Two years after filing for bankruptcy and closing with an estimated $60 million due to produce suppliers, Adams Produce Co. and its principals have been cited by the government under the Perishable Agricultural Commodities Act.

The PACA action by the Agricultural Marketing Service of the U.S. Department of Agriculture came two days after the fifth of five former Adams Produce officials was sentenced in federal court related to a scheme to defraud the government in the months before the Birmingham, Ala., company closed.

Only one of the five former officials who negotiated plea agreements is named in the USDA citation — Scott Grinstead, former chief executive officer, who admitted to knowing about the fraud scheme. He was sentenced in November to serve 16 months in federal prison.

The other Adams Produce principals named in the USDA’s citation for failing to pay 51 sellers a total of more than $10.7 million for 9,314 lots of fresh produce are: Steve Alexander, API Holdings LLC, Jonathan Dyer and Michael Rawlings. Two additional principals are challenging their connected status with the company, according to the USDA citation.

None of the principals can be employed by or affiliated with any PACA licensee until Jan. 8, and then only if they post a USDA-approved surety bond.

Criminal investigation continues

Of the five former Adams Produce officials charged in the Justice Department’s criminal investigation, only Christopher Pfahl has not been sentenced to prison. On April 22, a federal judge sentenced the former purchasing assistant to three years probation. He is also ordered to pay restitution to the government of almost $500,000 “jointly and severally” with the other former officials.

Both Pfahl’s attorney and assistant U.S. prosecuting attorney George Martin recommended probation for Pfahl, citing his cooperation with authorities. All five of the former Adams officials negotiated plea agreements.

“The defendant (Pfahl) was the first co-conspirator to accept responsibility for his conduct and cooperate with the government’s investigation,” according to a sentencing memorandum Martin filed earlier in April.

Federal authorities have said the fraud scheme, bankruptcy and closure of the 109-year-old company were intertwined. The fraudulently obtained overpayments for fresh fruit and vegetables for the military and public schools did not go into the pockets of the company officials, but was used by them to make Adams Produce look better on paper, according to court documents.

Founded in 1903 by Edward Adams, the family-owned company was sold to the company executives and a private equity firm in 2010. Two years later — and just months after the fraud scheme — the executives filed for Chapter 11 bankruptcy reorganization, according to court documents.

“Due to objections asserted by certain major PACA creditors, the (Adams Produce executives’) debtor in possession financing was not approved, (and they) were forced to cease operations,” the federal bankruptcy judge wrote in her order approving the bankruptcy liquidation plan.

The bankruptcy judge also noted “virtually all PACA claims were resolved by settlement which resulted in most PACA claimants that had properly filed a claim receiving approximately 80% of their claims.” She initially estimated PACA claims at about $60 million. Some were not paid because sellers failed to properly document the amounts due to them.