A ruling has come down on the owners of a local dairy that closed abruptly in October and is accused of milking investors to the tune of nearly $60 million.
The Banking and Securities Commission has rendered Trickling Springs Creamery, LLC — Philip Elvin Riehl, Gerald A. Byers, Elvin M. Martin and Dale L. Martin — permanently barred from the securities business and ordered to pay a total administrative assessment in the amount of $4,375,000. The fine represents $25,000 for each of the 175 violations of the Pennsylvania Securities Act of 1972 and associated department regulations — believed to be the largest civil penalty in state history.
The owners of TSC are accused of violating the Pennsylvania Securities Act of 1972 by misleading investors and misappropriating millions from the creamery's coffers.
The Chambersburg-based dairy opened in 2001 and produced milk, cream, butter, ice cream, yogurt and cheese. The dairy had 100-plus employees spread throughout the Chambersburg plant and retail store, as well as at two retail locations in the Washington, D.C., area.
According to documents filed with the department of Banking and Securities, TSC owners Riehl of Myerstown, Byers of Chambersburg, Elvin M. Martin of Soudertown and Dale L. Martin of Hagerstown, are accused of selling promissory notes to investors throughout the country, with the proceeds of such sales trickling through TSC accounts and into their personal bank accounts.
A complaint filed by the state Bureau of Securities Compliance and Examinations in November 2018 states that beginning around February 2015 through October 2017, TSC offered the sale of $7.8 million in promissory notes to at least 110 investors with the proceeds to be used to fund the operations of the creamery.
From November 2015 through October 2017, TSC sold at least 20 notes totaling $963,104 to at least 15 Pennsylvania residents.
Investors could purchase a simple demand note offering a 4.5 percent interest rate or a one-year note with a 5 percent interest rate.
However, TSC is accused of failing to provide some or all of the investors with financial statements regarding TSC which would have allowed the investor to make an informed investment decision.
Further, Riehl is accused of receiving a total of at least $954,250 in checks from TSC's bank account between December 2015 and February 2018; Byers is accused of taking at least $31,688 in checks; in August 2016, Elvin Martin allegedly took at least $40,000 from TSC coffers; and Dale Martin received a total of at least $379,930 between December 2015 and January 2018.
Between July 2015 and March 2018, at least $1.1 million was withdrawn in cash from TSC accounts, meanwhile, TSC was insolvent and unable to fulfill its financial obligations to investors.
The dairy filed for bankruptcy in December.
“Trickling Springs Creamery was a house of cards ready to collapse," U.S. Attorney William McSwain said at a news conference on Friday.
The men behind the scheme
Riehl, who became an owner of TSC in 2007 and has been in control of the company's financial records since then, owns a 58 percent interest in TSC and is the majority owner. He ran a long-running fraud scheme that preyed on hundreds of Amish and Mennonite investors, according to federal prosecutors.
Court documents stated Riehl lured investors to a fund that made most of its loans to Trickling Springs and paid off older investors with money from new investors. As of December, investors had lost $59.7 million through the Riehl Investment Program and Trickling Springs.
Riehl was charged last week with securities and wire fraud.
The criminal charges against Riehl were filed in the form of an information — which is often a prelude to a guilty plea — and the U.S. Securities and Exchange Commission says that he has apologized in a letter to investors, some of whom lost millions of dollars.
Elvin Martin became an owner in 2008 and owns a 20 percent interest in the company; Dale Martin came on board in 2012 and owns a 2.5 percent interest in TSC and was chief operating officer; Byers was an original owner and holds an 18 percent interest. All are members of the Mennonite community and have been excommunicated by the Mennonite church.
According to court documents, TSC is to make payment of the assessment in accordance with Chapter 7 bankruptcy proceedings, with full payment made at the conclusion of those proceedings or within 30 days after or as set forth by the Department of Banking.
However court documents acknowledge "In light of TSC's insolvency, there is little chance that TSC actually possesses the ability to repay those investments."
The Associated Press contributed to this report.