2008: Bank fraud detailed in indictment

[Editor's note: This story was originally published in The Gazette's Saturday, November 15, 2008 edition.]

Bank fraud is the legal problem of the week for Agriprocessors' Sholom Rubashkin .

The former chief executive officer of the kosher meat company was arrested at his Postville home Monday on federal charges of defrauding First Bank Business Capital of St. Louis, which recently foreclosed on a $35 million line of credit.

If convicted in the bank fraud case, Rubashkin could be sentenced to 30 years in prison and fines of $1 million or twice the bank's financial loss on the bank fraud complaint, according to the U.S. Attorney Matt Dummermuth.

The criminal complaint was based on an investigation described in an affidavit by an agent of the U.S. Immigration and Customs Enforcement agency. Michael Fischels interviewed an employee of Agriprocessors accounting department in charge of accounts receivables Thursday. The employee told Fischels that Rubashkin directed that certain customer payments be placed into accounts unrelated to the business instead of a Decorah bank account designated for depositing customer payments to repay its loan.

Payments were misdirected to accounts of the Torah Education Program of Northeast Iowa and the Kosher Community Grocery of Postville, the affidavit said. Most of the money was later deposited into the proper account. But as long as the payments -- which totaled over $16 million -- were not deposited in the Decorah bank, they remained on Agriprocessors' books as accounts receivable.

Accounts receivable are collateral for more borrowing under Agriprocessors loan agreement. As a result, the deception let Agriprocessors borrow much more than its loan agreement permitted.

Along with the dark suit, beard and yarmulke, the 49-year-old rabbi wore shackles and a GPS tracking transmitter on his ankle when he appeared Friday before U.S. Magistrate Judge Jon Scoles.

Responding to questions from the judge, Rubashkin said he was taking anti-anxiety medication, had just seen the charges against him 20 minutes earlier, and didn't know if the drugs affected his understanding of the proceeding.

Rubashkin will stay in jail pending a detention and preliminary hearing Wednesday at 2 p.m. Assistant U.S. Attorney Peter Deegan objected to his release pending trial. Deegan said Rubashkin 's ties to the community have been weakened by the recent financial problems of Agriprocessors, which is under bankruptcy protection. Rubashkin 's probation officer asked that his pretrial release on immigration fraud charges filed against him last month be revoked.

Rev. Steve Brackett of St. Paul Lutheran Church in Postville said some of the talk around town is of the ironic sense of justice that Rubashkin must wear a GPS ankle bracelet and spend time in jail, because his actions left so many others in the same circumstances.

Former Postville City Council member Aaron Goldsmith, said people reading Internet accounts of Rubashkin 's previous arrest and release on immigration charges would get the impression he was defiant. That impression is wrong, he said.

"He's broken, I can tell you that," said Goldsmith, a friend of the Rubashkin family.

Separately, a federal grand jury in Cedar Rapids issued a superseding indictment against Rubashkin , 49, and former Agriprocessors human resources employee Karina Freund, 29 of Fayette. They face three counts of aiding and abetting immigration fraud along with earlier immigration charges.

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