(2/2/09) On August 19, 2007, the Mat-Su Valley Frontiersman, the hometown paper of Governor Sarah Palin blew the victory horn for the governor firing what was an independent oversight board and replacing them with a collection of her high school friends and Valley neighbors.

"Two months ago, the state-owned dairy was hemorrhaging money and on the verge of closure. Gov. Sarah Palin stepped in, dismissed the entire state Board of Agriculture and Conservation and charged its all-Mat-Su Valley replacement with finding a way to save the 71-year-old company," the editorial trumpeted.

Today, with Matanuska Maid out of business, its assets taken and put to work in the new private Valley Dairy, Palin's "all Mat-Su Valley replacements" have been busy keeping their Valley Dairy friends afloat and attempting to cover their tracks with fraudulently obtained taxpayer loans for what is one giant Ponzi scheme.

Welcome to the Bernie Madeoff's of the milk world.

After less than a year in business, the Valley Dairy has successfully produced 30,000 pounds of contaminated cheese, failed to pay lease and tax payments promptly, mishandled milk waste around the Wasilla Creek and obtained state loans through fraudulent information and insider dealings on behalf of the Director of Agriculture and the Chair of the Agriculture Board.

Unfortunately all of the state's watchdogs were either hired or appointed by Governor Sarah Palin, and are either high school friends or Valley neighbors of the governor. Quite the circling of Musk Ox if you will.

The Valley Dairy was made possible by a USDA grant of $650,000, in federal taxpayer money to help fund start up of the privately owned dairy. It was also aided by Palin's decision to allow Matanuska Maid to continue operating for six months too long while her Valley neighbors quickly ginned up a dairy plan and the state quietly fed money to farmers to pay them for milk they weren't producing for sale.

After the grant was awarded, a complaint was filed by a competing bidder who felt the process was flawed and involved favoritism on the part of the Alaska office of the USDA. Officials from the USDA responded by launching an investigation into the irregularities of the bid award, but dropped the investigation after the bidder that complained, withdrew their complaint.

The acting State Director of USDA in Alaska at the time was Chad Padgett. He played a role in awarding the Valley Dairy grant under questionable circumstances. Padgett, who recently went to work for Congressman Don Young, had been very vocal years earlier about the questionable lending practices after he was appointed state director in 2001.

After President Bush was elected in 2000, USDA regional investigators came to Alaska to review the Palmer office books, resulting in a transfer of all loan activity from Alaska to the regional office located in either Idaho or Utah.

In October of 2006 at a state agriculture meeting, Padgett told of the improper and illegal conduct the Palmer office had been conducting. "USDA in the past in my agency has gone around the rules. It's illegal. It's unauthorized. We're not going to do it," he said, according to meeting minutes. What he was referring to was the lending practices of the previous state director.

The state director before him was Karen Lee Olson. After losing her dairy farm in the 1990's and defaulting on a $2 million government loan, she was appointed as USDA's state director of agriculture.

During Olson's tenure, she issued questionable loans to farmer friends by declaring a "disaster" thereby getting them extra money. Many farmers could not afford the payments, so many of them defaulted.

The borrowers in question had various issues to address, but the primary problem was that a Olson had granted a number of USDA loans that had been illegally issued…by the lender…citing an “emergency situation” as the basis for qualification.

Today, Karen Lee Olson is one of the owners of the Valley Dairy and a recepient of a USDA grant.

Ironically, after acknowledging that bad loans were made by his predecessor Olson, and under his leadership his department wouldn't follow the same course, Padgett helped facilitate the $650,000 grant to people who had a proven track record of taking government for a ride.

To start the dairy, Olson teamed with Kyle Beus and Rob Wells, two names familiar with agriculture in the valley. Beus familiar in the sense that he, like Olson, had stiffed the government years ago on a $2 million dollar loan.

Wells was the President of the Alaska Farm Bureau MatSu Valley Chapter, Karen Olson was employed as executive director or secretary. Wells met and collaborated often with USDA’s Padgett while he was Director of the Division of Agriculture. Olson assisted Wells writing the USDA GRANT proposal.

Wells had originally partnered with Robert Gottstein in order to secure a financial “match” for funds requested in the GRANT, which carried a significant weight in the USDA grant award process.

Sometime late in 2007 (October-December) Gottstein announced that he was withdrawing from the agreement. This situation would have left Wells without his match as required by the USDA GRANT.

But then Wells/Olson partnered up to become Grantees of USDA Rural Development Award. They received approximately $475,000. They then teamed up with Beus who planned on operating and ice cream production business with the approximately $175,000 of the GRANT proceeds.

Industry watchers say that Padgett facilitated the $650,000 federal grant because several valley farmers were on the verge of defaulting on their loans to USDA if they didn't have a dairy to sell their milk. He didn't want his department to look bad, so by putting the grant into the hands of the dairy, it would eventually go to the farmers for producing and selling their milk.

