Auckland farmer appeals sentence for misrepresenting millions of caged eggs as free range

A West Auckland chicken farm owner has appealed against his home detention after misrepresenting millions of caged eggs as free range.

Xue (Frank) Chen was sentenced to a year of home detention after pleading guilty to a single representative charge for his fraud, revealed by the Herald in July.

His home detention was being served at his Henderson Valley Rd poultry farm.

Today, Chen, who also made a $50,000 donation to the SPCA, challenged the sentence handed down to him by Judge Christopher Field in the Auckland District Court.

Chen’s prosecution by the Commerce Commission came after a whistleblower accused him of packaging and selling caged eggs as free range.

It sparked a covert surveillance operation on his Gold Chick poultry farm and an investigation found his offending spanned from September 2015 to October 2017.

This morning in the High Court at Auckland, Chen’s lawyer Fletcher Pilditch told Justice Christine Gordon the starting point for Chen’s offending of three years’ imprisonment – before discounts for mitigating factors such as an early guilty plea – was too high.

He said it ultimately “drove the final outcome” for his client, who was watching the hearing from the back of the courtroom.

Pilditch said while “all fraud offending is bad” and represented a dishonesty perpetrated for a gain or benefit, the court was required to take a comparative exercise.

He said Chen’s case was a prosecution to protect consumers, but his client’s offending was not demonstratively as serious as a fraud where a victim has suffered a significant financial loss.

Crown lawyer Jacob Barry said Chen’s sentence was appropriate because of the significant steps the farmer took to carry out his fraud and then attempt to conceal it.

Barry argued this “must weigh heavily for culpability” for a fraud perpetrated on the public.

“This wasn’t a one man band operation, he had to involve his employees,” Barry said.

He added the starting point of three years’ imprisonment could be described as “generous” to Chen.

Justice Gordon reserved her decision.

Chen continues to operate his farm, which the court heard at his sentencing now supplies chicken meat to restaurants and wholesalers.

Motivation 'seems to have been purely financial'

Chen’s primary customer for Gold Chick’s free range eggs was Zeagold Limited, New Zealand’s largest egg supplier and owned by Mainland Poultry Limited, which has the Farmer Brown brand.

Zeagold had a deal for Gold Chick to supply its free range eggs every week between May 2015 and October 2017. During this time more than 3 million eggs were sent to Zeagold and Chen was paid $870,000.

The Farmer Brown eggs sourced from Gold Chick were also in packaging labelled: “Good eggs. Good choice. FREE RANGE”.

In June 2017, however, a former employee of Chen’s went to the Commerce Commission about what appeared to be a packaging scam.

A private investigator was then used to watch the farm.

Gold Chick, and sometimes Chen personally, were seen using a rental van to acquire caged eggs from another producer, Albert’s Eggs. After bringing the caged eggs back to his farm, Chen told his workers to package them into free range Farmer Brown cartons for Zeagold.

When Chen’s farm was eventually raided in December 2017, investigators found Albert’s Eggs stickers in the ashes of burned cartons. Albert’s Eggs invoices were also in his bedroom, which he claimed no knowledge of and blamed his children for leaving there.

After the Commerce Commission completed its search, Chen then went about trying to identify which of his employees was the informant. This led to him being charged with wilfully attempting to pervert the course of justice.

He was found guilty and sentenced last year to two years two months’ imprisonment. But after a High Court appeal, Justice Graham Lang quashed the conviction and set aside the sentence.

While Chen intended to pervert the course of justice, his actions were not sufficient to prove the charge, Justice Lang ruled.

When interviewed by the Commerce Commission in early 2018, Chen claimed he was legitimately selling caged eggs as a separate cash business at his farm’s front gate.

He also said disgruntled employees had burned his company’s inventories, egg collections records, risk management programmes and other records. But he admitted he burned some of the farm’s records himself in anger after Zeagold cancelled its contract with him.

Judge Field said Chen’s motivation “seems to have been purely financial” and is estimated he benefited to the tune of about $320,000.

Prior to becoming aware of Chen’s fraud, the Egg Producers Federation moved to implement changes, such as Ministry for Primary Industries audits, to make fraudulent activity easier to detect for regulators.

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