- The Washington Times - Tuesday, March 17, 2009

FRESNO, CALIF. (AP) - As General Motors is to Detroit, Humboldt Creamery is to the northern California community of Ferndale, population 1,382.

So when the homegrown CEO of 23 years abruptly resigned last month and his attorney warned of serious financial problems, the town went into economic convulsions.

While Rich Ghilarducci retreated to his second home in Scottsdale, Ariz., creamery officials said his attorney told them they should suspend the co-op’s first sale of securities to locals who by then had invested $400,000 from their nest eggs.

“These are people I grew up with and went to high school with,” said interim CEO Len Mayer. “Not that it matters, but I probably would feel better if it was somebody five states away.”

Now creamery officials are conducting an audit that they say they plan to give to federal prosecutors in San Francisco for review. The U.S. Attorney’s office declined to comment, and Ghilarducci’s attorneys did not return calls.

The turn of events shocked a community where Ghilarducci was a pillar who chaired the local Easter Seals fundraising, supported high school sports and built the creamery into a thriving business with a wholesome reputation for its organic products.

Creamery officials said the $400,000 has been spent by the company, leaving it unable to immediately repay investors. In addition, they said, the former CEO overstated the amount of money due to the co-op from sales, meaning it is unable to pay member dairies for milk already supplied and repay banks for loans.

Recently, the 50 dairies deferred $2 million in payments for milk sold under the Heritage and Organic Valley labels and churned into Costco’s Kirkland vanilla ice cream. That has resulted in less spending and unpaid bills at the local groceries, feed stores and tractor repair shops that depend on the creamery for survival.

The dairy co-op members have been left to face the townsfolk whose livelihoods depend on them.

“I hate to even go up town right now because people look at you like they’re going to your funeral,” said dairyman Dennis Leonardi, scrambling to run his 300-cow dairy on less than half of his normal income.

The 80-year-old creamery, located 250 miles north of San Francisco, represented hope for a rural economy weaning itself from the depressed timber-harvesting and salmon-fishing industries.

Under Ghilarducci, Humboldt Creamery grew from a local enterprise to the country’s fourth-largest organic milk processor by the middle of this decade and a leading maker of private label ice cream with $130 million in sales last year. Townsfolk are struggling to make sense of what is happening to the company.

“There are so many unanswered questions, and it could be devastating for this beautiful community,” said Caroline Titus, publisher of the Ferndale Enterprise, the town’s weekly.

The creamery sits in the Lower Eel Delta, with towering redwoods providing a backdrop for cows that graze year-round on sustainably farmed pastures. The co-op is the only one to earn approval from the American Humane Association and was one of the first more than a decade ago to ban bovine growth hormones.

Under Ghilarducci, officials say Humboldt Creamery borrowed money to buy a distribution warehouse in Stockton, Calif., acquire Seattle’s Arctic Ice ice cream label, and add a popsicle line to its plant in Los Angeles. The lender, CoBank in Denver, declined to comment on the creamery’s current problems.

On Feb. 20, the CEO wrote a four-sentence resignation letter and left for Scottsdale.

A few hours later, his attorney Elliot Peters warned company officials “there may be inaccuracies in the company’s financial statements,” and that the company should suspend its securities offerings, according to a creamery press release.

With everyone from elected officials to dairymen begging creditors not to panic, those who shared in the creamery’s growth are feeling the fallout

“I had to dip into my home equity to pay my bills last month,” said Laurence Hindley, who owns The Farm Store and is carrying $100,000 in credit to dairy farmers for equipment and repairs.

As accountants examine company books, residents are hoping the banks holding notes will give the company time to recover.

“Otherwise, the ramifications will be felt across the entire region,” Humboldt County Supervisor Jimmy Smith said. “The whole community is making sacrifices to help them get through it.”

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