Once upon an organic fraud, two grifters sold farmers a $50-million river of fake fertilizer. Fish guts and chicken feathers, juiced with synthetic nitrogen, became the nutrient steroids of the gods. And, year over year, millions of pounds of organic fruits, nuts, and vegetables purchased from supermarket shelves by the faithful—weren’t so organic.
Peter Townsley and Kenneth Nelson engineered twin hustles in the breadbasket of California by slipping nitrogen mickeys into vats of organic fertilizer and selling the hooch with a wink. Secret tanks beneath floorboards, falsified paperwork, mysterious railcars, and magical sludge almost buried a portion of the organic agriculture industry in a staggering swindle that lasted almost a decade.
How did the crooked duo pull off the heist?
Peter and Ken
After weathering the economic hell of the 1980s, a wave of farmers lined up to change horses from conventional to organic production. In a state of flux, organic agriculture was a Wild West of opportunity, and thereby ripe for a con.
In 1990, USDA established the National Organic Program (NOP) to ensure crops were the real organic McCoy. Among NOP rules was a fertilizer regulation banning synthetic ingredients. Fertilizer regulation was the bailiwick of individual states, and loopholes abounded, i.e., criminal, intentional, accidental, and incidental were overlapping terms.
Organic growers searched for affordable nutrients. They needed fertilizer packing nitrogen muscle that could be applied via drip irrigation without the clogging problems associated with typical organic slurries of fish carcasses or bloodmeal.
Into the gap stepped a pair of contrasting Walter White devotees. Peter Townsley, a laid-back Canadian microbiologist from British Columbia—erudite and sincere; and Kenneth Nelson, a boot-wearing son of Bakersfield—brash and boastful. Peter the polite and Ken the colorful were not criminal newbies: They honed their fertilizer cooking skills in the 1990s.
“Both were caught spiking their products; 1997 for Nelson and 1999 for Townsley,” Brian Baker says. “Both claimed it was a just a mistake and asked for another chance. When we gave them one, they learned to cheat better and burned the hell out of us.”
A River In Egypt
The smell of rot was present from the get-go, contends the plain-talking Baker.
Highly respected as likely the first person in the U.S. to work full-time on organic certification, Baker’s agriculture history runs deep into the 1970s. From 1997 to 2009, he evaluated inputs at the Organic Materials Review Institute (OMRI), the preeminent organization tasked with verifying organic inputs.
(OMRI declined Farm Journal interview requests regarding the actions of Peter Townsley and Kenneth Nelson.)
Baker had an up-close seat to the antics of Townsley and Nelson. “There were a lot of colorful characters in organic agriculture at the time, but those two pulled new scams. They were liars. We knew they were lying. They knew we knew they were lying,” Baker sighs. “But could we build a case that would hold up in court? That question took much work over many years to answer.”
Fertilizer manufacturers sought OMRI listing. In return for OMRI’s respected stamp on the label, the manufacturers were required to disclose ingredients and production processes. Townsley and Nelson hijacked the system.
“They were clever in concealing their tracks and they were in it for the long con. That’s what makes a good grifter,” Baker adds. “In fact, they were so good that after it all came crashing down, there were people in the field still denying the con—refusing to admit they were hoodwinked.”
Denial ain’t just a river in Egypt.
Sneaky Pete
The scheme.
In 2000, headquartered in the Salinas Valley, among the most productive agriculture regions on the planet, science-touting Townsley was steering his company, California Liquid Fertilizer (CLF), through financial doldrums.
Drawn to the Salinas Valley by the opportunity to utilize Monterey Bay, Townsley fermented fish bycatch in massive tanks and turned the mash into a slurry for fertigation, essentially the holy grail of crop delivery. However, Townsley was vexed by emitter clogs, the persistent thorn of liquid organic fertilizer. Most of the nitrogen in fish and organic forms is insoluble, i.e., particles plug the pipes.
Back in 1998, Townsley had gained OMRI approval for what later became his flagship product—Biolizer XN. He told OMRI it was composed of fish, fish by-products, feathermeal, and water. However, by 2000, on the verge of business collapse, mild-mannered Townsley secretly switched the contents of Biolizer XN by adding Protoferm, a soybean processing waste product that contained ammonia chloride, a chemical banned by organic fertilizer guidelines.
