Fraud Schemes : Farm Woes Attracting Con Artists

Debt-burdened and desperate, Ronald and Erin Zickefoose ran a classified ad in the Los Angeles Times early in 1985: “Family Farm For Sale,” it began.

The Zickefooses, whose ancestors had come from the East in covered wagons to help settle the Midwestern prairie, owed creditors $845,000. They were prepared to sell part of their rural heritage to save what they could.

Eugene P. Allen, a Californian with a reassuring velvet voice that boasted of a bundle of money, came to the rescue. He offered them hope, a chance to save their farm, to get out of debt and, better yet, to make money when most farmers were falling behind.

Over a three-month period, they say, they borrowed from relatives to help pay about $67,000 to Allen and his associates for a variety of brokering fees and surety bonds in exchange for promises of more than $1.7 million in loans.

Financial Nightmare

But in their naivete--and perhaps in their eagerness not only to get out of debt but also to get ahead--they bought their way into a financial nightmare.

Their money is gone.

Their debts have grown.

The bank now owns the family farm.

“It’s very much like being raped, in that somehow the victim feels guilty,” Erin Zickefoose says. “It was like we went in and said, ‘Would you like every penny we can scrape up in seven counties?’ ”

They are not alone.

Thousands of financially distressed farmers, anxious to keep their land and preserve their rural way of life, have been victimized by a cruel plague of fraud that is striking economically weakened families across the heartland. In Iowa alone, one investigator estimates, tens of millions of dollars are being lost annually.

Authorities from Ohio to California are busy investigating and prosecuting a variety of schemes. And they are bracing themselves for even more scams as the harvest season signals a new round of farm failures and foreclosures.

‘Psychological Judo’

“These guys use psychological judo,” says Tam B. Ormiston, head of the Iowa attorney general’s farm division. “They use (rural values) of pride and diligence and trusting people against the farmer.”

“The farmers’ sad plight is being exploited by modern-day snake oil salesmen who promise an easy cure for a substantial fee, but cannot deliver,” Minnesota Atty. Gen. Hubert H. Humphrey III said earlier this year.

Today, convicted swindler Allen is in a California prison, not for his alleged involvement in the Zickefoose case but for another fraud scheme entirely--grand theft and state securities violations. He was free on an appeals bond in that case while he and two other men were allegedly dealing with the Iowa couple. A civil court fraud action in Iowa accuses the three men of “false, deceptive, misleading and omissive promotion and sales practices.” Federal authorities are also investigating.

The Zickefooses say they were victimized by a crooked loan-brokering scheme. Authorities say it is the most common scam confronting farmers. In exchange for fees ranging from a few hundred dollars to tens of thousands of dollars, farmers are promised access to hard-to-get loan funds, much of it to come from foreign banking sources.

“Crumbs from the tables of international banks were all going to fall on Iowa farms,” Ormiston said.

These deals are attractive to farmers and con men alike because an unprecedented 3-year-long string of foreclosures, bankruptcies and bank failures, and a lingering weak farm economy has dried up many traditional lines of agricultural credit.

“People are very desperate and look for what seems like an easy solution,” says Peggy Gunn, spokeswoman for Humphrey.

Reluctance to Investigate

Relatively disorganized law enforcement, an apparent reluctance by some agencies to investigate farm frauds that only affect one or two farmers and the unwillingness of farmers to speak up after they have been swindled also allow the schemes to succeed.

A few years ago Iowa’s Ormiston organized a 25-state informal network among attorneys general to keep one another informed about frauds that are either being reported or investigated. Still, con men have successfully taken money from farmers in several neighboring Midwestern states before they could be stopped. For example it was only after the Zickefooses were out their money that Iowa authorities learned that Allen was under investigation in another region of the country.

“There is a lot more fraud going on than people are willing to come forth and complain about,” says Sarah Vogel, an assistant North Dakota attorney general. “They still have hope that somehow this loan broker is going to come through with the loan, or they think the money’s gone and they probably can’t get it back and they don’t want to go through the hassle of prosecution.”

Small Fraction of Problem

“Our office handles 400 complaints a year and that may represent only one twentieth of the problem,” estimates Charles Rutenbeck, a veteran investigator with the Iowa Department of Justice. Last year alone Iowa recovered $700,000 taken from farmers in a variety of schemes.

