As Trickling Springs grew from a small local company to one that sold to chefs, coffee shops and markets all along the East Coast, from Connecticut to Florida, the creamery became something rare: a multimillion-dollar enterprise in a Mennonite community where people usually work with their hands on farms, in cabinet shops and at other modest, family-run businesses. Proud of Trickling Springs’ success, Mennonites supported the company, trusting that its owners operated with the same principles that define their denomination: honesty, integrity, accountability and transparency.
But even before the creamery closed, state and federal officials were looking into its business affairs, including the unorthodox ways the company raised capital to keep competitive in a dairy industry that’s already suffering from oversupply and changing American tastes. Their investigations coincided with a rising fear in the Mennonite community that Trickling Springs was not as stable as it appeared. That the creamery was, in fact, a house of cards ready to collapse.
Last November, the Pennsylvania Department of Banking and Securities accused the four most recent owners — Philip Riehl, Gerald Byers, Elvin Martin and Dale Martin — of selling at least 175 promissory notes in violation of the commonwealth’s Securities Act of 1972. The commonwealth followed up with two days of hearings in July to lay out its case: In his opening statement, Seamus Dubbs, assistant counsel for the department, accused the owners of not registering the notes in Pennsylvania, as well as not providing the financial information investors needed to assess the risks.
“These notes were sold and issued while Trickling Springs was insolvent,” Dubbs said, according to a hearing transcript. “While these notes were being issued, the business of Trickling Springs was acting as a fraud or operating as a fraud on these investors.”
The exact amount invested is not clear. The commonwealth noted in its show-cause order that the notes raised slightly more than $7.8 million from February 2015 to October 2017. But in his testimony, Riehl, the majority owner of Trickling Springs and its de facto financial officer, said investors had sunk closer to $18 million into the company.
The former owners declined to talk to The Washington Post for this article, as did anyone with the Pennsylvania Department of Banking and Securities. But during the hearings, the owners’ attorney, Norman Greenspan, said his clients “simply did not know that the notes could not be sold without first registering with the Commonwealth of Pennsylvania. There was no intent on their part to mislead or to cheat anyone.”
The investment cash funneled into Trickling Springs, Greenspan added, “is but an extension of what they do almost on a day-to-day basis within the Mennonite community, and that is they loan money to each other. They look out for each other. They help each other.”
The problem for Trickling Springs' owners is that their faith-based method of financing ran headlong into the legal demands of the Pennsylvania banking and securities system. The owners' ignorance of the law may be part of their defense, but it's also, in a sense, built into their belief system, which often places Christian law above civil law.
During the July hearings, the company’s financial officer said he was oblivious to the mandates of the Securities Act. At the same time, during the hearings, the commonwealth’s attorneys expressed skepticism over the fact that the four executives had not taken advantage of certain legal protections, whether filing for bankruptcy or claiming the shelter of a limited liability company, which does not hold owners personally responsible for business debts.
In terms of potential penalties, the Pennsylvania case may be the least of the owners’ worries. While they wait for hearing examiner Ruth Dunnewold to issue her final order, they’re dealing with the fallout of their decision to abruptly shutter plant operations on Sept. 27, which left countless investors holding the bag. Many, if not most, of those investors were Mennonites, and the religious community’s judgment has been swift: Three of the owners have been excommunicated. A fourth, Byers, apparently asked to be excommunicated to share in the suffering of his former partners.
What did Riehl, Byers, Elvin Martin and Dale Martin do to merit excommunication? According to interviews with half a dozen members of the Mennonite church, many of whom spoke on the condition of anonymity to protect their relationships in the community, in broad terms, the owners turned away from God. But in practical terms, they betrayed the trust of the community by selling promissory notes without fully revealing — or perhaps without fully realizing — the company’s financial struggles.
“Everybody knows there were lies involved. That’s what hurts everybody,” said Myron Martin, a Mennonite dairy farmer and owner of Peace Hollow Farm in Knoxville, Md., who used to sell milk to Trickling Springs but is not an investor. (He has no relation to the two owners of the same last name.)
“As Mennonites, we’re ashamed of what happened, on one side,” Martin added. “On the other side, we’re not exempt from bad things happening. . . . And every now and then, it happens. And this is a bad one.”
To understand the depth of betrayal, you have to understand the dynamics of the community. The members take care of their own, and this often includes financial matters. Formal organizations, such as Anabaptist Financial, offer loans or investments in Mennonite, Amish and other conservative businesses, which sometimes don’t have the necessary credit history or insurance to work with regular banks.
Then there are independent financiers who operate outside the conventional banking and securities systems, borrowing and lending money within the Mennonite community for projects large and small. Riehl, a longtime tax accountant in Pennsylvania, was apparently one of them. According to his testimony, Riehl launched a loan program within the Mennonite community in 1995, long before he became an owner in Trickling Springs in 2007. Before he started shutting down the program in 2018, he testified that he had borrowed around $79 million, which he would then lend to Mennonite businesses. Those who lent Riehl money were promised rates of return of 4.5 or 5 percent, depending on the loan.
Several years ago, the Securities and Exchange Commission launched an investigation into Riehl’s loans, according to his testimony at the hearing. (The SEC declined to comment on the case.) As a result, Riehl started to wind down his program and transfer the loans under his name directly to Trickling Springs. He said Trickling Springs owed him about $21 million, some of which he had personally put into the business.
“How much of that $21 million is your own funds and how much of it is from the loan program?” a commonwealth attorney asked Riehl.
