President of Organic Fertilizer Company Indicted for Fraud in Connection with Selling Synthetic Fertilizer to Organic Farms

SAN FRANCISCO CA – A federal grand jury in San Francisco indicted Peter Townsley, 49, of British Columbia, Canada, with eight counts of mail fraud, two counts of making false statements, and one count of conspiring to commit mail fraud, United States Attorney Melinda Haag announced. The grand jury returned the Indictment on June 1, 2010. The Indictment was unsealed yesterday after Townsley was arrested over the weekend. The Indictment charges Townsley with engaging in a scheme to defraud purchasers of organic fertilizers, and the agency that approves fertilizers as organic, by falsely representing his company’s fertilizer to be an organic product when he knew that the product contained prohibited synthetic materials.

According to the indictment, Townsley was the president of California Liquid Fertilizer (CLF), a business formerly located in the Salinas Valley in Gonzales, Calif. CLF sold what it represented as organic fertilizers to organic farms in California. Beginning in approximately April 2000 and continuing until December 2006, Townsley allegedly engaged in a scheme to defraud that involved a CLF product called Biolizer XN.

The Indictment charges that in 1998, Townsley signed and submitted applications to the Organic Materials Review Institute (OMRI), an agency that approves fertilizers and other products as organic, to have OMRI certify the Biolizer XN product as organic. Townsley’s final application on behalf of CLF stated that Biolizer XN was a liquid organic fertilizer composed of ocean-going fish and fish byproducts, feathermeal, and water. In reliance on these representations, in February 1999, OMRI approved Biolizer XN to be listed as an organic fertilizer. CLF then began marketing Biolizer XN as an organic fertilizer that was OMRI listed.

The indictment alleges that in approximately May 2000, Townsley knowingly changed the chemical ingredients in Biolizer XN so that it no longer contained fish or feathermeal; instead, it allegedly contained synthetic ingredients, including ammonium chloride and subsequently ammonium sulfate. Despite knowing that the new formulations did not contain fish and feathermeal, had not been approved by OMRI, and contained synthetic ingredients, Townsley allegedly continued to sell Biolizer XN as an organic product until December 2006. CLF only stopped selling the Biolizer XN as an organic product when the California Department of Food & Agriculture launched an investigation of the product. The Indictment states that Townsley, via CLF, marketed and sold approximately $6 million worth of Biolizer XN between May 2000 and December 2006.

The Indictment explains that in 1990, Congress enacted the Organic Foods Production Act of 1990 to regulate the organic agriculture industry. The National Organic Program (NOP) was created to ensure that agricultural products being sold as organic were made from entirely organic inputs and ingredients. The NOP developed, implemented and administered national production, handling and labeling standards for organic agricultural products as well.

In order to be licensed as an organic fertilizer manufacturer in California, a company’s products must be approved by OMRI. OMRI is a non-profit organization located in Oregon that provides independent review of materials and processes to determine their suitability for producing, processing and handling organic food and fiber. Organic farmers also rely on OMRI certification, found on a product’s label, to ensure that the products they are using for organic production comply with NOP standards.

In addition to labeling Biolizer XN as organic and OMRI-approved, the indictment alleges that Townsley submitted annual renewal applications to OMRI stating that Biolizer XN continued to contain organic inputs when he knew that it did not. As a result, OMRI continued to list Biolizer XN as a certified organic fertilizer and Townsley continued to label and market Biolizer XN as an organic product.

Townsley was arrested on Oct. 9, 2010, at Los Angeles International Airport. He made an initial appearance on Oct. 12 in federal court in Los Angeles before U.S. Magistrate Judge Paul Abrams and was released on a $150,000 bond. The matter has been assigned to U.S. District Judge Charles Breyer in San Francisco. Townsley is scheduled to make an initial appearance before Magistrate Judge Joseph Spero in San Francisco on Oct. 15 at 9:30 a.m.

The maximum statutory penalty for each count of mail fraud, in violation of Title 18, United States Code, Section 1341, and for each count of conspiracy to commit mail fraud, in violation of Title 18, United States Code, Section 1349, is 20 years of imprisonment, a fine of $250,000, plus restitution. The maximum statutory penalty for each count of making false statements, in violation of Title 18, United States Code, Section 1001, is five years of imprisonment and a fine of $250,000. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.