Shockwaves ripple through valley as all wait to hear status of Humboldt Creamery

CEO Rich Ghilarducci abruptly resigns, warning of “financial irregularities;” interim CEO says producers’ monthly milk checks in the mail Friday — answers “to the puzzle” possible Sunday

Originally published in the "2-26-09" issue.

The entire Eel River Valley is reeling this week after news broke abruptly Monday morning that Humboldt Creamery—the life blood of not only the valley’s economy but a huge factor in the well being of the entire county— may be on shaky financial ground. However, late Tuesday afternoon as panic clearly had a strong hold on Ferndale, Interim CEO Len Mayer told The Enterprise producers’ monthly milk checks will be mailed on Friday and that cash flow “is normal." “Our financial performance today as far as cash is the same as it has always been for many, many years,” said Mayer, attempting to reassure not only the 50 dairy families that belong to the cooperative, but employees, vendors, banks, a multitude of customers and dairy dependent businesses—just about every commercial venture in the valley. Mayer said rumors that creamery checks had bounced, were unfounded “as far as I know.”

Former Chief Executive Officer of the Humboldt Creamery Rich Ghilarducci at the cooperative’s 75th anniversary in 2004.

Creamery officials announced shortly after 9 am Monday that its 24-year employee Chief Executive Officer Rich Ghilarducci resigned suddenly on Friday evening but not before alerting the 80-year-old cooperative of “inaccuracies in financial statements” and that the company “should suspend its offering of its Series B Preferred Securities,” according to a news release.

“We don’t know what it is,” said Mayer when asked what the “inaccuracies” involve. “We do know it’s serious enough for Rich Ghilarducci to resign immediately.”

Late Wednesday afternoon, Mayer told The Enterprise that by Sunday “we could have some pretty good information” on exactly what those “financial irregularities” may be. Mayer said “as soon as the board has the information,” plans call for sharing it with producers and the community.

Mayer sat down with The Enterprise at 11:30 Monday morning, as visibly rattled creamery board members came and went from the milk plant’s Fernbridge office building.

“It’s shocking,” he said. “I haven’t met a single person who hasn’t used that word when they hear about this. I know the board of directors was shocked last night when we met.”

With an intense effort underway to find out what the “irregularities” are, Mayer said “the appropriate authorities” will be notified “based on what we find.

“We plan to tear everything apart,” said Mayer, who has been the chief operating officer at the creamery since 2007. Before joining the creamery he was the CEO of the North Coast Cooperative for four years. “We have independent and outside attorneys and accountants coming in.”

Tuesday, a FBI spokeswoman from the agency’s San Francisco office said the federal agency “was not involved, as of yet.”

According to the creamery’s news release, an independent inquiry was triggered when late on Friday the creamery’s outside counsel received a call from the Ghilarducci’s personal lawyer.

Elliot Peters of the San Francisco-based law firm Keker & Van Nest, stated that Ghilarducci had resigned, effective immediately, and a four line letter warned them of possible inaccuracies in the company’s financial statements and that they should stop offering the second round of preferred securities — an effort begun about a month ago. Mayer said Ghilarducci had left behind his company vehicle and that his office appeared to be intact.

Attempts to reach Peters, who specializes in white collar criminal and civil cases and whose firm represented former Enron Chief Financial Officer Andrew Fastow, by The Enterprise were not successful. Attempts to reach Ghilarducci or his attorney by the creamery appeared Monday morning also to not be successful.

“He’s not returning my calls or anyone’s calls,” said Mayer.

Calls to Ghilarducci’s Rio Dell home by The Enterprise were unanswered. Attempts to reach the former CEO at his Scottsdale, Arizona home, which he purchased a year ago in the Troon Village gated golf course community for $384,000, according to assessor records, were also unsuccessful “The board of directors was shocked at the news contained in the telephone call from our former CEO’s personal lawyer,” stated Jim Renner, chair of the creamery’s board in the news release. “We are determined to get to the bottom of this matter as quickly as possible and to act in the best interests of our cooperative members, employees and business partners.”

Humboldt Creamery Interim CEO Len Mayer on Monday at the creamery’s Fernbridge office.

