John David Farmer, the founder of a grocery store chain with a former location in South Boston, has been indicted in United States District Court for the Eastern District of Virginia on one count of conspiracy to commit wire fraud.
According to the indictment handed down on Sept. 24, Farmer conspired with John Morrell Palmer III and others to defraud by wire SuperValu, Inc. and the Kellogg Company of $1.9 million.
Kellogg’s sold product to Farmer’s Food through Supervalu Inc., a wholesaler with operations in Mechanicsville, and Farmer’s Foods also purchased products from other manufacturers through SuperValu.
Farmer’s Foods had an account with Super Valu, which obviated the need for it to pay for goods with cash on delivery.
Kellogg’s offered incentive programs to encourage retailers to purchase certain types of Kellogg’s products in given amounts during specified time periods.
One incentive program in which Farmer’s Foods and SuperValu participated involved deductions that were credited against Farmer’s Foods’ running account with SuperValu when Farmer’s Foods purchased Kellogg’s product from SuperValu under a particular incentive.
Upon awarding such a deduction against Farmer’s Foods running account, SuperValu would then collect the amount of the deductions from Kellogg’s.
In his capacity as Team Sales Manager for Kellogg’s, Palmer, then a Fredericksburg resident, dealt with Farmer’s Foods and was responsible for arranging and submitting paperwork for incentive programs.
The indictment charges that in or around October 2009 through May 3, 2013, Farmer and Palmer “knowingly and with intent to defraud, execute and attempt to execute a scheme and artifice to defraud and to obtain money, funds and property owned by and under the custody and control of SuperValu, Inc. and the Kellogg Company, by means of materially false and fraudulent pretenses and promises via writings, signs and signals transmitted in interstate and foreign commerce by wire communications.”
The object of conspiracy and the scheme and artifice to defraud was for Farmer’s Foods to obtain deductions to which it was not entitled via the submission of false reports to Kellogg’s and Super Valu regarding purchases of Kellogg’s product that in fact did not take place.
The scheme, according to the indictment, involved Palmer completing and submitting to Kellogg’s over the Internet “Promotional Incentive Offers,” also commonly known as “deal sheets,” that provided for per unit “billback allowances” that reduced the net cost of the product purchased by Farmer’s Foods under the deal in question.
Those deal sheets led Kellogg’s to believe that the product referenced in them would be purchased by Farmer’s Foods.
Farmer’s Foods submitted documents to SuperValu falsely reflecting that the transactions referenced in the deal sheets had actually taken place, and relying on those false representations SuperValu credited Farmer’s Food’s SuperValu account with a deduction consistent with the representation in the relative “deal sheet.”
SuperValu then collected from Kellogg’s the amount of the deduction granted to Farmer’s Foods.
Farmer regularly provided Palmer with cash payments roughly equivalent to half the deductions credited to Farmer’s Foods SuperValu account in violation of federal law, according to the indictment.
If convicted, Farmer faces forfeiture of his interest in any property constituting or derived from proceeds illegally obtained as a result of the alleged conspiracy, including any assets related to those proceeds, according to the indictment.
Assets subject to forfeiture include a money judgment in the amount of $1,886,392.87 and $24,650 in cash Farmer delivered to Palmer on or about Aug. 5, 2013 that is now in the custody of Virginia State Police.
Farmer, an independent retailer who established his own business in 1965, operated as many as eight stores in Virginia.
He sold four of those stores, including the one in South Boston, in April to a Baltimore-based group of independent retailers.
The South Boston store now operates as Shopper’s Value grocery store.
Plea agreement and bond hearings for Farmer are set for Oct. 24 at 11:30 a.m. in U. S. District Court Eastern region of Virginia.