States Sue Worm Buy Back Scam Companies
By Paul Monies
The Oklahoma Securities Department filed a $14 million lawsuit Monday against Meeker-based B&B Worm Farms, the nation's largest network of worm growers, charging the company with violations under the state's Business Opportunity Sales Act for the second time in the last 12 months.
B&B, which is on the verge of bankruptcy, had about $18 million in sales last year -- money state regulators and a former B&B board member say went to fund an alleged Ponzi scheme that began to crumble earlier this year after the death of B&B's 40-year-old founder, Gregory M. Bradley.
"We are seeking to enjoin the company and will seek restitution to investors in the amount of at least $14 million," said Irving Faught, administrator for the Securities Department. "We're also seeking civil penalties of $50,000 and disgorgement of any ill-gotten gains by the promoters."
It's not B&B's first skirmish with regulators. Earlier this month, attorneys general in Kentucky and Mississippi slapped the company with cease-and-desist orders, stopping B&B from doing business in those states. The company is also under investigation by the Wisconsin attorney general.
Last August, the company reached a settlement with the Oklahoma Securities Department for alleged violations of the state's laws regulating business opportunities. Without admitting wrongdoing, B&B promised to comply with the law and refunded $16,400 to two investors.
Bradley, a computer technician, and his wife, Lynn, 43, an insurance underwriter, founded the company in 1998 after moving to Meeker from San Francisco.
People who knew Greg Bradley said he was committed to B&B, convincing politicians, organic farmers and investors alike about the benefits of worm farming, or vermiculture. He touted it as an emerging industry that could solve agricultural and environmental problems -- and make investors rich along the way.
B&B's business model was simple: Through word of mouth, a Web site (which has since been shut down) and seminars, the company sold contracts to 1,800 investors for as little as $10,000 and as much as $100,000. In return, the company shipped red worms -- smaller cousins of the nightcrawler -- to a network of growers and distributors nationwide, promising to buy back worm offspring later for between $7 and $9 per pound.
Not long after Greg Bradley's death Jan. 26, B&B stopped accepting worm shipments, leaving growers with hundreds and thousands of pounds of worms but no wiggle room for a return on their investments.
Lynn Bradley could not be reached for comment. Her Oklahoma City attorneys did not return several phone calls.
According to allegations by state attorneys general and those familiar with the operations of the private company, the business opportunities offered by B&B were little more than questionable money- making schemes -- dependent on a constant supply of new contracts for the financial returns of earlier investors.
"It takes over a year before you can start selling," said Andy Langner, a farmer and welder in Holdingford, Minn. "Them worms aren't going anywhere. It's all a big circle, and they were making $20,000 to $50,000 on every contract."
Like many growers, Langner first heard about B&B through a friend. More than a year ago, he and his brother went to a B&B seminar in Sauk Centre, Minn., and listened to Greg Bradley make his pitch.
"There was probably 150 people there," Langner said. "Greg Bradley came up and gave a presentation and led me to believe that with my $40,000, I could make $100,000 to $130,000 a year."
Langner invested $40,000. In return, he got 2,250 pounds of red worms and a load of bedding, the worm feed made from horse manure and wood shavings. But a few months later, his Minnesota distributor stopped shipping the bags of bedding, leaving Langner with no food for his worms. After several months of unreturned phone calls to B&B, he sued the company in Lincoln County, OK, under his contract's one-year, money-back guarantee.
Langner and B&B reached an out-of-court settlement in January.
"I got my money back and in the nick of time, too," he said. "My worms have disappeared -- they probably died or went somewhere else for food. It's just absolutely a very poor operation."
But for every Andy Langner, B&B claimed there were hundreds of happy investors.
The Rev. Clyde Quick of the McCloud First Assembly of God said several hundred growers from across the country showed up in January for Greg Bradley's memorial service at the church.
"It looked like most of them were doing fairly well -- they were driving really nice cars," said Quick, who knew Bradley through his mother, Margie Hammonds, a church member. "Greg was pretty reclusive in a way and kept to himself, but he was a great guy, and it was always a pleasure to talk to him."
Kelly Slocum, a former B&B board member from Vancouver, Wash., runs an alternative waste management business called Bon Terra. She did consulting work on worm growing for B&B at several of the company's seminars around the country. Slocum also attended several board meetings, including one in Meeker.
"We mostly just sat around and drank coffee and talked about the business," she said of the board meetings. "He called it his board, but there was no oversight."
Slocum and her husband, Roy, resigned from the seven-member board last year.
