- In December of 2023, the SEC froze Agridime’s assets and appointed a receiver to manage the company and work to recover funds.
- The SEC and CFTC allege the company operated a Ponzi scheme, paying old investors with funds from new investors.
- The company used a variety of techniques to evade detection.
- It’s unclear how much money may be recovered for investors. The Receiver intends to have a liquidation plan in place by July 31, 2024.
People can be quick to flag something as “fraud” or a “scam” when it doesn’t go as they expected or hoped. Oftentimes, businesses have legitimate intentions, even if their execution falls short.
But sometimes it’s actually fraud.
What Was Agridime Pretending To Be?
If you’ve explored alternative investments in the past, you may have come across Agridime.
They advertised a passive “investment” in cattle. The idea was that for $2000 you could cover the cost of purchasing, feeding, sheltering, and insuring one cow. The cow would be raised on a farm until it was butchered for meat.
The proceeds from selling the meat were expected to be $3000. Agridime would then pay 15-20% to investors and pocket any surplus profits. In some sense, the product offered was basically a private credit loan.
The company was founded in 2017 and people did report that they had been repaid, as per their contracts, for years.
While many were skeptical, it still received 3+ star reviews from places like MoneyWise and The College Investor. As of the publishing of this article, both websites still had their reviews live.
The Fraud
The problem with Agridime is that it was a Ponzi scheme, at least according to the SEC and the CFTC.
Earlier investors did receive their payments from Agridime. Unfortunately, that wasn’t because their investment product was successful. It was because they used the money from newer investors to pay the old investors.
This scheme worked, right up until it didn’t. Around the end of 2023, investors didn’t receive their expected payments. In December of 2023 the SEC stepped in putting a hold to the company’s operations and appointing a receiver.
There’s now, reportedly up to $191M of investor funds at risk. While the scheme was growing and investors stood to lose almost everything, the company’s owners and management team took home $11M.
How Did The Business Work?
The Agridime team reportedly took several steps to appear legitimate and to conceal the scheme.
First, the company did actually purchase some cattle. According to the Receiver, they found about 6500 cattle owned by the company. That’s well below the amount sold to investors.
However, that was enough that they could show to anyone who asked or demanded. A feedlot filled with hundreds of cows would create an illusion of legitimacy to anyone who looked.
The company also used a unique model to acquire cattle that minimized their paper trail and helped evade regulators. Instead of purchasing the steer, they used a “retained ownership” model.
Agridime agreed to pay for the cattle after they had sold the beef. In the interim, the company would manage the cattle, but they would still be owned by the original ranchers.
What beef Agridime did sell was said to be of low quality and left customers unsatisfied.
What’s Happening Now?
The business is effectively being managed by a court appointee while they try to find ways to get money back for investors.
There are a lot of challenges though. Agridime has fewer assets than what their balance sheet states. At one point the SEC suggested that the $20M in beef the company had on hand might be the most valuable asset they have.
Tracking down all the assets, storing them, and managing them all cost money. Legal fees can also take a heavy toll. Based on court documents, there were over $500K in costs through March.
Additionally, the web of contracts and agreements Agridime entered into has made unwinding the business complicated. In at least one case feedlots did not provide cattle sale proceeds to Agridime because another rancher had a claim to the proceeds. After the company’s assets were frozen and the Receiver took over, the company also missed contractual payments. That resulted in various penalties and disputes over payments.
The Receiver plans to submit their plan for liquidating the company and its assets by the end of July. At that point it may be clearer how much money they may be able to recover.
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