“He was going along normally,” said Mayer, referring to the well respected Ghilarducci, a former mayor and city councilman in Rio Dell, who, in the last five years, guided the creamery through major expansion with the purchase of two plants — one in Stockton and the other in Los Angeles. He has been president and CEO of the company since 1997. From 1985 to 1997 he served as chief financial officer. He is a past president of the California Creamery Operators Association and has served on the boards of the U.S. Dairy Export Council, the National Milk Producers Federation, the California Dairy Research Program at the University of California, Davis and the Alliance of Western Milk Producers. “He was preparing for our upcoming board meeting and then left town on business. The next thing we heard was the phone call to our lawyer.”

Ghilarducci announced on January 13 that 2008 sales would “exceed $130 million, which represents an increase of 18 percent from 2007 and a record sales year.

Meanwhile, on Monday morning employees were told of the news as they reported for their shifts. By 9 am Monday morning, creamery board members had met with or called all 50 co-op members, informing them of the situation and leaving them with many questions and few answers.

An outside “forensic” accounting firm was on site this week attempting to pinpoint those “financial irregularities.” Dan Ray of San Francisco’s Hemming Morse, Inc., is a certified fraud examiner and worked for the FBI for more than eight years as a special agent.

Also hired by the creamery is Walter F. Brown Jr., a partner at Orrick Herrington & Sutcliffe in San Francisco. He is an attorney who, according to his company’s website, “is routinely engaged by public and private companies to conduct internal investigations.”

Late Tuesday, when contacted again by The Enterprise, Mayer said “Rich’s departure and the mystery of his departure are a challenge, but we are determined to come through on the other side as healthy as possible.

“People want absolute positive reassurance that everything is going to be the way it was,” he said. “I don’t want to mislead anyone and say, it’s going to be exactly the way it was. We don’t know what it’s going to be. We’re going to go through this thing in a measured way and come out with the best possible results we can.”

With word spreading in the community that there may be problems with reported inventory on the company’s balance sheet, Mayer said he had no knowledge of any misrepresentation of inventory but did say that company officials had been talking this week with Dairy Farmers of America. The creamery processes milk from the large nationwide cooperative and turns it into powdered milk.

“Since the departure of Rich, DFA — a partner of ours — has been very supportive,” said Mayer. “We’ve talked on the phone many times and they went through significant turmoil not too long ago. We have invited them to participate in checking inventories — anything they want to do, we are supportive of that. They are going to send inventory folks to our location in the not too distant future and we welcome them to do that.”

As to the scope of any “financial irregularities” or timeframe, Mayer reiterated on Tuesday “it’s too early to tell.

“At this point we are certainly not planning to declare bankruptcy,” he said. “Whatever form the creamery exists in the next month or year . . . the board will consider what is the best possible way.”

Mayer said he feels “everyone is pulling for us,” noting that the company has been in communication with its two lenders — CoBank and American AgCredit.

The cooperative’s annual meeting remains on the calendar for March 31 and Mayer and the board of directors hope to have answers before then.

“We’ll get some answers, I’m confident, in the not too distant future,” he said.

And while the private cooperative under its past leadership held its cards close to its chest, Mayer said transparency is the name of the game now.

“Our commitment, the board’s commitment, is to be open as legally and ethically as we can be,” he said. “The board has made it clear that a big part of this whole thing is to make sure we are as transparent with the community as we can possible be.”

As for the “scrip” or equity investment many current and retired dairy farmers have in the cooperative and are now wondering what it is worth, Mayer said everything depends on “how the business moves forward.

“We do plan on having this thing come out on the other side,” he said.

Meanwhile, a local Ferndale attorney, who wished to remain unnamed to protect the confidentiality of his clients, said he had received numerous calls from those equity stakeholders asking about legal remedies.

“I’m advising them that at this point it’s too soon to consider any legal type of action,” he said. “Sit back, don’t panic and wait for more information, but be concerned and proactive in obtaining that information.”



Attempts to reach Rich Ghilarducci at his homes in Scottsdale, Arizona, and Rio Dell were not successful. Ghilarducci's Rio Dell home, shown above, in the city's upscale Grayland Heights Road neighborhood, appeared to be unoccupied late Tuesday afternoon. The number for his out-of-state home had been disconnected or changed, according to a message from the phone company.