Regulators dismiss complaint against grain intermediary, citing lack of jurisdiction

A state regulatory hearing Wednesday in Pierre that was aimed at a grain company ended up with the Public Utilities Commission disagreeing with its own staff.

In a unanimous decision, the commission ruled that its staff’s complaint against a grain buying-and-selling intermediary was not permissible due to the commission’s lack of authority over interstate commerce. 

“Therefore, it can’t be regulated,” Banghart Properties attorney Robert Conrad argued. “State does not have the authority to do that.”

The dismissal came after a debate about the Public Utilities Commission’s jurisdiction, and about the company’s grain purchasing practices.

Gettysburg-based Banghart Properties is not a typical buyer of grain. Rather than buying it and storing it in a grain bin, the company acts as an intermediary between farmers and end users – ideally getting farmers a better deal than what they can find themselves.

State-issued grain-buying licenses come with some limitations intended to ensure companies can deliver on their contracts. Commission staff alleged that Banghart Properties exceeded the limits of its license by purchasing more than $5 million worth of grain in a single year. That triggered an investigation into the company’s transactions and a cease-and-desist on doing business in the state while the commission considered the fate of the company’s license.

The commission unanimously voted to re-issue Banghart Properties’ license Wednesday with some stipulations to ensure compliance, including quarterly financial updates to regulators.

Disagreement with staff

Cody Chambliss, manager of the grain regulatory department of the Public Utilities Commission, said the decision raises questions about what exactly his department has authority over. 

“I have a lot of questions and a lot of things to sort through,” Chambliss said, adding “it’s pretty frustrating” that he and his staff had to go through all the work to bring forth the complaint “only to get to this point.” 

The commission staff argued that despite Banghart Properties having engaged in grain purchases outside of South Dakota, those sales should be subject to regulation by the department. 

However, the three elected commissioners unanimously sided with the company, emphasizing that the regulatory body’s mandate concerns intrastate activities and does not extend to interstate commerce. 

Commissioner Chris Nelson said his prior experience as the uniform commercial code supervisor in the Secretary of State’s Office informed his position.

“Now, I’m not saying staff was in the wrong for bringing this complaint forward,” Nelson said. “But we don’t regulate interstate commerce.”

Banghart Properties has already been penalized for its activities in Nebraska, where the Public Service Commission levied a $290,000 civil penalty against the company for acting as a grain dealer without a license. 

Banghart Properties welcomed the South Dakota regulators’ decision. The company has not been able to buy and sell grain in the state since January. 

Company official Jeremey Frost told South Dakota Searchlight that the proceedings were hurting Banghart’s bottom line.

“We have had contracts walk away in the meantime because they need to know if we are going to be able to buy or sell to them,” Frost said. “Damage is done.”

Lawsuits pending

Meanwhile, Banghart Properties is also dealing with a pending lawsuit related to its business practices.

Banghart, owned by Frost’s mother, used to be called Fearless Grain Marketing and was owned by Frost. 

In mid-2019, Fearless Grain Marketing entered into a contract with Indigo Ag, of Massachusetts. Indigo Ag offers a digital platform doing the grain buying and selling that Frost already does. Fearless Grain Marketing was contracted to convince producers to use Indigo’s platform.

Indigo claims that Frost “ignored contractual limitations as a Grain Marketing Advisor and committed Indigo to transactions without Indigo authorization,” and “fraudulently induced Indigo to enter into contracts as buyer of commodities based upon knowingly or recklessly false statements of fact regarding the existence or availability of grain that did not in fact exist or was not available for the contract described.”

Frost denies the allegations and has made counterclaims, alleging the company owes him money for his services.

Indigo alleges Frost defamed the company and “sent a highly defamatory email to at least one grower with substantial contracts with Indigo, stating falsely that Indigo was or could be subject to a fraud claim or Ponzi scheme claim.” Indigo further alleges, “Growers threatened to, and in some cases did, default on contracts, as a result of Defendant’s wrongful conduct, with the defaults damaging Indigo and potentially costing Indigo substantial sums.”

Frost said in court documents that his relationships with farmers and purchasers have been jeopardized by Indigo: “Prior to its unfortunate association with Indigo, FGM enjoyed great success in advising its agricultural clients on market conditions and serving as a broker intermediary to source and sell grains.”

That case is being heard in federal court in Tennessee, where Indigo Ag has an office. After it was filed, Frost terminated Fearless Grain Marketing and his mom started Banghart Properties.

In a separate case in South Dakota federal court, JES Farms Partnership, which says in court documents that it signed on to work with Indigo Ag through Frost, is suing Indigo and claiming the company hasn’t paid for grain that JES sold through the Indigo platform.