Despite Biolizer XN’s new illicit formula, Townsley’s customers howled within the year about damaged crops: ammonia chloride levels in Biolizer XN were too high. Back to the drawing board, he sought another secret synthetic, and at an Archer Daniels Midland (ADM) plant in Illinois, he sourced a soybean ringer—ammonium sulfate as a leftover of lysine production.
Erik Heggen, who worked with specialty feed ingredients at ADM from 2001-2008, provided federal investigators with written testimony: “I became familiar with a substance that was a by-product of ADM’s lysine production process. ADM referred to this by-product as ammonium sulfate and sold it for uses as a liquid fertilizer for conventional farming practices.” (ADM had no license to ship ammonium sulfate to California and was later issued a violation by the California Department of Food & Agriculture.)
“In the 2001 to 2006 time frame, ADM manufactured lysine in Decatur, Illinois,” Heggen continued. “The ammonium sulfate was a by-product of this manufacturing process and was sold in a liquid form which had a nitrogen level ranging from 5% to 6%.”
Townsley was in love—or at least in lust: He bought 14-plus tons of ammonium sulfate. ADM’s soybean castoff became the key that picked the lock on the entire fraud: Move ammonium sulfate in rail cars from Illinois to California, pump the brown swill into CLF fermentation tanks, print labels claiming Biolizer XN only contained fish and feathermeal, lie like a dog to OMRI for approval, flood the market with cheap conventional fertilizer masked as organic, undercut all legitimate organic fertilizer manufacturers, and sell, baby, sell.
CLF’s other products fell to the wayside: Customers wanted nothing below the wonders of nitrogen-rich, free-flowing Biolizer XN. Everyone in the industry knew a fish crud fertilizer at a minimum of 6% nitrogen could never flow properly through drip irrigation systems—but Biolizer XN did.
With profits pouring in, Townsley went full sneaky-Pete. In an April 2009 FBI interview, CLF’s second in command, Jacob Evans, described a point where his boss, Townsley, injected directly into the vein: “Evans remembered numerous times where the ADM product, ammonium sulfate, did not go through the digesters. At times, CLF took the ADM product straight from the railcars and packaged it for sale.”
Arture Corona, plant manager at a satellite CLF plant in Gonzales, oversaw fertilizer processing. According to an FBI interview of Corona in March 2009: “Corona only put a brown liquid into the digesters, but never added fish and feathermeal. Corona did not know what was in the brown liquid and he only knew the brown liquid as ‘XN’ as in Biolizer XN. The brown liquid arrived in trucks and went straight into the digester.”
Townsley was riding high with almost a third of the California market, dispensing a river of liquid fertilizer that didn’t constipate drip irrigation systems; packed a powerful nitrogen punch; and smelled curiously like dirt, rather than fish. Biolizer XN was Townsley’s juiced racehorse of liquid organic fertilizers—and the beast ran like hell.
Doppelganger
Lucre. Simoleons. Cheddar. “The motivation wasn’t complicated,” Baker notes. “There was so much money to be made.”
Ammonium sulfate cost one-twentieth the price of ground-up fish remains. Townsley sold millions of gallons of Biolizer XN to some of the biggest organic companies in the nation, including Earthbound and Driscoll’s.
His biggest buyer was Tanimura & Antle, partly owned by farm manager Ron Yokota, with operations in Arizona and California. According to a federal complaint, “Tanimura was CLF’s single largest customer for XN, having spent more than $1.1 million on XN during the period that it contained prohibited substances. Yokota stated that CLF, including salesman Jacob Evans, provided him with documentation, including a brochure, that clearly stated that Biolizer XN was a certified organic liquid fertilizer approved by OMRI ... To Yokota, the most important feature of the brochure was the OMRI logo.”
Baker inspected CLF’s production facilities on multiple occasions.
“Railroad cars of ammonia came into CLF and they were siphoned with hoses into fermentation tanks, but Townsley claimed the tanks were for other products,” Baker notes. “He had large facilities and was making conventional and organic products in the same facility, which wasn’t illegal.”
CLF had a constellation of fertilizer offerings. “Townsley was able to say, ‘I do make other products and not all are OMRI-listed. Yes, I’ve got tanker cars rolling in here with different synthetics, but they’re not used in Biolizer.’”
