KANSAS CITY, Mo. – Two Missouri residents were involved in the largest financial fraud, also known as the phantom cattle scheme, ever prosecuted in the Western District of Missouri.
The $160 million scheme involved victims in several Midwestern states.
Defendants George L. Young, 72, of Grant City, Mo., and Kathleen I. McConnell, 54, of Kansas City, Mo., pleaded guilty in federal court. Young and McConnell were co-owners of United Livestock Services, LCC and Professional Business Services.
They pleaded guilty to all five counts of an indictment returned by a federal grand jury in Kansas City last November.
How it worked. Through their businesses, attorney Todd P. Graves explained, Young and McConnell offered to purchase cattle for their clients, to provide care and feeding of those cattle, and to sell the cattle at a profit.
Young and McConnell admitted that they did not purchase the cattle as claimed, but instead falsified records and made misrepresentations in order to defraud numerous ranchers, farmers, business associates, and federally insured financial institutions.
“These were phantom cattle that never existed and were never purchased or sold,” Graves said.
“The defendants used their clients’ money to pay off other investors and cover cash shortfalls, rather than to buy real cattle.”
Payments. Although Young and McConnell paid clients rates of return far above industry averages, Graves said, those payments were not generated by the livestock operations.
Instead, they were generated by other clients, who were also told that their money was being used to purchase cattle and have them fattened for market.
‘Massive fraud.’ “Young and McConnell claimed that their companies had the expertise, financial capacity, and industry contacts to generate higher profits for their clients,” Graves said.
“In reality, their livestock operation was losing money and had to be subsidized by this massive fraud.”
Graves estimated the loss suffered by the defendants’ clients and lending institutions is approximately $160 million.
Varying numbers. At the time Young and McConnell ceased doing business Aug. 10, 2001, records indicate that the defendants had nearly 344,000 head of cattle under their control. Instead, Graves said, less than 17,000 head of cattle actually existed.
“Ninety-five percent of their cattle existed only on paper,” Graves said. “These phantom cattle would be carried on the defendants’ books and records as inventory, which made it seem that their inventory of cattle was far higher than it actually was.”
Once one false document was created, Graves explained, it was necessary to create numerous additional false documents so that the original document would appear to be legitimate.
Inspections. The defendants also admitted that Young deliberately misled clients and representatives of their financial institutions who attempted to inspect the cattle.
“They were careful to schedule these inspections at different times,” Graves explained.
“Young conducted the inspections, telling clients and bankers that they were viewing the cattle they had supposedly purchased or that were used as collateral. In fact, Young was showing the same cattle over and over to different clients.”
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