Business

Thursday, Mar 10 2011 04:20 PM

Local fertilizer maker indicted on fraud charges

BY COURTENAY EDELHART, Californian staff writer cedelhart@bakersfield.com

A federal grand jury on Thursday returned an indictment against the owner of Port Organic Products Inc., a Bakersfield company that marketed fertilizer as organic when it allegedly contained synthetic chemicals.

Kenneth Noel Nelson Jr., 57, of Bakersfield, faces 28 counts of mail fraud. Each count carries a maximum sentence of up to 20 years in prison, a $250,000 fine and up to three years of parole.

The indictment says that through Port and various affiliated businesses he owned and operated -- including Action Fertilizer, AgroMar Inc., Desert Organic Express Inc., Microbial Assisted Soil Health Inc. and Sail-On Ag Products Inc. -- Nelson defrauded his distributors and organic farmer customers by falsely calling his fertilizers organic. He said they were made with such organic ingredients as fish meal, bird guano and blood meal, when in fact they contained synthetic chemicals such as aqueous ammonia, ammonium sulfate and synthetic urea, the indictment said. Conventional fertilizers made with those ingredients are much less expensive to produce.

The company made profits of more than $9 million by selling cheaper, inorganic goods at the organic premium price between at least 2003 and 2009, according to the indictment. Anything purchased through money obtained illegally is subject to forfeiture, and the indictment seeks several vehicles including a 2006 Chevrolet Silverado, a 2005 Mini Cooper, a 2004 Porsche Cayenne and a 2003 BMW 330.

Neither Nelson nor his attorney could be reached for comment Thursday. A warrant has been issued for the arrest of Nelson, who is not yet in custody.

U.S. Attorney Benjamin Wagner called the case "flagrant fraud" that undermines the integrity of the U.S. Department of Food and Agriculture's National Organic Program, which was established in 1990 to ensure that agricultural products being sold as organic are authentic.

It isn't just that farmers overpaid for a fake product, said FBI Supervisory Special Agent Rob Guyton. They also could suffer costly harm to their ability to grow organic produce because under federal standards, organic farms are required to be free from synthetic chemicals for a minimum of three years before their crops can be certified organic.

"This is far from a victimless crime," Guyton said.

Organic growers applauded the indictment, which some said was long overdue. FBI and U.S. Department of Agriculture officials raided the company in 2009.

"It absolutely shakes consumers' faith in the whole organic program when people cheat, and it takes so long for the cheaters to get caught and prosecuted," said Claudia Reid, policy director of the trade group California Certified Organic Farmers.

Wagner attributed the delay to the inherently difficult process of documenting that prohibited ingredients have been mixed in with organic-labeled products, particularly in a dynamic regulatory environment.

"There were a lot of records to digest and individuals to interview in an industry that is growing really fast, especially in California," he said. That growth in many ways is outpacing the expansion of the regulatory landscape, Wagner added.

AB 856, a state law that took effect last year, attempts to limit fraud. The law defines what materials are organic, increases penalties for violations, requires yearly inspections of manufacturers, and creates an organic input material review program within the California Department of Food and Agriculture.

Some worry the state law went too far and creates a financial hardship for small compost and fertilizer manufacturers, but growers generally were supportive of strengthening the ability of authorities to investigate and punish fraud.

The indictment is the result of a joint investigation by the USDA Office of Inspector General and the FBI, with assistance from the California Department of Food and Agriculture, USDA Agricultural Marketing Service, and the Kern County Environmental Health Services Department.

Nelson's case is the second California fertilizer industry investigation in a year to lead to criminal charges.

In October, Peter Townsley, founder and former president of California Liquid Fertilizer, was arrested in Los Angeles after being charged in a similar case, which is also in federal court. Townsley has pleaded not guilty and is awaiting trial.

A phone number listed for Port's company is disconnected.

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