Quiet shakeup begins at CHS after fraud and overstated profits

A quiet shake-up is happening at CHS Inc. after the firm uncovered an employee's financial misstatements had led CHS to massively overstate its profits in recent years.

A trader at the Inver Grove Heights-based agricultural cooperative inflated the value of rail-freight contracts, lied to an auditor about it and was fired, the firm announced last month.

Because of the misvalued rail contracts, CHS overstated its pretax profit by as much as $190 million over the past four fiscal years, or 12 percent of its $1.6 billion pretax profit in that time. The company said in a filing with the Securities and Exchange Commission that the company's reports about its financial performance in those years "should no longer be relied upon."

Since that announcement, Dan Mack, the vice president of rail transportation and terminal operations, has resigned, he confirmed to the Star Tribune. Mack was not directly responsible for overstating the rail contracts, he said. He added he "strongly supports CHS' decision to terminate that employee."

Mack arrived at CHS from Canadian Pacific in 1998, rose to vice president of transportation and was promoted to his most recent role in 2011.

The problems with misvalued rail contracts started about five years ago. CHS makes long-term contracts with rail lines for rail capacity and then sells some of that capacity to other grain companies and elevators in a secondary market as prices fluctuate based on demand and other factors.

The rail-contract values contributed to the company's reported profitability. It's unclear whether or how other executives will be held accountable for the fraud that led to the inflated results.

Over the past three years, CHS has awarded $20.6 million in incentive pay and $1.2 million in bonuses to six top executives including CEO Jay Debertin, CFO Timothy Skidmore and former CEO Carl Casale. Asked whether the company planned to take back any of the performance pay, since the company's performance was not as good as had been reported, a CHS spokeswoman declined to comment, saying executive pay is a personnel matter.

"We take this seriously and have dedicated resources and time at the highest levels of our organization to this situation. We are taking immediate action to assess and strengthen the company's system of internal financial reporting controls," the spokeswoman said in a statement.

"While we cannot comment beyond the current public filings, we are deeply committed to integrity and transparency at all levels of our farmer-owned cooperative."

CHS hopes to file corrected financial statements with the SEC by Nov. 29, but does not guarantee it will be able to by then.

Adam Belz • 612-673-4405

Twitter: @adambelz