"We left because we discovered it was a Ponzi scheme," Slocum said. "I do believe he (Greg Bradley) appeared very committed to the industry, but I've spoken to about 120 growers, and I've heard these people cry because they've mortgaged their house or used their life savings on this."
After the Slocums resigned, Greg Bradley sent out a B&B newsletter to growers saying Kelly Slocum was fired for stealing from the company. Slocum said the accusation was a fabrication.
"There were several B&B growers who felt I was just a disgruntled employee," she said. "I've spent 15 years in the business, and from day one, B&B was viewed as a pariah in the industry. A lot of people didn't like me doing the contract work for B&B."
Phone calls to other former B&B board members in Iowa and Arizona were not returned.
Saving the company?
David Rhoades with Turnaround Professionals in Oklahoma City has been hired by Lynn Bradley to help repair B&B.
He admits making the company viable again is a long shot. B&B isn't currently in violation of cease-and-desist orders because it's stopped selling new contracts and isn't accepting delivery of worms, Rhoades said.
"Obviously the company is extremely troubled financially," he said. "One of the options being looked at is a bankruptcy filing. They've done $18 million in the last 12 months and a high percentage was paid back to growers, but there's still a lot of money left. We're trying to find out just where it went."
Rhoades said his examination so far of B&B's finances hasn't unearthed any signs of a Ponzi scheme.
"That has been the allegation, but until you actually have absolute evidence, it would be inappropriate to say," he said.
Meanwhile, people in the vermiculture and vermicomposting industry say the science is sound when it comes to using red worms for waste management and organic fertilizer.
Among the devotees is former U.S. Rep. Wes Watkins, a Stillwater Republican who retired from Congress last year.
Watkins said he became interested in vermiculture in 2001 after a chance meeting with Greg Bradley on a plane to Chicago. Watkins saw the emerging industry as a good way to solve the problems with environmental waste from poultry and hog operations. Worm castings -- the "worm poop" -- are also a high-grade organic fertilizer.
"It's got a great future ahead of it," Watkins said. "I thought it could be a win-win- win situation. You've got an environmental problem with the waste from these poultry industries, and that's not waste, that's worm food. Their castings are an environmentally friendly, organic fertilizer. It's just being good stewards of the soil and water."
Watkins said he worked closely with B&B as a consultant and spoke on the company's behalf in January before the Arkansas soil and water commission. He also met with executives at Tyson, the chicken processors, and with Wal-Mart representatives about the retail market for worm castings.
"I did a little part-time consulting work," he said. "One (part) was trying to open the waste management streams of some of the agriculture industries, the larger poultry operations. I also visited with Wal-Mart and they were going to do about 10 test markets for (worm castings), but B&B never submitted the proposals.
Watkins said he wasn't familiar with the inner workings of B&B and was surprised to hear of the company's financial troubles.
"The industry is going to be a strong, growing industry, but there's going to be some rough times and evidently B&B is part of that," he said. "I don't know if they over-extended themselves too much or if it was mismanaged, but it was a financial shock for a lot of people."
That shock continues to reverberate throughout the vermiculture industry. At the beginning of the month, Worm Digest, an industry newsletter with a circulation of 8,000, said it was devoting an upcoming issue to the fallout from the B&B troubles.
Archives: More information on this topic from The Oklahoman.
Subscribe to The Oklahoman.
