Revealed: West Auckland farmer's three million free-range egg fraud ends with home detention

Xue (Frank) Chen, the owner of a West Auckland chicken farm, was sentenced to home detention yesterday over a free-range egg fraud. Photo / Dean Purcell

A West Auckland chicken farm owner has narrowly avoided prison after misrepresenting some three million caged eggs as free range and burning his company's financial records.

Xue (Frank) Chen was accused of packaging and selling caged eggs as free range after a whistleblower went to the Commerce Commission and a covert surveillance operation was conducted on his Gold Chick poultry farm.

An investigation found his offending at the Henderson Valley Rd property spanned from September 2015 to October 2017 and included millions of falsified eggs being used for well-known brands such as Farmer Brown.

Yesterday he was sentenced in the Auckland District Court to a year of home detention, dodging prison after a $50,000 donation to the SPCA and a guilty plea to a single representative charge.

Court documents obtained by the Herald also now reveal the intrinsic details of Chen's scam and his desperate attempts to cover it up.

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.

Other Gold Chick customers included Ably Sourced, Eco Foods, Sunset Poultry, Fresh & More, Nature's Corner and Nola's.

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 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 came forward to the Commerce Commission about a packaging scam.

A private investigator was then used to watch as Gold Chick, and sometimes Chen personally, used a rental van to acquire caged eggs from another producer, Albert's Eggs.

After bringing the caged eggs back to his farm, Chen would tell his workers to package them into free range Farmer Brown cartons for Zeagold.

Frank Chen placed caged eggs in free-range Farmer Brown packaging. Photo / Doug Sherring

Chen's farm was eventually raided in December 2017.

Investigators found Albert's Eggs stickers in the ashes of burned cartons and Albert's Eggs invoices in his bedroom, which he claimed no knowledge of and blamed his children for leaving there.

After the Commerce Commission completed its search, however, Chen held a meeting with his employees in an effort to identify the informant.

This led to him being charged with wilfully attempting to pervert the course of justice as he was accused of attempting to persuade the whistleblower to drop their complaint.

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 in October.

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

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

He also claimed disgruntled employees had burned his company's inventories, egg collections records, risk management programmes and other records.

However, he admitted he burned some of the farm's records himself in anger after Zeagold cancelled its contract with him.

Xue (Frank) Chen, pictured during his sentencing in the Auckland District Court. Photo / Dean Purcell

Chen's lawyer Fletcher Pilditch said his client was "misguided" but wants to continue working in the community.

"He's not involved with eggs anymore, he's side-stepped to a different form of poultry enterprise."

Chen, who still employs two full-time staff and a some part-time workers, now supplies chicken meat to restaurants and wholesalers.

However, the court heard, he had suffered a drastic loss in business due to Covid-19, with 50 per cent of the restaurants he supplied no longer in operation.

But the global pandemic proved to be benefit to Chen and helped keep him out of prison.

"If sentenced to imprisonment that would mean the end of the business and cease of employment which in the current climate would be hard," Judge Christopher Field said.

The judge said Chen's motivation "seems to have been purely financial". It is estimated the benefit from his fraud was about $320,000, the court heard.

Chen, the sole director and shareholder of Gold Chick which trades under the name Black Water Trading Limited, declined to comment to the Herald about the case.

When asked about the corruption charge, he simply said: "Quashed."

His sentence, the court heard, will be served at the Henderson Valley Rd farm.

Egg Producers Federation (EPF) executive director Michael Brooks said Chen's sentencing "signals the end of a frustrating period for New Zealand's egg producers".

He said many had their reputations "unfairly tarnished by the selfish actions of a couple of rogue operators".

Prior to becoming aware of Chen's fraud, the EPF had moved to implement changes, such as Ministry for Primary Industries audits, to make fraudulent activity easier to detect for regulators.

Since the changes were introduced, Brooks said, there has been "no fraud rumoured, reported or investigated in our industry".

"Ultimately our goal is for the Frank Chens of this world to be unable to operate fraudulently and for consumers to have a robust egg industry they can trust."

Anna Rawlings, the Chair of the Commerce Commission, said consumers are willing to pay more for free range eggs but it is not possible to visually distinguish between them and caged eggs.

"Therefore wholesalers, retailers and consumers must trust claims by suppliers that eggs are genuinely free range. Mr Chen abused that trust for financial gain."

"We estimate the fraudulent profit from selling caged eggs as free range was approximately $320,000, based on the difference between what Mr Chen's company spent on purchasing caged eggs and the revenue gained from selling them as free range," Rawlings said.

The Commerce Commission had initially laid four charges of obtaining by deception under the Crimes Act and four charges of making misleading representations under the Fair Trading Act against Chen.

However, these charges were amalgamated into a single representative charge.