Friday, November 18, 2011

Cooking the books at Portland Garden Supply LLC in Forest Grove, Oregon

I have an MBA degree, and my coursework involved a lot of case studies. We'd look at a company's income statement and balance sheet, calculate some ratios here and there, and figure out the health of the firm.

But I never had a case study that looked like the one that's been discussed in Oregon papers in 2010 and 2011.

You see, there was a business called Portland Garden Supply, located on a street in Forest Grove, Oregon (a suburb of Portland). And someone ended up looking at the books for the business.

A financial review of the business found that over 93 percent of the deposits between July and October were in cash totaling $104,678, and 94 percent of Wen Han Chen's expenses were to Hydrofarm, Inc., a California-based wholesaler that supplies hydroponic equipment....

Well, with all of that hydroponic equipment, you'd expect to see a bunch of tomatoes and stuff for sale at Portland Garden Supply, wouldn't you? Not exactly.

"There's barely anything on the shelves. They basically hung a sign for delivery people to call them, and then the Chens would come and pick up their orders," Lufkin said.

One thing that wasn't present on the income statement was a large entry for electric bills for all the hydroponic equipment. That's because those charges never made it to the books. In fact, Portland Garden Supply's financials probably never would have been investigated if Portland General Electric hadn't discovered something.

The investigation began [in the spring of 2010] when Portland General Electric detected power diversions at several homes in the metropolitan Portland region, and alerted police.

Residential-based marijuana grow operators either tamper with their existing meters or rewire nearby distribution power lines to mask the large volume of power they need to run the lights that serve indoor nurseries, prosecutors said.

"They take 6 or 8 times the amount of electricity of a normal house," Lufkin said.

In this case, PGE estimates its losses at more than $10,000.

There was a fingerprint found at one of the homes, which led investigators to Jin Yu Chen. It appears that Portland Garden Supply's main business was to sell stuff to Jin Yu Chen. Police went after Jin Yu Chen as well as the owner of Portland Garden Supply, Wen Han Chen. Depending upon the source, the equipment was used to grow either 1,559 or 1,957 marijuana plants.

Not only did they grow marijuana and launder proceeds (insert joke here), but they also stole electricity and damaged one of the homes after a malfunctioning water system flooded the home.

I wonder if the Feds will go after them on tax evasion charges.
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