LOUISVILLE, Ky. — While 200 cattle producers in Kentucky, Indiana, Wisconsin, Texas, Kansas, Colorado and southern Ohio may not have all the money they are owed by Eastern Livestock Company, LLC., they may feel better knowing that the two people behind a 2010 check-kiting scheme are going to federal prison.
U.S. District Court Senior Judge Thomas B. Russell sentenced the former owner and former chief operating officer of the now-bankrupt Eastern Livestock Company May 21. As part of a plea deal in December 2012, the two were charged with mail fraud from their role in a check-kiting scheme.
Founder and former owner, Thomas P. Gibson, 73, of Lanesville, Ind., was sentenced to 70 months in federal prison, followed by two years of supervised release, and former Chief Operating Officer Michael Steven McDonald, 61, of Lanesville, Ind., was sentenced to 57 months in federal prison, followed by two years of supervised release. There is no parole in the federal system.
David J. Hale, U.S. attorney for the Western District of Kentucky, said in a written release that Gibson and McDonald caused widespread damage to the livestock industry and harm to numerous cattle producers, in addition to other businesses associated with the livestock industry.
“These lengthy prison sentences hold Gibson and McDonald accountable for their federal crimes,” said Hale. “Additionally, our seizure of $4.7 million from the defendants has preserved a significant portion of the crime proceeds, which will ultimately be distributed to victims of the fraud.”
Disbursement of these funds to victims will be coordinated, but complicated by two Eastern Livestock bankruptcy cases pending in the Southern District of Indiana. The forfeiture action was brought by the U.S. attorney’s office in federal court in the Western District of Kentucky.
Closed in 2010
Eastern Livestock was one of the largest cattle brokerage businesses in the United States, processing cattle sales and operating branch facilities in 11 states until it closed Nov. 2, 2010.
According to the plea agreement, between Aug. 9, 2004, and Nov. 2, 2010, Gibson and McDonald engaged in an extensive check-kiting fraud in order to induce Fifth Third Bank to release funds from a $32 million line of credit issued by the bank in favor of Eastern Livestock Company.
The check-kiting scheme caused grossly inflated balances in accounts maintained by Eastern Livestock with the bank. The paid also submitted false documents on a daily basis to Fifth Third, which contained grossly inflated accounts receivable figures.
Checks issued from Eastern Livestock accounts were mailed to business associates who agreed that checks from their business accounts could be deposited into the Eastern Livestock account at Fifth Third, temporarily inflating the account balance.
Two such Eastern Livestock checks in the amounts of $94,374.48 and $98,101.93, were delivered via U. S. Postal Service to a designated address in Nelson County, Ky., on or about Sept. 5, 2008.
Failure to pay for cattle
When Fifth Third closed Eastern Livestock’s accounts in November 2010 because of the check-kite, Fifth Third, Wells Fargo, and hundreds of cattle sellers, auction houses, and other people who had done business with Eastern Livestock sustained losses.
The cattle sellers had received Eastern Livestock checks in payment for cattle, but these checks were not honored by Fifth Third Bank and returned when Eastern Livestock’s accounts were closed.
At the time, there were insufficient funds to cover the millions of dollars in outstanding Eastern Livestock checks issued by the defendants.
The investigation into the check-kiting scheme was a collaborative investigation involving the U.S. Department of Agriculture’s Office of Inspector General, the U.S. Postal Inspection Service, and the Federal Bureau of Investigation.