“As elaborate as (it) all was, I find it hard to believe we’re the only ones they conned,” Erin Zickefoose says. “If so, they went to an awful lot of trouble just for us.”

“These schemes tend to be extremely complex,” says Robert A. Mandel, assistant U.S. attorney for South Dakota. “These con artists tend to be seat-of-the-pants kind of guys. Anytime you nail them on one thing they just come up with another line.”

Frauds uncovered in the last two years include these examples:

--After a local bank failed, farmers around rural Boyd, Minn., were ready to believe two persons who said they would make low-interest agricultural loans available from a $1.25-billion secret trust established in 1647 by King Charles I of England. The Minnesota attorney general and the FBI intervened, apparently before any loans were made. One person has been indicted on federal charges of fraud and interstate transportation of counterfeit securities.

--Seven men who boasted they had access to more than $2 billion in Arab petro-dollars held in a trust by a British noble were convicted on federal fraud and conspiracy charges in South Dakota last year in a scheme that netted them an estimated $460,000. At least 35 persons, mostly farmers, in Iowa, Minnesota, Illinois, Indiana and South Dakota were victimized, paying advance fees of $1,000 to $80,000 each.

--About 4,000 people nationwide, many of them farmers, paid fees to six persons who promised to give them each “self-liquidating loans.” These loans would repay themselves out of investment profits and were available for $4,000 in advance fees. The scheme, described in state and federal court documents, was supposed to provide farmers with $10 million cash immediately and $1 million “to raise their life styles so (borrowers) would not be tempted to spend money intended for investment on themselves.” The six persons involved in the scheme are being prosecuted.

--Minnesota farmer Curtis Gniffke lost $950 after he answered a classified ad in the Minneapolis Star and Tribune offering “agribusiness loans . . . immediately to farmers in 5-state area.” Chester H. Dawson, who placed the ad, is under indictment on two counts of “theft by swindle” and one count of acting as a real estate broker without a license.

The Zickefoose family placed the ad that joined them with Allen in The Times on Feb. 24 and March 3, 1985.

They turned to California because Iowa’s rural economy was battered by farm failures and foreclosures, failing banks and boarded-up Main Street stores. “We heard from my brother that things were going fine in California so we thought, ‘Let’s go where the money is.’ And it seemed impossible to market any land in this area.”

Record of Fraud

Among the callers was Allen, currently an inmate of the California Correctional Facility for Men at Chino where he is serving at least two years for a California fraud. Originally he was accused of 18 counts of grand theft, 45 different California securities violations and three state income tax violations. He was accused of defrauding 17 victims between 1977 and 1980. He pleaded no contest to six of the charges and received his current prison sentence.

He was one of eight people to answer the ad but the only one with a proposition that interested Ronald Zickefoose. Allen proposed a long-term loan, allegedly explaining in a subsequent call that he was “one of five trust officers to a Canadian trust. Twice a year he could loan money at 10.25% interest. He said I needed to buy a surety bond to guarantee the loan . . . to protect them, to show them I was good for the loan,” Zickefoose says.

Eventually they agreed on a $330,000 loan to be repaid over 14 years.

Allen, the Zickefooses say, had a way about him. He told them he was raised on a farm. When Ronald’s mother died, Allen told him his mother too had just died and he understood how difficult it was. The Zickefooses raise horses and Allen liked to talk about horses.

“He was extremely polite, personable,” says Zickefoose, who met Allen only once--at a Las Vegas hotel where Allen was given VIP treatment.

Sounded Like a Script

“He was well-dressed but not showoffy. I don’t care for people who try to impress me. But he knew how to make money and I was having trouble. I look back at it now and everything could have been part of a script,” Zickefoose says.

Allen, contacted through officials of the California Institution for Men at Chino, declined requests to talk to a reporter from The Times. Authorities say Allen was arrested for grand larceny in Tennessee in 1964 and that he served 18 months in a Tennessee prison in 1969 on fraud charges.

In a court affidavit, the Zickefooses say Allen told them that because of his sympathy for “farm financial problems . . . he was stalling a big corporation giving us priority for the loan. . . . We were specifically told this loan was absolutely not going to be any problem, a guaranteed, lead-pipe cinch and that the longest any of his loans took was 45 working days.”

