American Greed

Was Slaughterhouse Exec's Conviction Excessive?

When Sholom Rubashkin was sentenced to 27 years in prison for financial fraud, it was two years more than prosecutors had sought. It was also an unusually tough sentence compared to those of high-profile, white-collar criminals, such as Enron's Jeffrey Skilling and Tyco's Dennis Kozlowski.


Rubashkin, a former vice president of Agriprocessors, an Iowa kosher slaughterhouse, was also ordered to pay $31 million restitution as part of his 2010 conviction. Rubashkin's trial attorney, Guy Cook, plans to appeal.

"It's unfair and excessive and is essentially a life sentence for a 51-year-old man," Cook said.

An appeal would expand the controversy surrounding the case, which includes letters from six former U.S. attorneys general writing to the judge, assailing the prosecutors’ logic in seeking such a long sentence.

"Most of the murderers that I prosecuted got less time in prison than Sholom Rubashkin is sentenced to right now," adds another Rubashkin attorney, Mark Weinhardt.

Rubashkin oversaw the plant in Postville, Iowa that gained attention in 2008 after a large-scale immigration raid in which authorities detained 389 illegal workers. The plant filed for bankruptcy months after the raid and was later sold. Prosecutors say evidence of a massive fraud scheme was uncovered during an investigation by a court-appointed trustee.

Prosecutors later charged that Rubashkin intentionally deceived the company's lender and that he directed employees to create fake invoices in order to show St. Louis-based First Bank that the plant had more money flowing in that it really did. But Cook tried to portray Rubashkin as a bumbling businessman, who never read the loan agreement with First Bank.


"Frankly, he was in over his head," Cook told CNBC's American Greed. "He didn't have the professional skills that one would expect of a business like that."

Rubashkin, whose father, Aaron, founded the family business in Brooklyn, New York, was brought on in 1992 to run the day-to-day operations of the slaughterhouse. He had no previous business experience apprropiate to prepare him to run what would become the leading kosher meat producer in the country.

Trouble for Rubashkin and Agriprocessors started in 2003 when PETA, People for the Ethical Treatment of Animals, released a graphic undercover video taken during slaughter at the factory.

"We documented the worst abuse of animals that any of us had ever seen," said Bruce Friedrich, vice president for policy at PETA. "They had their esophagi ripped out and then they were dumped onto the floor still conscious."

The Rubashkin family denied any wrongdoing and the controversy died. But by 2008, Rubashkin was at the center of a massive deception to keep the company solvent. And the company was hiring illegal aliens and paying them under the table and cutting corners that made working conditions dangerous.

But the government was watching.

In March 2008, OSHA cited Agriprocessors for 39 worker safety violations. Then the Iowa Department of Labor subpoenaed the company, naming dozens of underage workers, and requesting personnel files. Agriprocessors also began regularly receiving "no match" letters from the government, which essentially said the payroll reports being sent to the government didn't match any existing Social Security numbers.

The government charged that between November 2007 and October 2008, Rubashkin funneled about $1.5 million into his personal accounts. And by using bogus accounting, Agriprocessors borrowed an average of $1 million a month from First Bank in Postville.

On October 23, 2008, First Bank called in Agriprocessors' $35 million loan. The company declared bankruptcy a week later, leaving millions of dollars unaccounted for. And when bankruptcy trustees tried to collect outstanding receivables, they quickly realized there was a serious problem.

"Customers were telling us that, well, this invoice was paid already, or that's not a real invoice, or you know, I don't know what that is. I've already paid it," said Mark Ross, chief restructuring officer.

It quickly became apparent just how fast and loose Agriprocessors had been with its financials.

"There were all of these different things going on with [fake payrolls], with the immigration, with the fake invoices, the bills of lading, the inflating, you know the numbers to the bank. It was a multifaceted scheme," said Paula Roby, bankruptcy attorney for Agriprocessors.

Weeks later, Rubashkin was arrested and charged in federal court with conspiracy to harbor undocumented aliens and document fraud as well as overseeing a $26 million bank fraud. All told, he was charged with 161 federal criminal counts.

In June, 2010, Rubashkin was acquitted all counts of child labor violations, but the 86 counts of financial fraud stuck.

"No reasonable person looking at this case would conclude that a man who borrowed more money than his father's business was entitled to borrow should receive a life sentence," Rubashkin's attorney Guy Cook said.

Rubashkin, meanwhile, awaits his appeal while serving his sentence at the federal prison in Otisville, New York.

The Associated Press contributed to this report.

Episode 45 of American Greed, The Slaughterhouse premieres Wednesday March 23rd at 10p | 1a ET.