The Start Up

In March of 2008, the Valley Dairy kicked off a plan to generate start up revenue by offering cheese futures to willing buyers. The 20 pound blocks of cheddar cheese were to be delivered in early June. The dairy sold $250,000 worth of cheese futures.

According to an April 9, Mat-Valley Frontiersman article, the cheese was the first product made at the dairy. By the end of the day, dairy founder Kyle Beus said he expected three tons of the stuff would be sitting in the creamery’s cooler.

In July, DEC issued an order prohibiting the sale of any of the cheese. According to the DEC, after testing the cheese three different times, including sending a sample to an FDA approved lab in Washington, the cheese was found to contain levels of e-coli, listeria and staph.

The reason for the bacteria; the initial production of cheese was done with raw milk

According to Amy Moore, a former Milk Room Supervisor, after DEC had tagged the cheese as contaminated, some valley farmers rushed to the dairy to take back the cheese to feed to their animals. According to Moore, local farmer Wayne Brost said, "It's my cheese, it came from my cows."

Stretched Thin

In September, word began circulating that the new dairy was deep in debt and would be applying for a state loan. On September 26, 2008 we posted a blog here at andrewhalcro.com that warned of the impending ask by the Valley Dairy.

"Is the State of Alaska on the verge of yet another dairy bailout?

After last years debacle with the Palin administration stepping in to save the state owned Matanuska Maid Dairy. When many had warned for months about the bleeding of cash and the need to shut the dairy down. It appears that the new dairy -the reason why Governor Palin said she kept Mat Maid open to help farmers transition - is now in serious financial trouble just months after opening." andrewhalcro.com 9/26/08

On September 27, Valley Dairy owner Karen Olson sent an email to her fellow owners: "It appears from reading the Halcro blog that everyone knows of our troubles." (to see email click attachment)

Olson went on to say that the publicity could cause an "ever widening investigation" and that she was thankful that "Valley Dairy has none of our assets may be the best thing for the dairy farmers in the coming maelstrom."

Again, a clear indication from Olson that this group has created nothing more than a shell company to shield dairy owners from any recourse.

It is apparent from this email and others (attached) that she learned well from her last government loan default and her time as USDA acting State Director on how to avoid being financially responsible.

She went on to say in her emails that Beus had run the dairy into the ground. "The revelations of the past week have crystallized for me that the agreement was simply a way to divert our grant money into a grandiose plan that has not worked."

What's telling is that she refers to the $650,000 in federal grant money as "our grant money." In addition she proposes to the other owners to allow Beus the opportunity to "run the milk operation and pay us to stay out of it and to forswear the possibility of profit."

Olson’s email comments about “booking” the balance of the Wells/Olson assets ($285,000) as a “long term liability behind the more pressing current liabilities” most likely speak to the unpaid moneys due under the lease/fee program that Wells/Olson negotiated with Valley Dairy.

Under the requirements of the GRANT, 100% of the assets purchased from those funds would need to be on Wells/Olson’s financial statement until USDA approved any transfer.

Asking for a handout from taxpayers

Faced with growing debt and angry creditors, the owners of the Valley Dairy realized they had to ask the Agriculture Board for a loan to help them survive.

How bad was the dairy hurting? In a September 24 email to the owners from their office administrator, she forwards an analysis from their bookkeeper detailing how much in back taxes for federal payroll taxes and federal unemployment taxes they owed.

"At the time there wasn't the $ available to pay them so he (Beus) put them on the back burner. As you can see it has grown to a significant amount," wrote Del at Carrier Bookkeeping.

Due to the urgency of needing cash but the lack of any assets or financial strength, Olson told her former Office Administrator Kay Schaugaard, the she would have to "manufacture" the necessary financial documentation.

The loan process

In order to get the urgently needed financial aide from the state, the Valley Dairy had to convince the Agriculture Board that they were a worthy credit risk to receive money from the Agriculture Revolving Loan Fund.

Under any other governor, this might have presented a reasonable safeguard, but not under Palin. Not only had she stacked the board with "all Mat-Su Valley replacements" but her Director of Agriculture, Franci Havemeister's father in law was a local Valley farmer who stood to suffer or gain greatly depending on the outcome of the loan application.

The board's Chair is Palin's close friend and stauch supporter Kristen Cole, who's own family ties include a mother who was recently charged with embezzlement of $700,000 from real estate companies. The rest of the board is also comprised of friends and neighbors of Palin.

On November 13, 2008, the Valley Dairy appeared before the Agriculture Board and sought two loans from the state -- a short-term, one- to three-year loan for $150,000 to help with cash flow, and a long-term, 20-year to 30-year loan for $430,000 to help with paying back debts incurred in getting the business up and running.