Meanwhile the Zickefooses were having difficulty buying a surety bond. Allen came to the rescue, allegedly arranging for them to obtain a bond by opening up a $13,200 escrow account in a California bank. On March 15, 1985, they got a Western Union Mailgram confirming they had opened the account.

Next Allen offered the Zickefooses a chance to make money exporting pork at premium prices.

“Allen told us he . . . was deeply involved in export-import,” the couple say in their affidavit, which is part of an Iowa attorney general’s pending court petition seeking a permanent injunction and restitution of money. “Allen (told) us he got his start in the import-export business as a boy on the piers of New York buying damaged imported goods, reselling them in Tennessee, and over time (he) had developed business connections worldwide.

Very Little Paper Work

“International trade, we were told, was done with a smile, a handshake, in cash, involving very little paper work and (that) he, Allen, would teach us how to avoid the taxes attendant to international trade.”

To farmers deeply in debt it looked like a good deal. Zickefoose would both breed hogs and buy others from neighbors, deliver them to a slaughterhouse and, with Allen, export directly to foreign markets, eliminating the middleman. Allen told them they would get top dollar for the pork year-round.

The pork deal alone would provide the couple with enough money to pay off their loan and, in addition, to make a profit.

“We were asked not to discuss this hog arrangement . . . because brokers would start asking questions and ruin our opportunity,” they say in their affidavit.

“Demands for secrecy are not uncommon,” assistant attorney general Ormiston says. “The idea is that government, lenders and lawyers are involved in some grand design to wrest land from farmers. In other cases promoters demand confidentiality because they are making loans available under extraordinary conditions.”

To get into the hog business Allen told the couple that “it would be necessary to either set up a corporation or try to buy one. He (said) he located . . . a corporation already holding the necessary shipping permits for a total cost of $28,000. We were told that we could purchase this corporation for $7,000 down and Allen extending credit for the balance.” They sent $7,000 to an agent designated by Allen, they say in their affidavit. It was April, 1985.

Second Loan Arranged

And the Zickefooses also made arrangements for a second loan, this one for $450,000. On April 15, they forwarded $21,375 to a business associate of Allen’s and on April 18, an additional $4,750 to another associate. These funds were for surety bonds and fees.

When Allen “assured us that the first two loans would be finalized in a few days,” the couple decided to take out a third loan, this one for $972,000. They sent another $21,420 to an Allen associate. It was May 16, 1985.

The loan deals were to be completed and the money delivered during a mid-June meeting between Ronald Zickefoose and Allen in Vancouver, Canada, the couple say. Allen sent word that he would be unable to keep the appointment while Zickefoose was en route to Vancouver.

From that time on the Iowa farmers were unable to contact Allen. Phone messages went unanswered and some phone numbers they found had been disconnected.

A week later Allen, who had stayed out of prison for several years while appealing his conviction, was ordered, in Los Angeles Superior Court, to begin his current prison term.

Two Others Named

Along with Allen, the Iowa attorney general’s petition for a permanent injunction and restitution of money also names a David Strassburg and a Jimmy Mitchell. Strassburg, also a Californian, could not be located for comment.

Mitchell’s Sacramento attorney, Peter T. Zamboni, says that his client was also victimized in this scheme. Mitchell, described by Zamboni as a bishop in the Mormon Church, “feels that he has not done any thing improper. He has (also) suffered a loss in this matter.”

“I can lose my own money,” Ronald Zickefoose says. “But when you lose the money of people who want to help you, well . . . I don’t care if it takes 10 years of trying to chase these guys down, I’m going to find them.”

“It affected our family, it affected our extended family,” adds Erin Zickefoose. “These are bad people.”

Along with the bitterness there is the perpetual optimism of the American farmer.

“In the winter of 1981, I didn’t owe anyone a dime,” laments Ronald Zickefoose. “I know some people have given up. But I think we’ll work out of this. It’s nip and tuck, but I can see opportunities here. . . .

“I refuse to give up.”

Researchers Wendy Leopold in Chicago and Nina Green in Los Angeles contributed to this article.