Millions Siezed in Fraud Case

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The FBI has seized $4.7 million dollars from a personal bank account of Thomas Gibson’s, owner of Eastern Livestock, and attempted to take $1.2 million from Gibson’s commodity account, but those funds were already in the hands of a court-appointed bankruptcy trustee.

“We had a meeting with them (the FBI) this week, and they told us that the reason they seized the assets were to prevent them from disappearing,” said bankruptcy trustee James Knauerin a phone interview Friday. Knauer is responsible for winding down Eastern Livestock’s business, executing outstanding cattle contracts and figuring out where the money went.

Phone calls to the Southern Indiana FBI press office and the trustee in the Gibson’s personal bankruptcy case were not returned.

“The assets that they seized were accounts of the Gibsons’ (Thomas and his wife, Patsy Gibson), not Eastern Livestock,” Knauer said. “However, it’s my belief that the money in those accounts came from Eastern Livestock. We haven’t yet verified that, but I think it’s inevitable that will be correct.”

Since the Gibsons’ Eastern Livestock Co. wrote more than $130 million of bad checks last fall to 743 producers across the country, according to USDA, the cattle brokerage, its owners and a trucking company under the same ownership are all in bankruptcy proceedings.

The FBI seized funds Jan. 20 from the Gibsons’ account at Your Community Bank in New Albany, Ind., Knauer said. The Gibsons’ personal bankruptcy schedules list the amount in the Your Community Bank account as unknown.

Thomas Gibson told DTN on Monday that he informed the proper parties of the account at Your Community Bank right away, didn’t know the amount in the account and hasn’t written any checks on the account since then. He also said he hasn’t made any trades on the commodity account.

Knauer said Thomas and Patsy Gibson disregarded the need to have separate accounts for several entities but declined to say which ones. The Gibsons’ personal bankruptcy filings show Thomas or Patsy Gibson are involved in 17 companies.

“I don’t suspect it, I absolutely know it to be a fact,” Knauer said of the commingling between the Gibsons’ personal accounts and Eastern Livestock’s accounts. “But they just transferred money wherever they needed to transfer money to make things work.”

Eastern Livestock was forced into an involuntary Chapter 11 bankruptcy by its creditors in December, a month after Cincinnati-based Fifth Third Bank froze the brokerage’s accounts. Fifth Third alleged that Eastern ran an elaborate check kiting scheme that involved payments to and from Thomas Gibson’s account at Your Community Bank. The Gibsons’ bankruptcy filings show only one checking account at Your Community Bank.

Fifth Third’s complaint against Eastern Livestock, which was filed in Hamilton County, Ohio, court in November, said a Fifth Third audit discovered that Eastern Livestock “has been sending approximately $20 million back and forth each day between its Operation Accounts and an account that Thomas P. Gibson held at Your Community Bank in New Albany, Ind. The only apparent purpose of these transactions is to manipulate the communications lag between financial institutions, or float period, in order to create artificial balance from which Eastern Livestock could withdraw Fifth Third’s real funds.”

On Sept. 30, 2010 — just days before hot checks started hitting cattle country — Gibson deposited $7.9 million into Eastern Livestock’s operating accounts, according to the bank’s complaint. Those funds were then withdrawn and deposited into Gibson’s Your Community Bank account.

“When asked about these checks, Eastern Livestock explained that they reflected ‘short-term loans’ from Gibson to Eastern Livestock, but Eastern Livestock has provided no documentation to substantiate or memorialize any such loan,” the court complaint stated.


Eastern Livestock defaulted on a $32 million loan from Fifth Third and after the accounts were frozen, Eastern Livestock’s accounts were $13 million overdrawn.

TRACKING DOWN ASSETS

Knauer said many of Eastern Livestock’s financial documents are missing and he’s recreating the financial picture by going to Eastern’s banks to get records of the transactions.

“Everybody wants to know where the money went and who it went to,” he said. “In this case there are a lot of questions besides that. We’re also trying to make sure that other Eastern assets like cattle, for example, that either were owned by Eastern or Eastern’s money was used to purchase it, even if the purchase was made under another name, that we identify that ownership and contact the people involved and assert that ownership.”

Eastern Livestock forward contracted to purchase 35,529 head of cattle for delivery between January and June from anywhere between $99 and $113.87, according to a spread sheet published on the trustee’s blog. Since then, feeder cattle prices have risen substantially. The Jan. 27 Chicago Mercantile Exchange feeder index was $125.65.

Knauer said some of the “people who hold those contracts to sell us cattle aren’t all eager to fulfill the contracts, particularly in view of the fact that the current market price is significantly higher than the amounts they agreed to sell them for, and a lot of them see the Eastern bankruptcy as a opportunity to get out of those contracts. We see those contracts as an asset that has significant value.”

Eastern Livestock paid those cow-calf operators down payments, but producers could make more money by forfeiting the down payment and selling the cattle at current cash prices, Knauer said. He said there were some producers who received bad checks for the down payments.

“We have a lot of people that want to buy the contracts,” he said. “Well, if you can’t deliver the cattle, selling the contract is to no avail.” He said they’re working on strategies to enforce the purchase contracts, which could involve court action, and will begin implementing them soon.

Knauer said it will probably take six months to fully wind down Eastern Livestock’s operations, but the court cases could go on for years. He’s still working on the first question in people’s minds: Where did the money go?

“The second question is why did they do this, and how did all the losses occur?” he said. “I can’t, I have some ideas about that, but I’m not ready to say why they did — I don’t know why, I don’t know we’ll ever know why they did what they did. But there were obviously very significant losses that had to be covered, and I’m not sure I yet know where they all occurred.”

 Source: DTN Reporter Katie Micik

Posted by Russell Nemetz

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