Former C.E.O. Of Cocoa Trading Company Sentenced To 36 Months In Prison For $350 Million Fraud

https://www.justice.gov/usao-sdny/pr/former-ceo-cocoa-trading-company-sentenced-36-months-prison-350-million-fraud

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Monday, August 13, 2018

Former C.E.O. Of Cocoa Trading Company Sentenced To 36 Months In Prison For $350 Million Fraud

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that PETER G. JOHNSON was sentenced to 36 months in prison for leading a scheme to defraud a group of lenders (the “Banks”) by submitting false “borrowing base” reports designed to secure and maintain a $400 million line of credit for his cocoa trading company, Transmar Commodity Group Ltd. (“Transmar” or the “Company”). JOHNSON pled guilty on March 9, 2018, to one count of conspiracy to commit bank fraud and wire fraud affecting a financial institution. The sentence was imposed by United States District Judge Jed S. Rakoff.
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Transmar was a closely-held, family-run cocoa commodity trading company. PETER G. JOHNSON was Transmar’s founder, President, and chief executive officer. From at least 2014 through at least December 2016, Transmar maintained a credit facility from the Banks that varied from approximately $250 million to approximately $400 million. To secure and maintain these hundreds of millions of dollars in credit, PETER G. JOHNSON, his son, Peter B. Johnson, Transmar’s Vice President of Finance, Thomas Reich, and others schemed to misrepresent material information about Transmar’s finances, making it appear that Transmar had far more credit-eligible collateral than it actually had.

The scheme centered on periodic “borrowing base” reports (“BB Reports”) that the Banks required Transmar to submit, sometimes as frequently as weekly, as a condition to continued credit extension. The BB Reports were supposed to accurately reflect and quantify those portions of Transmar’s collateral that qualified for financing under the terms of credit agreements between Transmar and the Banks.

Beginning no later than 2014, Transmar employees, acting with JOHNSON’s knowledge and at his direction, manipulated the BB Reports and related documents to give the false impression that Transmar had sufficient eligible collateral to support the amount of credit the Banks were extending. The manipulation involved, among other devices, counting inventory that Transmar had already sold or was otherwise ineligible for inclusion, counting accounts receivable for which Transmar had already received payment, recording fake accounts receivable, and arranging “circle” transactions through which amenable third-party intermediaries agreed to “buy” goods from Transmar with Transmar’s own money, funneled to the third parties through Euromar Commodities GMBH, Transmar’s affiliate.

Following the discovery of the fraud, Transmar filed for bankruptcy in December 2016. At that time, the Company owed the Banks approximately $360 million.
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