers called Diehl and told him to stop blending oats into soybeans.  The manager warned Diehl that “someone can go to jail for this.”  Diehl feigned surprise, apologized, and falsely promised that the practice would not happen in the future.  However, at Ehrp’s direction, Diehl and others continued to blend oats into soybeans (even directing subordinates to remix one of the “slugged” loads) and sell them to the same unwitting customer.  Ehrp himself drove to the location manager’s office in Worthing and ordered him to continue blending oats.  As a result, the Worthing location manager designed a new system for blending oats into soybeans, involving an auger and a conveyer, which sprinkled oats into the semi-trucks’ hoppers and ensured the loads leaving Worthing would remain hidden.

After learning of the conspiracy, the USDA conducted a search of grain bins at the cooperative’s various locations in Iowa and South Dakota.  Of the estimated 87,996 bushels of grain in the bins at these locations, the bins actually contained only 34,354 bushels of soybeans even though all of these bins had been certified as soybeans.

Ehrp was sentenced in Sioux City by United States District Court Chief Judge Leonard T. Strand.  Ehrp was sentenced to three months’ imprisonment and fined $50,000.  He was ordered to pay $4,089.73 in costs of prosecution, and he also must serve a one-year term of supervised release after the prison term.  There is no parole in the federal system.

Ehrp was released on the bond previously set and is to surrender to the Bureau of Prisons on a date yet to be set.  Earlier this year, Diehl was also sentenced to three months’ imprisonment for his role in the grain blending scheme.

The case was prosecuted by Assistant United States Attorneys Timothy L. Vavricek and Matthew J. Cole and investigated by the United States Department of Agriculture - Office of Inspector General, and the Federal Bureau of Investigation. 

Court file information at https://ecf.iand.uscourts.gov/cgi-bin/login.pl

The case file number is 19-CR-4093.

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Topic(s): 
Financial Fraud
Component(s): 
Updated March 25, 2021