If you neeed ANY information about filing a claim in this case - call or email Dan Clarke, the chief investigator for the Oklahoma Department of Securities - and the one in charge of the B and B investigation at
Daniel G. Clarke, CFE, CAMS
Oklahoma Department of Securities
120 North Robinson, Suite 860
Oklahoma City, OK 73102
Oklahoma Department of Securities
For info about the action that the State of Tennessee took against B and B Worm Farm go to this page:
OKLAHOMA SECURITIES COMMISION ACTIONS AGAINST
B and B Worm Farm, Inc. http://securities.state.ok.us/_private/DB_Query/Orders/OrdersFinal.asp
Trustee’s Notice Under Section 363(b) of Intent to Sell Assets Date Filed: 06/03/2003
Motion to Sell Property Pursuant to 11 U.S.C. § 363(b)(1) Date Filed: 06/03/2003
Clerk’s Notice of Order [Order Granting Application by Trustee Janice Loyd to Authorize Payment of Administrative Expenses] Date Filed: 05/22/2003
Order Authorizing Payment of Administrative Expenses Date Filed: 05/21/2003
Answer of Defendant Lynn Bradley Date Filed: 05/20/2003
Trustee’s Application to Authorize Payment of Administrative Expenses Date Filed: 05/16/2003
Clerk's Notice of Order [Order Granting Application by Trustee Janice Loyd to Limit Notice] Date Filed: 05/07/2003
Order Authorizing Trustee to Employ Professional [Turnaround Professionals, L.L.C.] Date Filed: 05/02/2003
Order Modifying Asset Freeze Date Filed: 05/02/2003
Clerk’s Notice of Order [Order Granting Application by Trustee Janice Loyd to Employ Janice D. Loyd as Attorney] Date Filed: 05/02/2003
Order Authorizing Trustee to Employ Attorney Date Filed: 05/01/2003
Notice to File Claims [5/27/03 @ 11:00 a.m.] Date Filed: 04/30/2003
Memorandum in Support of Objection of Lynn Bradley to Application for Temporary Restraining Order and Order Freezing Assets Date Filed: 04/29/2003
Objection of Lynn Bradley to Application for Temporary Restraining Order and Order Freezing Assets Date Filed: 04/29/2003
Application for Appointment of Professional [Turnaround Professionals, L.L.C.] Date Filed: 04/29/2003
Affidavit of Attorney for Trustee Date Filed: 04/28/2003
Application of Trustee to Hire Attorney Date Filed: 04/28/2003
Entry of Appearance of Oklahoma Department of Securities and Request for Notices Date Filed: 04/23/2003
Voluntary Petition Date Filed: 04/22/2003
Temporary Restraining Order and Order Freezing Assets Date Filed: 04/17/2003
Plaintiff’s Application for Temporary Restraining Order and Asset Freeze and Brief in Support Date Filed: 04/17/2003
Petition for Permanent Injunction and other Equitable Relief Date Filed: 04/14/2003
Order Initiating Investigation Date Filed: 03/19/2003
B and B Worm Farm, Greg Bradley and Lynn Bradley
Agreement Date Filed: 08/13/2002
Respondents' Answer and Response Date Filed: 05/22/2002
Entry of Appearance [Arthur N. Bailey & Associates, P.C.] Date Filed: 05/22/2002
Affidavit of Compliance and Notice of Service on the Administrator; Notice of Opportunity for Hearing w/Recommendation to Issue an Order to Cease and Desist Date Filed: 05/06/2002
Many States Take Action Against CRS - Combined Resource Systems of Nevada
Mississippi has issued two orders against Worm Buy-back companies: Combined Resources Systems (CRS) of Henderson, Nevada, and its agents Barry Wise, Rolan N. Tice, and Gary Cesaro of Henderson, Nevada; and Organic Systems and Waste Solutions, Inc. (Organic) of Henderson, Nevada, and its agents Lawrence L. Bateman, Andrew Bateman, and Chris Bateman.
FOR IMMEDIATE RELEASE: June 11, 2003
CONTACT: David Blount, (601) 359-6342
Latest Investment Scam: Worm Farms?
Secretary of State Eric Clark has issued two orders against companies for selling at least $50,000 worth of unregistered investment contracts involving worm farms to Mississippians.
"These companies have taken what appears to be a legitimate agricultural business and turned it into a complicated financial scheme to lure unsuspecting investors," Clark said. "The result is that an investor puts up a lot of upfront money with very little chance of making a profit."
Named in the order are Combined Resources Systems (CRS) of Henderson, Nevada, and its agents Barry Wise, Rolan N. Tice, and Gary Cesaro of Henderson, Nevada; and Organic Systems and Waste Solutions, Inc. (Organic) of Henderson, Nevada, and its agents Lawrence L. Bateman, Andrew Bateman, and Chris Bateman. Both companies engaged in a worm “buy-back” business using investment contracts that are considered securities under Mississippi law. As such, the investment contracts and the persons offering those contracts for sale in the state must be registered with the Secretary of State’s Office.
Clark’s order prohibits the companies from offering any investment for sale in Mississippi until the Secretary of State’s Office reviews the contracts. Each group may face fines of up to $25,000 per violation of state law or five years imprisonment, or both, in addition to administrative fines.
Under the “buy-back” model, investors purchase a supply of worms that may be bought back by the company at a later date. In the case of CRS, the minimum initial investment was $10,000. The success of the investment is tied directly to services provided by CRS to the worm-grower and CRS finding buyers for the worms.
After a seminar in Newton in March, at least five Mississippians invested $50,000 in worms sold by CRS.
Organic has placed advertisements in Mississippi newspapers like The Thrifty Nickel with the following message: “BREED EARTHWORMS. Make excellent $$$$. Work at home. 1-2 hours per day. No selling. No MLM. Free Training.”