The Board voted to grant the dairy a $630,000 loan as long as the board of the Valley Dairy( DBA Matanuska Creamery) would provide signatures personally guaranteeing the loan.

During the hearing, the discussion centered around the personal guarantee. Assistant Attorney General Robert McFarlane said that the personal guarantee puts the individual shareholders on the hook if there is a default by the Valley Dairy.

The board's Vice-Chair Ben Vanderweele stated that he supported the guarantee because it was common practice. The board voted 3 to 2 against eliminating the personal guarantee provision.

After the vote, Wayne Brost from the Valley Dairy and a local farmer, said that if the dairy failed he'd have to kill his cows and he felt that asking him to put forth a personal guarantee was an "insult." (Again, I'd refer you to the attached email from Olson saying that it was a good thing for the owners and the farmers that the Valley Dairy had none of their assets.)

After Brost's comments, Chair Kristen Cole asked if any member wanted to reconsider their vote. None did, and the personal guarantee requirement stayed.

It is critical to mention that this loan never should have been approved, even with the personal guarantee clause.

According to a review, the Board approved the Valley Dairy loans requests with an incomplete loan application and no State Loan Officer analysis with recommendation.

After a senior ARLF loan officer informed both Chair Kristen Cole and the state's attorney in an e-mail that the application was incomplete and should be denied, the loan officer was immediately replaced and removed from any further reviews regarding the Valley Dairy.

Both the State AIDEA and Division of Investments refused to review the ARLF loan requests, but somehow this board approved the same application.

Insider dealings and conflicts of interest

Shortly after the November 13 board meeting, Amy Moore, the former Milk Room Supervisor said that the Director of Agriculture Franci Havemeister (whose father in law is a dairy farmer and sells milk to Valley Dairy) strolled into the dairy and told Beus that if the Valley Dairy wanted to get the personal guarantee requirement lifted, "We have to pull our last two strings; Kristen Cole and Sarah Palin."

The Franci Havemeister story is in a nut shell the story of this administration. Her resume which is limited to a stint as a Valley real estate agent (working for Kristen Cole) and a homemaker, was selected over a Professor at UAF with a degree in Agricultural Economics and an Agriculture Industry Consultant who had lengthy experience as a legislative aide working exclusively on agricultural legislation.

In a radio interview shortly after Havemeister was hired in 2007, DNR Commissioner Tom Irwin stated that Havemeister "had recused herself from all issues relating to dealing with her relatives."

Not true.

Havemeister has been intimately involved in the Valley Dairy, including paving the way for the dairy's state bailout.

Havemeister reportedly met with the USDA's Chad Padgett regarding the ARLF loan & USDA guarantee for the Valley Dairy. Her conflicts are many including that she lives on the Havemeister dairy farm and if the creamery fails, it impacts her dairy producing and Valley Dairy Inc. shareholder in-laws. In fact, the Havemeister Dairy stood to receive $50,000 if the dairy was bailed out by state taxpayers.

A Change: Getting rid of the personal guarantee clause

Within days, an announcement was issued for another Agriculture Board meeting called for on November 21, 2008 to revisit the issue of the personal guarantee clause.

According to the November 21 meeting minutes, Wayne Brost, milk farmer and investor in Valley Dairy stated he'd never seen where a personal guarantee has ever been asked for on a loan.

Dairy owner Karen Olson stated the personal guarantee was "a killer for them and they believe the dairy has come a long way without help from the state." This comment shows how Olson is either delusional or just plain ignorant.

The dairy was aided by state help from the equipment taken from the Matanuska Maid Dairy, which Olson didn't bother to make lease payments on until the media started asking questions. The governor kept Mat Maid open for months, while allowing Olson and her gang to get their act together. And valley farmers were paid with state funds, inappropriately, according to a recent state audit, for dumping their milk while waiting for the start up of the new dairy.

During the meeting, Chair Kristen Cole gave the most asinine reason for doing away with the personal guarantee:

"If there was a default and if the loan was not satisfied and additional funds were needed to satisfy the loan, the Attorney General's Office would have the opportunity to go after one or all of the folks who signed the personal guarantees. In her personal view after everything has been sold and there is a default, only the people with money would be responsible for repaying the loan."

For God's sake...isn't that the reason for a personal guarantee; so the state has recourse to get repaid the money it lent?

Cole went on to argue that having a security in the fixtures and equipment and a security in the receivables was enough.

Security in the fixtures and equipment? It's clear that Olson didn't put in the Vally Dairy's loan application what she put in her 9/27 email to her fellow owners: "Valley Dairy has none of our assets."

The board ended up voting unanimously to remove the personal guarantee requirement, with even Vice Chair Ben Vanderweele, who had argued earlier that a personal guarantee was part of his every day business life in borrowing money.

