The Email Subject Line That Tipped Off the Feds to Alleged Fraud Scheme

The email subject line was a surefire attention-getter: “VERY CAREFUL — DO NOT FAT FINGER FORWARD.”

The August 2015 message, sent to Peter G. Johnson, president of cocoa trader Transmar Commodity Group Ltd., by his son, Peter B. Johnson, and other emails implicated the men in an alleged fraud scheme linked to hundreds of millions in unpaid loans, according to a May 23 filing submitted to the Manhattan bankruptcy court.

“Transmar consistently submits inaccurate borrowing-base reports to the banks, the discovery of which is an existential threat to our company,” the younger Johnson wrote in the body of the message, according to the filing.

The emails, part of a cache of 2 million pages submitted to the bankruptcy court by a Transmar lender, shed light into what veteran executives allege is the biggest fraud in the cocoa market they can remember.

Peter G. Johnson, 68, Transmar’s founder, and Peter B. Johnson, 38, who ran the company’s European operation, were arrested Tuesday morning at their New Jersey homes. Thomas Reich, 59, Transmar’s vice president of finance, later turned himself into the U.S. Federal Bureau of Investigation. The charges they face carry as many as 30 years in prison.

False Representation

The three executives falsely represented Transmar’s financials in order to receive loans they didn’t qualify for, according to William F. Sweeney Jr., the FBI’s assistant director-in-charge. Morristown, New Jersey-based Transmar, which supplied top chocolate makers such as Mars Inc. and Nestle SA, filed for bankruptcy protection on Dec. 31.

Transmar’s alleged dealings were centered on borrowing-base reports, which are required by banks as frequently as weekly as a condition for supplying credit, according to an indictment unsealed in Manhattan federal court. Tactics included counting inventory Transmar had already sold, faked accounts receivable and bills that had already been paid, according to the U.S. Attorney’s Office for the Southern District of New York.

“I didn’t do it,” Peter B. Johnson told reporters Tuesday after he and the others appeared in Manhattan federal court.

“Mr. Johnson has done nothing improper and nothing illegal,” Peter B. Johnson’s lawyer, Shalom Stone, said in a phone call after the court appearance. Lawyers for the other two men declined to comment.

Lender Group

The emails were among those obtained by ABN Amro NV, an agent for a lender group supplying a $400 million credit facility to Transmar. The Amsterdam-based bank included them in a bid to switch Transmar’s bankruptcy to Chapter 7 from Chapter 11.

In a March 2, 2016, email included in the documents, Peter B. Johnson, also known as Pete Jr., said he received two versions of the borrowing-base report: one “true” and one “adjusted.” The adjustments were needed to show that the company had filled a $140 million hole in the borrowing base, according to the ABN Amro court filing.

“I have a sick feeling in my stomach, as such a massive gap will be extremely difficult to close,” Johnson wrote, according to ABN Amro’s filing.

Transmar was created in 1980 as mainly a cocoa trader. In 1998, the company expanded into bean processing and storage and invested in operations in Ecuador, which were most recently run by Timothy Johnson, another son of Peter G. Johnson. In the early 2000s, it formed Germany-based Euromar Commodities GmbH, which processed cocoa beans into the butter and powder used by chocolate makers.

Famous names such as Hershey Co. and Guittard Chocolate Co., as well Nestle and Mars, have been clients. The company also had a presence in Eastern Europe and Russia. Transmar and Euromar, were often able to undercut competition on prices.

Credit Facility

ABN Amro and other banks involved in the Transmar credit facility, including Societe Generale SA, BNP Paribas SA, Natixis SA and Macquarie Bank, are unlikely to recoup their losses. They were owed about $360 million when Transmar filed for bankruptcy.

Read more: Bankruptcy Filing Deepens Woes for Cocoa Firm Hit by Brexit

A court filing shows Transmar’s most valuable asset is book of future sales, estimated to be worth $3.5 million. Half the company’s inventory of beans is valueless due to poor quality, according to Transmar’s filing with the bankruptcy court.

An ABN Amro spokesman said the bank wouldn’t comment on ongoing litigation. Spokeswomen for Societe Generale, BNP Paribas, Macquarie and Natixis declined to comment.

The case is a wake-up call for banks lending to commodities firms, said Edward George, head of soft-commodities research at lender Ecobank Transnational Inc., which finances cocoa trading in West Africa, the world’s largest producing region.

“The banks need to reassess their risk models and how they’re actually lending to companies,” George said. “There has to be a lot more scrutiny of the financing of these companies than there was before.”

The criminal case is U.S. v. Johnson, 17-cr-00482, U.S. District Court, Southern District of New York (Manhattan). The bankruptcy case is In re Transmar Commodity Group Ltd., 16-bk-13625, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

— With assistance by Javier Blas, Agnieszka De Sousa, and Bob Van Voris

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