Standard laboratory tests could detect how much nitrogen was in a fertilizer, but not where it originated. Running a chemical breakdown of Biolizer XN was no smoking gun, Baker emphasizes. “The technology to catch Townsley was suspect. What would hold up in court? The isotope fingerprint for synthetic nitrogen is atmospheric. However, plants also fix nitrogen from the atmosphere and plant sources of nitrogen have roughly equivalent ratios to synthetic.”
Additionally, Townsley was a PhD microbiologist and knew how to turn the dials. “He typically was putting in just enough fish solubles to avoid a straight-up switch,” Baker describes. “In other words, Townsley fine-tuned the fish solubles level to make sure the stable isotope range was plausible.”
Adding to the spectacle of CLF’s Salinas fraud, Townsley’s flim-flam doppelganger was partying 350 miles to the southeast in Bakersfield. Kenneth Nelson was busy pulling the same stunt and making outrageous coin: $40 million in illicit sales.
Insider Squeals
In the Central Valley, annual birthplace of over half the nation’s fruits, nuts, and vegetables, Nelson helmed Port Organic and showed plenty of leg. From roughly 2003-2008, he bought prodigious amounts of aqueous ammonia, ammonia sulfate, and urea, and dumped the loads into liquid organic fertilizers: Agrolizer, Marizyme, Fishilizer, Birdilizer, and more.
He hid a 1-million-plus-gallon storage tank beneath floorboards on a property adjacent to Port Organic: Move the fence, drag out hoses, pump synthetics into legit tanks, and stow hoses in case of inspection.
Echoing Townsley, Nelson was careful to keep up appearances with a modicum of fish, guano, or bloodmeal. Marizyme, for example, had OMRI approval based on the purported ingredients of fish meal, phosphoric acid, sulfuric acid, citric acid, sulfate of potash, and burcotase AL-25. From 2000-2008, Nelson applied for renewal of Marizyme’s OMRI listing and reported no formula changes. He did the same with Agrolizer and Fishilizer.
Demand was near-insatiable for Nelson’s organic brews. Port Organic gained status as a premier organic fertilizer source in multiple Western states, raking in over $40 million in six years, with $9 million going into Nelson’s pocket.
Despite appearances of deepest gratitude to the agriculture community, Nelson, along with Townsley, heaped mockery on growers. With every single sale, they put the livelihood of farmers at risk: A prohibited substance in the rows meant a three-year wait to return the soil to organic status.
Strikingly, there was no veil of secrecy protecting the massive frauds. An insider had squealed as far back as 2004.
However, the California Department of Food & Agriculture (CDFA) responded at a snail’s pace, contends Ray Green, leader of CDFA’s Organic Program for 12 years: “Once in the hands of CDFA legal, program staff are not allowed to discuss the case. CDFA legal simply stated that the investigation was ongoing and refused to comment.”
(CDFA did not respond to Farm Journal interview requests regarding Peter Townsley and Kenneth Nelson.)
Retired or Dead
In 2004, a CLF employee post-mailed a complaint to CDFA, specifically claiming Townsley was buying ammonium sulfate from ADM and mixing it into Biolizer XN (and another CLF product).
The whistleblower’s allegations resulted in a 2005 CDFA investigation, spearheaded by Pierre Labossiere, who tracked ADM shipments by railway and truck, and obtained product samples of Biolizer XN and ADM ammonium sulfate. Per a federal complaint: “The lab results of these samples were not sufficiently detailed to provide a fingerprint-type identification, that is, they did not show that the chemical composition of the ammonium product sold by ADM was identical to the product being sold by CLF as Biolizer XN. The lab results did, however, show that the chemical composition of XN was consistent with that of the ADM product. This helped explain what CLF was doing with the 14-plus tons of the liquid ammonium sulfate product that it purchased from ADM from June 2001 through the end of 2006.”
In December 2006, Labossiere turned in his finalized report. Finger to the wind, Townsley immediately pulled Biolizer XN.
And next? A period of silence, according to Green, who was pushing to widen the investigation to Townsley’s cohorts. “I have no idea as to why the CDFA legal office failed to file legal proceedings. To guess is simply a guess.”
White Whale
In 2010, six years after a whistleblower rang the alarm, Townsley was arrested and indicted, charged with one count of conspiracy to commit mail fraud and seven counts of mail fraud. He pled guilty to two counts of mail fraud based on the mailing of false statements on his annual renewal forms to OMRI.
