by Katie Micik, DTN Staff Reporter
OMAHA (DTN) — A federal grand jury and Kentucky grand jury handed down the first criminal indictments associated with the collapse of Eastern Livestock Company on Thursday.
Thomas Gibson and Steve McDonald, Eastern’s owner and Chief Operating Officer, were each indicted on one federal charge of mail fraud on Thursday related to activity from August 9, 2004, to Nov. 2, 2010 that was related to the alleged check kiting scheme that left more than 700 producers across the country holding $130 million in bad checks.
Both men voluntarily turned themselves into the U.S. Marshall’s office, appeared in court and were released, said Stephanie Collins, a spokesperson for the United States Attorney General’s office for the Western District of Kentucky.
A grand jury in Kentucky indicted Gibson, McDonald and two other directors of Eastern Livestock Company on a total of 172 counts of theft by deception and engaging in organized criminal activity.
The charges are the first criminal charges associated with the Eastern Livestock case, which has mostly been handled in federal bankruptcy court. The Kentucky indictment only responds to estimated losses of $840,000 from 172 of 280 victims who live in the state. The FBI has also been investigating Eastern Livestock but has not yet pressed criminal charges.
According to a news release from the Kentucky Attorney General’s office, the indictment alleges the cattle brokerage’s owner, Thomas Gibson, Eastern’s Chief Operating Officer Steve McDonald, Grant Gibson and Darren Brangers “engaged in organized crime between 2009 and 2010 by collaborating on a continuing basis in a criminal syndicate, the purpose of which was to commit theft.”
Shortly after Eastern’s collapse sent ripples though the cattle markets, the Kentucky attorney general’s office announced a criminal investigation. On Thursday, the office announced that Eastern Livestock’s leadership is being charged with 17 counts of theft by deception over $10,000, 144 counts of theft by deception over $500 and under $10,000 and 11 counts of theft by deception under $500.
Engaging in organized crime, a Class B felony, carries a criminal sentence of 10 to 20 years in jail in Kentucky. The penalties for felony theft vary depending on the dollar amount and range from 12 months in jail to 10 years, according to the news release. If convicted on the federal mail fraud charges, Gibson and McDonald could face a maximum of 30 years in prison, a $1 million fine and five years of supervised release, Collins said.
“I am particularly appreciative of the help we’ve gotten from Kentucky farmers who were caught-up in this scheme,” Kentucky Attorney General Jack Conway said in the news release. “These are hard-working families who have struggled to buy farm equipment, pay their mortgages and even put food on the table after being swindled out of money they were owed for cattle.”
Reached at home in Lanesville, Ind., Thomas Gibson declined to comment on the criminal proceedings.
“We’re just trying to work the best we can to get the farmers paid,” Gibson said. “We sure didn’t, I sure didn’t mean to hurt anyone, but we have and we’re trying to make it right.”
Bad checks began hitting cattle country in early November 2010 after Fifth Third Bank froze the cattle brokerage’s accounts after detecting an alleged check-kiting scheme. The bank’s audits also showed the company inflated its sales to more than $3 billion in 2009 from $1.7 billion the year prior. In court documents, the bank said this was partially to obtain a larger operating loan. Eastern Livestock defaulted on a $32 million loan from Fifth Third bank around the time its accounts were frozen.
Shortly after, Eastern Livestock’s creditors forced the company into involuntary Chapter 11 bankruptcy. Gibson declared personal bankruptcy as well. Meanwhile, several large feedlots weren’t sure whether to pay Eastern Livestock Company or the cattlemen Eastern sourced the cattle from for several large purchase orders, so they deposited the money with various state courts, asking them to sort it out. Those cases, which involve feedlots from Oklahoma, Kansas, Texas, Colorado and Wisconsin, were eventually rolled into the bankruptcy proceedings.
Cattlemen filed claims on Eastern’s $875,000 bond, an insurance policy in case of failure that’s required by the Grain Inspection, Packers and Stockyards Administration. GIPSA has come under fire from the industry for not forcing Eastern Livestock to upgrade its bond sooner.
The FBI seized $4.7 million from a commodity trading account under Thomas Gibson’s name earlier this year. The trustee has since said the FBI has determined that money belongs to Eastern Livestock and they’re negotiating the terms under which that money will be returned to the bankruptcy case.
The Southern District of Indiana bankruptcy court appointed a trustee to account of all of Eastern’s remaining assets and take charge of winding down the business. Jim Knauer, the trustee, has spent months reconstructing destroyed records, tracking down cattle that only existed on paper and collecting money that was owed to Eastern.
Several million dollars remain tied up in escrow accounts as feeders, the trustee and banks continue arguing over bankruptcy rules vs. rules and interpretations with the Packers & Stockyards Act.
A press release on the indictment can be found at http://bit.ly/…
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Posted with DTN Permission by Haylie Shipp
