Farm Progress is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Satellite targets crop insurance abuse

An epiphany is often spurred by strange agents. The law of gravity, the story goes, was discovered when an apple plunked Newton. For Doug Chavis, with nary an apple in sight, an epiphany came while reading

Chavis, assistant U.S. attorney for the Eastern District of Arkansas, read an article about satellites circling Earth while continuously taking photos — images that are commercially available.

Figuring they might help him make a case, Chavis wanted some of those images. First, he checked with the National Security Agency and the CIA. Neither would help.

“They said their charters wouldn't allow such photos to be used for any domestic purposes,” says Chavis.

Undaunted, he searched on.

In 1993, Earle, Ark., farmer Larry Reed and his sons, Darrell and Joey, claimed excessive cold and rain ruined 998 acres of cotton they'd planted. An insurance adjuster says he drove out, had a look around and agreed with the Reed's assessment. Not long after, their insurance claim of $244,000 paid off.

In turn, the insurance company was then paid by U.S. taxpayers through the USDA. The transaction seemed finished, a sheaf of papers to be filed in some cavernous warehouse.

But, for various reasons, USDA's Risk Management Agency (RMA) does random audits of the crop insurance program. In this instance, an audit was ordered because one insurance company was selling out to another. Some of the files being transferred were pulled. It was the Reed's bad fortune that their file was pulled.

“They had some receipts for cotton seed. The auditor called the co-op to verify if they'd indeed bought the seed. They hadn't. The co-op said the Reeds had changed their order from cotton seed to soybean seed,” says Chavis.

That raised investigators' eyebrows and the Reeds were asked a few more questions. They still insisted they'd bought cotton seed. Later, four checks surfaced that the co-op said they'd taken in return for soybean seed. However, Chavis says the checks were marked for cotton seed.

That made Chavis and colleagues “even more curious. We found and interviewed some of the straw men that were involved in this. They were front men for the Reeds. One of them confirmed that Joey, ‘told me that he'd show how to make a living off the farm without even planting a crop,’” says Chavis.

The Reeds took the position from the beginning that their crop didn't come up because of weather, says their attorney Joe Rogers.

“I can't stress this enough: the insurance adjuster came out and looked it over and testified that they had planted the crop and were due the money,” says Rogers.

The credibility of the two alleged straw men the government contends the Reeds were using to commit fraud is extremely tenuous, says Rogers. One of the men was subleasing some of the Reed's land. Also accused of fraud, he struck a deal with government lawyers. Another witness against the Reeds is a former convict.

“For whatever reason, the government is putting out a lot of publicity about this case. I don't know what their motivation is,” says Rogers.

The motivation may be to warn those farmers inclined to see crop insurance less as a last resort than as an easy payday. Circling the heavens, the government now has a new anti-fraud device.

Finding the key

Chavis kept looking for the satellite images. Eventually, the U.S. Geological Survey gave him what he needed. But the infrared images needed deciphering. A friend said he'd used an expert — John Brown — on such images in a separate case.

“Brown does work with these images for a living. He's out of Columbia, Mo., where he used to teach at the state university. Now he runs a private consulting firm. He knows his stuff and agreed to locate the images we needed,” says Chavis.

Before he had the satellite snap-shots, Chavis took the accused parties' depositions.

“We had them on how they prepared their land. They claimed to have disked it twice and incorporated a herbicide — the whole bit. We wanted their stories locked in,” says Chavis.

Convening April 9 in U.S. District Judge Stephen Reasoner's Jonesboro, Ark., courtroom, a jury heard witnesses from both sides. Despite the insurance adjuster's claims that the Reeds were speaking truth, a farming neighbor “nailed them,” says Reed. The neighbor, who farms land on three sides of the Reed's disputed field, says he made a 500-pound-per-acre cotton crop the same year they claimed disaster.

Plus there were the satellite images. Rogers objected to the use of the images and still says the evidence is dubious. The judge, he insists, shouldn't have allowed Brown onto the stand.

“It was wrong for the court to allow a witness to testify on what so-called computer-enhanced satellite photos show. They came up with testimony about whether ground had been tilled or not. I thought that was pretty farfetched. There wasn't sufficient foundation laid to show that was reliable,” says Brown.

But Chavis says it wasn't hard to “see all this from the photos. You could see where land had and hadn't been plowed. You could see trees and where winter wheat was growing. It was obvious from the photos that the land the Reeds claimed to have planted hadn't even been plowed.

“The satellites have been up there taking pictures for over 30 years. Commodity brokers rely on them to check on crops. They're used for all kinds of things. This isn't some secret government weapon. Any one can get these things.”

The False Claim Act

The case took a while to move through the courts.

“I believe the complaint was first filed in December 1998. There is a six-year statute of limitations on the False Claim Act. We beat that,” says Chavis.

The False Claim Act was passed during the Civil War by President Lincoln. It was an attempt to stop people from ripping off the government when they furnished items to the army. The act allows that anyone committing fraud against the government is liable for three times the original damages plus a $5,000 to $10,000 penalty per claim. Most people settle False Act cases because the penalties are so severe.

About 10 years ago, Chavis says, his office was told to start pushing the False Claims Act. Nowadays, it's used mostly in Medicare and Medicaid fraud.

“As with the crop insurance, the health care system can be easy to defraud. You can just ask for the money and it's handed over for prescriptions, doctor visits, whatever. There's a bunch of small fraudulent claims,” he says.

Here's the thing to keep in mind: if someone has a bunch of small, seemingly innocuous $5 claims, they're still “liable for $5,000 on each one. The resulting penalty can be enormous,” says Chavis.

The verdict

The jury returned with a verdict on April 13. As allowed under law, the judge trebled the damages and ordered civil penalties (fines). The Reeds now face damages of $291,060 and fines of $15,000.

Chavis hasn't seen any cases similar to this despite trying to find one. “I sent out an e-mail to other U.S. attorney offices asking for jury instructions in a crop insurance case. No luck on that. So as far as I know, using satellite images in a case like this is a first.”

Chavis isn't surprised such a case ended up on his desk. Fraud, he says, is “easily” found.

“Most people, most farmers, are honest. But I think there's a significant minority out there that see how much money there is and how easy it is to get. It's definitely a problem,” he says.

Rogers says he's advised the Reeds of their appeal rights. His advice?

“Go ahead with an appeal. Whether they decide to go that route is strictly up to them. There are definitely several grounds to appeal on.”

e-mail: [email protected]

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.