Almost in tandem, Nelson was indicted in 2011. He pled guilty to four counts of mail fraud. (Port Organic was raided in 2009 and authorities found thousands of gallons of aqua ammonia. Ironically, Kern County Environmental Health Services had fined Port Organic $18,000 in 2005 and 2007 for mishandling/storage of aqua ammonia.)
In November 2012, both men were sentenced. Townsley, 50, admitted that from April 2000-December 2006, he sold Biolizer XN tainted with chemicals prohibited for use in organic farming, and received one year in prison and a $125,000 fine. (As an arguably satirical bonus, Townsley also was required to “perform 1,000 hours of community service related to organic production.”)
Nelson, 59, was sentenced to six-and-a-half years in prison, $9 million in restitution, and the loss of a 2006 Chevrolet Silverado, 2005 Mini Cooper, and 2004 Porsche Cayenne. (Released on Nov. 17, 2017, Nelson was stabbed to death a year later, Nov. 16, 2018, by his son, Timothy Noel Nelson, who got 17 years to life.)
Legalese aside, Townsley and Nelson were pinched for mail and wire fraud; the rest of their scam was a tangle. And their co-conspirators and confederates? Everyone else skated, yet the tentacles of the scam ran through every layer of the agriculture industry.
Who all was in the know? On many levels, the question answers itself.
“Both guys were surrounded by teams and employees. I always believed Nelson was a patsy—controlled or influenced by others,” Baker says. “There were people making the products, selling them, and transporting them. There were big agribusinesses buying the products and grower-packers and shippers moving them and they all had agronomists that were suspicious. Were some of the people in the field knowingly using prohibited substances? Everyone knows the allegation has been made—it’s always been out in the open. How could they all not know?”
CLF and Port Organic took the fall. However, were other actors engaged in precisely the same scam? Baker contends the organic input industry was a chess game during the heyday of Townsley and Nelson. “One of the reasons for their downfall was competition from other companies. Literally, employees and competitors were informing on each other. I had one person from another company tell me, ‘Townsley and Nelson are cheating. I’m a damn fool if I don’t cheat too.’”
“This case used to be my white whale, but I had to give up being obsessed,” Baker adds. “As time goes by, I have more questions than I started with. The more I find out, the more I realize how much I don’t know about who was involved.”
The Band Played On
The truth was ugly for all: A fraud in the tens of millions of dollars with the biggest names in organics, and a public that year after year got fooled into paying premiums for fruits and vegetables that weren’t organic.
Regulations and oversight were tightened, but what was USDA to do with farmers’ organic certification on operations tainted by Townsley and Nelson across massive acreage? Make the farmers sit out three years? Refund the public? USDA chose to continue organic sales as if nothing had happened.
In the end, Townsley and Nelson were the only heads on the chopping block.
During the midst of the debacle in 2009, alarmed by the chaos, California Senator Dean Florez held a hearing on organic food and fertilizer. Addressing CDFA, Flores summed his frustrations (emphasis added):
“So, at the end of the day nobody lost except the consumer who bought a product, consumed the product that they thought was organic, paid a premium for it at the marketplace, and our only answer to them is, ‘All’s good because we’re going to fix it. But sorry for what you may have consumed. It’s our big mistake.’ And I’m not pointing to you, I’m just saying generally in this whole issue it seems as though the only person that’s going to lose in this, or has lost in this, is the consumer. Because the farmer is not going to be decertified, the companies have been reengineered, your organizations are now on different types of tracks, CDFA has a completely different process, but yet no one will be to blame in this.”
Now a vigilant skeptic, Baker offers a final balls-and-strikes call. “You reach a point where you believe no one, and that’s not healthy. The lesson here is to stay awake to fraud in any type of agriculture, for the good of agriculture. Will something like this happen again? Sure could. Just saying.”
For more articles from Chris Bennett (cbennett@farmjournal.com or 662-592-1106), see:
Corn and Cocaine: Roger Reaves and the Most Incredible Farm Story Never Told
American Gothic: Farm Couple Nailed In Massive $9M Crop Insurance Fraud
Priceless Pistol Found After Decades Lost in Farmhouse Attic
Cottonmouth Farmer: The Insane Tale of a Buck-Wild Scheme to Corner the Snake Venom Market
Power vs. Privacy: Landowner Sues Game Wardens, Challenges Property Intrusion
Tractorcade: How an Epic Convoy and Legendary Farmer Army Shook Washington, D.C.
