Traverse City Record-Eagle

Business

March 13, 2013

Feds bust up crop fraud ring

RALEIGH, N.C. (AP) — Federal investigators have unraveled a massive scheme among dozens of insurance agents, claims adjusters, brokers and farmers in eastern North Carolina to steal at least $100 million from the government-backed program that insures crops.

Authorities say the ongoing investigation is already the largest such ring uncovered in the country.

Forty-one defendants have either pleaded guilty or reached plea agreements after profiting from false insurance claims for losses of tobacco, soybeans, wheat and corn. Often, the crops weren’t damaged at all, with farmers using aliases to sell their written-off harvests for cash.

Prosecutors compared the case to busting a drug cartel, where federal investigators used a confidential informant to ensnare a key participant in the sophisticated fraud, who then agreed to implicate others. That first wave of prosecutions led to still more names to investigate.

“These defendants make it harder on the honest farmer,” Assistant U.S. Attorney Banumathi Rangarajan said. “The more they lie and steal the more premiums and costs go up for the farmers who play by the rules.”

The federal crop insurance program was created during the Dust Bowl of the 1930s as a way to keep farmers from going bankrupt because of a bad growing season. The U.S. Department of Agriculture pays about 15 private insurers to sell and manage the policies, but taxpayers are on the hook for most of the losses. Payouts for 2012 have topped $15.6 billion — a figure that is still growing as new claims are filed.

Bruce A. Babcock, an agricultural economist at Iowa State University, said fraud likely accounts for a small percentage of that total.

“There’s always fraud in the crop insurance system, but I’ve seen nothing to suggest it is pervasive,” Babcock said. “Eighty percent of the program costs are supported by the federal government. Some people see defrauding taxpayers like cheating on their income taxes.”

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