Wednesday, August 23, 2017

Big farm supplier is rocked by allegations of fraud among family owners

Dunnville is on US 127.
A family business in Southern Kentucky that says it is North America's largest maker of farm gates and animal-management equipment is embroiled in a racketeering lawsuit, after some family members accused relatives and their associates of using trade secrets to personally profit on deals with a Chinese company.

Tarter Farm and Ranch Equipment began in 1945 with handmade wooden gates, eventually expanding into several different companies under Tarter family ownership. Today it has 1,400 employees, many more people than live in its headquarters town of Dunnville, which is so small it is unincorporated.

"Anna Lou Tarter Smith and her children, Luann Coffey and Douglas Tarter, who are all shareholders in Tarter companies, are suing Smith’s nephew, Josh Tarter, president of Tarter Industries; a Hong Kong firm called QMC Industry Co.; and an executive named Thomas Lewis Gregory, who resigned last year from the Tarter companies," Greg Kocher reports for the Lexington Herald-Leader. The suit says the defendants diverted $70 million over the past seven years.

The details get complicated, but here's the simplified version: The Tarter companies buy components to create finished products from various vendors. They employed a man named Xiaofeng Chen to represent them in component purchases in China. But Chen, Josh Tarter and Gregory formed a shell company in Hong Kong called QMC and installed themselves as a middleman that existed solely to inflate the price of goods. Tarter would order components from QMC, then QMC would have the components manufactured elsewhere in China and shipped to Tarter. "The Chinese suppliers bill QMC for the true cost of the components. But the suit says that QMC then 'substantially inflates' that cost and invoices the Tarter companies for the goods at higher prices, diverting savings that belong to the Tarter companies," Kocher reports.

The lawsuit also alleges that the components were often of very low quality in addition to being too expensive. Unhappy customers returned to Tarter more than 200 lawn mowers made with the defective parts. Family shareholders were shocked when they heard about plans to move the companies' entire manufacturing process to China instead of Casey County. Though Josh Tarter had initially denied being involved in QMC, he eventually admitted that he and Gregory were owners. He apologized to the family but refused to return his profits from QMC or give them a full accounting of how he was involved with QMC. The lawsuit alleges that Gregory and Tarter lived large on the profits they made from QMC.

"According to the suit, Gregory purchased a boat and is building a house near Key West, Fla. Josh Tarter purchased luxury automobiles and a house valued at $5 million in Park City, Utah," Larry Rowell reported for the Casey County News, which broke the story. Here's his lede: "International travel and intrigue. Luxury cars and houses in exotic locations. An overseas factory that didn’t manufacture products though millions of dollars of orders were placed. Accusations of financial mismanagement and fraudulent wire transfers. Knowingly selling defective equipment at a profit. Although these allegations read like a novel, they form the basis for a lawsuit among family members of Casey County’s largest employer."

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