Ex-CEO Who Bankrupted Dairy Co-op Pleads Guilty

SAN FRANCISCO (May 6) -- The former head of a northern California dairy cooperative who was blamed for the company's bankruptcy has pleaded guilty in federal court to one count of loan fraud.

Rich Ghilarducci, the ex-chief executive officer of the Humboldt Creamery, also admitted in a plea agreement that he entered fake numbers in the company's books between 2005 and 2008 to prevent lenders from knowing the creamery's true financial condition.

The 80-year-old cooperative, which was a mainstay of the Humboldt County economy, went bankrupt last year, wiping out millions of dollars invested in the company by the region's dairy farmers, who also sold their milk to the co-op. The creamery, once thought by the farmers to be worth as much as $100 million, was purchased in August by Foster Farms for less than $20 million.

Several of Ghilarducci's victims were in court Wednesday to watch the former CEO enter his plea before U.S. District Judge Charles R. Breyer, the younger brother of U.S. Supreme Court Justice Stephen Breyer.

Dennis Leonardi, a dairy farmer who served on the creamery board, said the farmers feel betrayed by a man they regarded as a friend and a leader of the community. If Ghilarducci had been honest with the farmers back in 2005, Leonardi said, they might have saved the co-op. At the very least, he said, they would not have continued investing their money in the creamery.

"There was no reason for us to have lost this company if we had been told in a timely fashion what was going on," Leonardi said after the hearing. "We counted on the retained earnings and investments we had in there for retirement. Now I have seven years of loans to pay off to dig myself out of this."

The Eel River Valley community lost a cooperative that had served three generations of farming families and had been a major contributor to charities such as the Easter Seals, which has struggled since the creamery's bankruptcy to maintain its services.

"I am not sure which is worse right now," Leonardi said, "all the emotional trauma or the money."

Leonardi said his former friend never looked him in the eye during his court appearance. Ghilarducci, he said, seemed "somber, downcast and humbled."

Ghilarducci, 50, a former mayor of the town of Rio Dell, faces a maximum sentence of 30 years in prison and a $1 million fine. Under the plea agreement he is likely to get between 51 and 63 months.

The creamery sits on the outskirts of Ferndale, population 1,400. The town is known for its Victorian buildings and has served as a backdrop for several movies, including "The Majestic" and "Outbreak."

Ghilarducci, who grew up in the area, began working for the creamery as chief financial officer at the age of 25. He became CEO in 1997.

He resigned abruptly last year through his attorney and has been living in a house he bought in Arizona. Although many millions of dollars in the company's reported value evaporated, no evidence has surfaced that Ghilarducci profited from his manipulation of the company's books.

"This plea agreement holds the longtime CEO of Humboldt Creamery accountable for his role in the Creamery's demise," said U.S. Attorney Russoniello, whose office handled the case. "Hopefully it sends a message to those who are considering committing the same fraudulent scheme -- you will be caught and punished to the fullest extent of the law."