A few weeks after their loan was approved in November without any form of personal guarantee, the Valley Dairy owners were back in front of the Agriculture Board asking for a modification to their loan terms. They asked, and recived a modification that extended their lease payments from a one year note to a 3 year note to make the payments more comfortable.

At the January 22, 2009 meeting, the Valley Dairy owners were back for the third time in as many months, this time asking for a delay in making any lease payments for one year.

Owner Kyle Beus gave a somber speech saying that although sales are great...he now has built his business so large that he does not have enough milk available to fill all his orders.

The last time Beus was falling behind on his government loan, he asked for a grace period on making his loan payments. After the eight month grace period expired, Beus defaulted.

The Valley Dairy operations

There is no question that the Valley Dairy is being run by people with a track record of defaulting on government loans. Between Kyle Beus and Karen Olson, they've defaulted on $4 million in loans.

This past fall, after discovering that Beus had made a draw of $15,000 from the dairy's account, Olson was heard by her former office administrator saying, "we're all F--ked...probably doing some jail time," as she paced the floor.

According to the former Milk Room Supervisor, the dairy has continued to dump milk in their septic system as well as spilling milk behind the dairy, after promising DEC that it would be cleaned up before it drains into the Wasilla Creek.

Beus has been seen by employees making cash sales to customers in the ice cream room and pocketing the money, as well as paying employees in cash.

In December, Office Administrator Kay Schaugaard was let go after voicing concerns about Olson's derogatory language concerning her religion. "We're not hiring any more f---ing Mormons," Olson said a number of times. After Schaugaard was let go she filed a complaint with the Human Rights Commission for wrongful termination.

On January 3, 2009 at 1:30, Amy Moore, the Valley Dairy's Milk Room Supervisor, told Beus that she had been contacted by the Human Rights Commission to testify in the case of Schaugaard. She told Beus that she was going to have to talk about the things that have been going on in the creamery, including the repeated derogatory comments by Karen Olson.

One hour later, Moore was handed a letter of termination by Olson.

"We regret to inform you that you position, Milk Room Supervisor, has been eliminated in our new continuing efforts to build a sustainable company. Today is your final day of work."

So after inflating her middle managers resumes to boost their application for their state loan, one by one, Karen Olson let them go without reason and reportedly forged Beus's name on their dismissal forms.

From what both Moore and Schaugaard have stated in separate interviews, they have provided proof to the Human Rights Commission that Beus signature was forged on their dismissal forms. The reason the signature was forged they believe; Beus is Mormon so it looked like he fired them, any claim of discrimination couldn't possibly hold up.

When Moore asked Beus at church about why she was let go, Beus told Moore, "they have a gun to my head."

You can see evidence of the friction between Olson and Beus in the emails attached. Notice, Beus is not copied on either communique.

Tying up the loose ends

Since Governor Palin and DNR Commissioner Tom Irwin appear content to look the other way while the Agriculture Board uses taxpayer money like it's their own, the state legislature needs to ask for an audit of the loan process undertaken by the Ag Board.

There are internal emails that will clearly show that this loan should have been denied given state statutes and prudent lending practices. Reviewing the attached emails from Karen Olson, shows a group of people who have a proven track record of defaulting on government loans and are doing all they can to protect themselves at taxpayer expense.

This time around, they have a helping hand with friends and neighbors in high places and on the Agriculture Board who are only concerned about keeping a money losing dairy afloat at taxpayer expense.

Ironically, the Valley Dairy, which is a private dairy, has asked for more help from the state in three months than the state owned Matanuska Maid did in twenty three years.

The USDA needs to investigate the grant and subsequent support of the Valley Dairy, including the actions of Chad Padgett and Dean Stewart who facilitated this loan. The original loan $650,000 loan called for a match, which was Robert Gottsteins Palmer water bottling plant. Gottstein pulled out, but yet the loan was still awarded.

DEC needs to investigate the milk spillage behind the dairy, the dairy's practice of dumping milk into their septic system and the removal of tainted cheese after it was tagged as contaminated.

The Human Rights Commission is already investigating the dismissal of Amy Moore and Kay Schaugaard.

If Governor Palin was at all honest about open and transparent government, she would have never appointed such an incestuous group of people to manage the purse strings of Alaska's agricultural community.

But then again what did we expect?

After falsely accusing the prior Matanuska Maid management of corruption and mismanagement in order to justify getting rid of them, is it a surprise that she has allowed her friends and neighbors to get fat off the government trough?

If this wasn't enough on its own; according to the State of Alaska data base; as of January 1, 2009, the Valley Dairy is operating without a valid Alaska business license.

TO READ KAREN OLSON'S EMAILS TO OTHER VALLEY DAIRY OWNERS CLICK LINK BELOW:

http://www.andrewhalcro.com/files/valleycreamery.pdf

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