Pub. 12 2017-2018 Issue 2
www.nebankers.org 24 Extraordinary Service for Extraordinary Members. Judge Challenged $7 Million FCS Loan on Connecticut Farm On Jan. 28, 2016, a probate judge in Connecticut, O. James Purnell, handed down a very troubling decision concerning a loan extended by FarmCredit East (FCE), the ninth largest FCS association, with $6.6 billion of assets at March 31, 2017. FCE serves all of New England except Vermont and western New Hampshire, New Jersey, and almost all of NewYork. FCE is head- quartered in Enfield, Conn., which is in the north central part of the state, just south of the Massachusetts border. As massive as FCE’s territory is, the loan in question was made to Jarmoc Farms, which is located just a five-mile drive from FCE’s head- quarters. That proximity makes this caper even more puzzling. The farmwas operated by Edwin Jarmoc and his son Stephen; Edwin died in 2009. According to Judge Purnell’s written deci- sion, Stephen borrowed substantial sums fromFCE after Edwin died. According to the judge, “much of themoney borrowed went to support the lavish lifestyle of Steven [sic] and [his wife], their home, vacations, pension, tuition, and a vacation home, none of which were income producing.” According to the decision, the liabilities of Edwin’s estate included “a claim by [FCE] in excess of $7,000,000.00.” The judge also found that “Stephen encum- bered assets of [Edwin’s] estate without the Court’s knowledge or permission after being warned not to.” Presumably that finding led the judge to order that “all mortgages or other encumbrances on estate propertymade after Edwin’s death are hereby declared null and void.” That order raises this question: How collectable is FCE’s $7 million claim given that its loan may not have been properly secured? As best I can tell, FCE has not provided any information to its member/borrowers about its loss on this loan. Judge Purnell further noted that FCE “walked Steven [sic] through a process to set up a new LLC in order to get additional funds from the federal government that were not available to the business while the estate was being settled. There is a serious question whether this was appropriate or even legal since it was nothingmore than a shell corporation to funnel federal money to Jarmoc Tobacco. The Court leaves that question to the IRS and relevant federal agencies to figure out.” [Underlining supplied.] The FCA, or the FCA’s Inspector General, should be one of those federal agencies investigating this lending fiasco as well as the incestuous relationship between FCE and Jarmoc Farms given that, according to Stephen’s lawyer, “Edwin and Stephen availed themselves” of financial management assistance FCE provides to farmers “in managing a farm’s receivables, keeps important financial records, and facilitates loan repayment.” Clearly, FCE knew what was happening at Jarmoc Farms. Take a look at the broad range of products and financial services FCE provides to farmers at https://www.farmcrediteast.com/products-and- services/financial-recordkeeping. FCS Loan to St. Joseph’s College Looks IncreasinglyDoubtful As published in the February 2017 Farm Credit Watch, Farm Credit Mid-America (FCMA), the FCS’ second-largest association, had lent as much as $27 million to the financially troubled St. Joseph’s College in Rensselaer, Ind. The loan was only partially secured by farmland. OnMay 9, the college’s presi- dent resigned, three days after the college suspended operations. According to a news release the college issued, it is working “on a transition to a new beginning.” However, it is problematic that the college will ever resume operations, which raises this ques- tion: How big a loss will FCMA take on a loan it should never have made? Of course, that loss would be shared with any FCS institutions that purchased participations in the loan. To date, there has been radio silence at FCMA about the status of this loan and how bad the loss will be. This is another loan the FCA and the FCA’s inspector general should investigate, specifically as to whether it was permissible under the Farm Credit Act. To contact Bert Ely, email bert@ely-co.com , phone (703) 836-4101, or send mail to P.O. Box 320700, Alexandria, Va. 22320. If your bank belongs to the American Bankers Association (ABA), you can enjoy a free email subscription to Farm Credit Watch or you can read it monthly online at www.aba.com . To receive Farm Credit Watch by email or to manage your subscription, visit ABA Member Email Bulletins at www.aba.com/ Tools/Ebulletins/Pages/default.aspx. For other inquiries, please contact Barbara McCoy at the ABA at (800) BANKERS or bmccoy@aba.com . Reform Farm Credit: Help educate the public, the press, and policymakers. Get the facts, take a stand at reformfarmcredit.org . ■ Bert Ely — continued from page 23
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