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More than a dozen tobacco farmers, a warehouse owner, several insurance agents, and adjusters in Kentucky were sent to prison for participating in a multimillion-dollar scheme to defraud federal and private crop insurance programs.

According to the Federal Bureau of Investigation (FBI), a total of 23 people have been criminally charged in connection with the crop insurance fraud scheme. Another 17 individuals agreed to pay civil penalties to settle the charges against them.

A tip triggered an investigation into the crop insurance fraud scheme

In 2014, the U.S. Department of Agriculture’s (USDA) Office of Inspector General (OIG( received a tip regarding a suspected fraud at Clay's Tobacco Warehouse in Mount Sterling, Kentucky.

That information triggered an investigation by multiple agencies including the FBI, the Internal Revenue Service (IRS), and the USDA-OIG.

FBI Forensic Accountant Tressa Whittington has been working with IRS and USDA-OIG agents to bring to justice those involved in the crop insurance fraud scheme. The agents found that the scheme was widespread in the farming communities in Central Kentucky.

According to Whittington, Some of the defendants admitted cheating federal and private crop insurance programs by less than $10,000 while others pleaded guilty to participating in multi-million dollar frauds.

“Whether the theft was of a few thousand dollars or millions, these individuals took advantage of the program,” Whittington said. “They were stealing money from taxpayers and stealing money from the honest farmers who now pay a higher premium," said Whittington in a statement.

Different schemes

Whittington said they found that the defendants used different schemes to defraud crop insurance programs.

For example, a tobacco farmer will conspire with an insurance agent and an adjuster to attest that his crop has been damaged by storms or pests. In reality, the farmer's crop was of good quality.

The farmer will then file an insurance claim using the report from insurance agents and adjusters that his crop was ruined. He will receive insurance money and will pay kickbacks to the insurance agent and the adjusted who conspired with him.

Take note that the farmer in fact has a good quality crop, which he still needs to sell to a tobacco company. most farmers have contracts with large companies to deliver regular tobacco crops. these farmers want to maintain these valuable contracts.

To fulfill its contract with the tobacco company, the farmer needs to commit another fraud. He will show that he sold his poor-quality crop and purchased a good-quality crop, which was delivered to the tobacco company.

Whittington said farmers carried out the scam with the help of Clay's Tobacco Warehouse employees including Debra Muse, who was also a crop insurance agent. Muse provided fake paperwork to show that farmers purchased quality tobacco from the warehouse.

The FBI Forensic Accountant noted, “When the farmers would take their tobacco to the warehouse to have it graded, they would need a NoG rating or a not salable rating. Muse would provide that documentation."

Muse was the first among the defendants who pleaded guilty to encouraging assisting farmers to defraud crop insurance programs. She was sentenced to five years in prison in September 2018.

Roger Wilson, the owner of Clay’s Tobacco Warehouse, was sentenced to 12 months in prison for his role in the scheme. Michael McNew, a crop insurance adjuster and a crop insurance agent received the longest sentence of 86 months in prison for causing $23 million in losses.

Special Agent in Charge Jason Williams of the USDA-OIG said, “The individuals who participated in this scheme caused the United States government and insurance carriers to sustain over $40 million in losses."

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