Similar cease and desist orders have been issued against CRS in Pennsylvania and Washington.
The Secretary of State’s Office enforces Mississippi’s securities laws. Citizens with questions or complaints may call 601-359-1633 or 888-236-6167.
For more information on CRS sale claims, see http://www.crsnv.com/main.shtml
“CRS is a classic example of the opportunity to be realized within the American free enterprise system. A system that gives equal opportunity for everyone to realize their own personal dreams. Our company has developed strong relationships with those in need of worms and is uniquely positioned to take advantage of a beckoning market opportunity in this multi-billion dollar industry. Through its independent worm breeders, CRS buys and sells large quantities of worms daily. The goal for CRS is to be the pre-eminent leader in business development and the largest provider of worms in the world.”
For more information on Organic sale claims, see http://www.organicsystemsinc.com/
“Today, people seem to be doing a juggling act between home, work, and family responsibilities in order to live a better life. Earning enough money to make ends meet is getting harder each year. Perhaps you've thought about making a career change or would like to supplement your current income. Unfortunately, many families need that second income to meet their obligations. One to two hours a day is all it takes to make a good supplementary income growing worms. OSWS offers a variety of new grower set-up programs designed for those who are interested in developing their own VermiCulture business with all the necessary information, tools, equipment and initial breeder stock consulting needed to be successful.”
Kentucky's Attorney General Ben Chandler Sues Nevada Worm Farming Business;
Jefferson Circuit Court Issues Temporary Restraining Order Against CRS
FOR IMMEDIATE RELEASE
View complaint (pdf format)
FRANKFORT, KY (Wednesday, July 16, 2003) -- Attorney General Ben Chandler announced the filing of a lawsuit and the issuance of a Temporary Restraining Order against Combined Resource Systems, Inc. (CRS) of Nevada and three corporate officers – Barry Wise, Gary Cesaro and Tammy Powers for violations of the Kentucky Consumer Protection Act and Business Opportunity Act in connection with the Defendants’ sale of worm farming business packages to Kentucky consumers and farmers.
Kentucky consumers were offered opportunities to purchase worms and worm farming equipment and to sign contracts whereby CRS agreed to buy back all worms, growers could produce, at guaranteed prices per pound. Consumers paid between $10,000 and $30,000 for the worms, equipment and guaranteed contracts. The Complaint alleges that CRS has failed to honor terms of the contracts and violated a host of consumer protection requirements.
The Restraining Order, issued by Jefferson Circuit Court Judge Judith MacDonald-Burkman halts the advertising or selling of additional business opportunities until Defendants comply with all legal requirements and requires Defendants to honor all consumers’ requests for cancellation of contracts and contract terms including payment for worms already delivered.
The Attorney General’s Consumer Protection Division alleges in the complaint that CRS made deceptive representations about having enough buyers for the worms, to pay for the worms growers could produce. In fact, it appears that the worms bought from existing growers, were then sold to new contract growers to start their own new operation. It also appears that there are not sufficient markets to generate the income necessary to meet all commitments to pay the growers for their worms.
Ben Chandler said, “Kentucky farmers trusted CRS to deliver on their promises, that these businesses could produce a long term profitable income. CRS peddled these worm farming businesses to Kentucky farmers, who are looking to diversify their production. CRS dashed their hopes by failing to deliver on their promises and failing to comply with consumer protection statutes. This is why we have taken action.”
In addition to alleging deceptive conduct, the complaint alleges that the Defendants failed to register and post a bond with the Attorney General’s Office and failed to make refunds to consumers as required by the statute.
Chandler urges consumers investing in business opportunities to contact the Attorney General’s Office to determine whether sellers have met all the legal requirements before investing. The law requires that business opportunity sellers, register and post a bond to secure potential losses.
In April, Chandler sued another worm farming business opportunity seller – B&B Worm Farms, Inc. and owner Lynn Bradley of Meeker, Oklahoma alleging violations of the Business Opportunity statute. B&B has subsequently filed bankruptcy in Oklahoma City.
Consumers may file complaints with the Attorney General’s Office in writing (may also download a complaint form online in pdf format):
Office of Attorney General
Consumer Protection Division
1024 Capital Center Drive, Suite 200
Frankfort, Kentucky 40601.
In Kentucky, the Attorney General’s Office received two default judgments in 2004 against Combined Resource Systems and its principals, who enticed consumers with promises of easy profits from worm farms. At least 60 consumers lost a total of more than one million dollars to this business opportunity scheme.
Cut & paste the following web address in your browser address line to go to the Kentucky Attorney General's Office page about fraudulant businesses including worm scams.
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