“I don’t know exactly,” Riehl responded.
“You don’t know how much of it is your money and how much of it is investor money?”
“So when you get money from Trickling Springs on that debt . . .”
“It will all go to investors.”
Those in the Mennonite and organic dairy communities have many opinions about why Trickling Springs failed despite a beloved product line. They say the company expanded too fast, including leasing a Missouri farm to spread products into the Midwest and Southeast. They say it was the victim of a volatile milk market, which has also affected organic producers who must compete with large-scale farms in Texas and Colorado. They say that the owners, none of whom have more than a high school education, were not qualified to run such a large company.
But the questions that eat at many community members can be answered by no one but the owners themselves: Did the proprietors take advantage of the trust placed in them by the Mennonites? Did those selling investment opportunities realize the company’s poor financial health?
At the July hearing, the owners said they believed Trickling Springs was in a good financial position in 2015, just before it started issuing the promissory notes. “Sales were very strong and growing,” testified Dale Martin, former chief executive. “And we had a lot of potential customers coming in.”
But as a Department of Banking and Securities attorney pointed out, Trickling Springs had to borrow more than $2 million to cover payroll and payroll taxes from 2008 to 2014, much of it from Riehl’s loan program, while paying back just $400,000 on $13 million in existing loans.
And a year later, finances were apparently in such poor shape that the company couldn’t pay dairy farmers, according to Myron Martin and two other farmers who had supplied raw milk to the creamery. (The latter two spoke on the condition of anonymity to protect their relationships.) For at least two months in the spring or summer of 2016, the farmers stopped receiving checks. Soon after, said Martin and the other dairymen, the 20-plus farmers who had been selling directly to Trickling Springs moved their supply to the competition, Organic Valley, which in turn sold raw milk to Trickling Springs until the business closed.
“Creameries are difficult,” said Tim Thomas, financial officer at Anabaptist Financial. “They take large amounts of capital. It takes a lot of money for infrastructure, and in the best of times, it’s not a lucrative business. . . . We’re not selling computer chips. Then on top of it, the last 10 years in the dairy industry have been very, very rough.”
A business without the ability to cover payroll or supplies would soon find itself without operating capital — and without banks willing to lend it more money, said a member of the Mennonite financial community who spoke on the condition of anonymity so that he could speak freely. But Trickling Springs had access to a ready pool of cash within the Mennonite community.
“Problems would have been more evident much quicker” without the constant influx of money, the Mennonite financial expert said. “But because they had access to funds, it keeps them afloat longer than they should have been, which makes the pain larger down the road.”
Of the 170-plus people who were sold promissory notes, Riehl testified, “probably” fewer than 20 received any kind of information to help them understand the risks involved. Riehl also said he had not asked investors about their risk tolerance.
Did he ask about their investment goals, a commonwealth attorney asked? If they were saving for retirement or for a college fund?
“Some would have said something about it,” Riehl responded.
“But the majority, you didn’t know?”
“That’s right,” Riehl said.
The extent of the financial damage among Mennonites is not known. But between the hearing testimony and anecdotes from members of the religious community, the amount of money lost in Trickling Springs' closure appears to be in the tens of millions of dollars.
Mennonite churches, said Myron Martin and others, are working to collect funds to pay back those who have lost the most, or could least afford the loss. Some investors, the Mennonite financial expert said, lost hundreds of thousands of dollars or all of their life savings. Widows and the elderly were among the investors, said Martin, the dairy farmer.
“That is the tragedy of this case,” the Mennonite financial expert said. “It’s of a size and nature that makes it really tough to try to make everybody whole.” Those who can afford to take a loss, he added, will probably do so to try to make others whole.
Mennonite churches are also working with the former Trickling Springs owners, who have been stripped of their leadership roles and are barred from taking Communion. At least four committees have been established to assist the owners with their problems: spiritual, financial and otherwise.
“Excommunication is a good thing,” Martin said. “It’s basically to help the person realize who they are. When you excommunicate somebody, it’s for their own soul’s good. It’s not to judge them. It’s not to be nasty. It’s just to say: ‘You’re not following Jesus. You’re following the devil in your flesh.’ ”
Among other things, the committees have been assisting the owners with ways to repay investors, according to the hearing transcript. In general, conservative Mennonites do not believe in bankruptcy. They take to heart the lesson of Romans 13:8, which says “owe no man anything” in the King James Version of the Bible. Mennonites take this passage to mean that you pay all debts.
With no business left, the owners have few ways to generate cash. But they do have a plant for sale, which is believed to be worth about $3.5 million. Harry Davis & Co., which is handling the sale, is close to finalizing a deal, said President Leonard Davis. Davis said the former owners told him that they don’t expect to make a dime off the sale; its proceeds will pay off investors and secured creditors.
What’s more, both Riehl and Dale Martin testified that they’re putting up personal assets and cash to cover at least a fraction of investor losses. Martin pledged to use profits from another business, a farm-equipment company called Agri-Service, to make good on loans. Riehl testified that he was willing to sell his home.
“I made a personal commitment to do everything in my power to repay those debts as long as I am able,” Dale Martin testified.
Riehl testified that there is a difference between corporate law, which does not require owners to cover business debts, and a higher moral law. An attorney asked Riehl why he would ever feel obligated to follow the advice of the Mennonite committees, which are pushing for the debts to be repaid.
“I want to get to heaven,” he said.
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