Owner and Administrator of Eastern Livestock Company Charged with Mail Fraud
Alleged Check-Kiting Scheme Caused Losses to Customers and Banks in the Millions of Dollars
|U.S. Attorney’s Office September 22, 2011|
LOUISVILLE, KY—The owner and administrator of now-bankrupt Eastern Livestock Company, LLC have been indicted by a federal grand jury in Louisville, Kentucky on a single charge of mail fraud for their part in a check-kiting scheme that caused the loss of millions of dollars to approximately 200 sellers of cattle located in the Commonwealth of Kentucky and to Fifth Third Bank and Wells Fargo Bank, announced David J. Hale, United States Attorney for the Western District of Kentucky.
According to the indictment that was unsealed today, Thomas P. Gibson, age 71, and Michael Steven McDonald, age 59, both from Lanesville, Indiana, operated one of the largest cattle brokerage businesses in the United States, processing cattle sales and operating branch facilities in 11 states, including Kentucky, until its closure on November 2, 2010. The indictment alleges that between August 9, 2004 and November 2, 2010, in Nelson County, Kentucky, and elsewhere, the defendants devised a scheme to intentionally cause the deposit of billions of dollars worth of checks issued from various bank accounts, in amounts that exceeded available balances in those accounts, in order to artificially inflate balances in Eastern Livestock’s Cash Collateral account. Eastern Livestock made daily deposits into their Cash Collateral Account from payments received from its daily sale of cattle. The amount of money that the company deposited into its Cash Collateral account affected the amount of funds that Fifth Third Bank would release from Eastern Livestock’s $32 million line of credit. Thus, according to the Indictment, the defendants’ purpose in engaging in this check-kiting scheme was to induce Fifth Third Bank, through fraud and deceit, to continue the release of funds to Eastern Livestock under the company’s line of credit with the bank.
The line of credit with Fifth Third Bank expired on October 15, 2010, though the indictment alleges that the defendants continued the execution of the check-kiting scheme against Fifth Third Bank after the line of credit was discontinued by causing deposits of millions of dollars worth of checks, issued from various bank accounts, in amounts which exceeded available balances, into one of Eastern Livestock’s operating accounts maintained by the company with Fifth Third Bank, thereby artificially inflating balances in the affected accounts. The Indictment also asserts that during this timeframe the defendants issued millions of dollars in worthless checks, from this same operating account, causing a financial loss to Fifth Third Bank and hundreds of Eastern Livestock customers, after the worthless checks were dishonored.
“This indictment and the related seizure of $4.7 million are the products of a lengthy cooperative investigation involving the U.S. Department of Justice, the U.S. Department of Agriculture’s Office of Inpector General, the U.S. Postal Inspection Service, the Federal Bureau of Investigation, and the Kentucky Attorney General’s Office,” commented U.S. Attorney Hale.
Gibson and McDonald voluntarily turned themselves over to the U.S. Marshals Service in Louisville, Kentucky and were released. If convicted, Gibson and McDonald face a maximum sentence of 30 years in prison a fine of $1,000,000 dollars, and a period of five years of supervised release.
A bankruptcy petition against Eastern Livestock is in U.S. Bankruptcy Court, Southern District of Indiana.
This case is being prosecuted by Jim Lesousky and Marisa Ford, Assistant United States Attorneys for the Western District of Kentucky. This case is being investigated by the U.S. Department of Agriculture, Office of Inspector General-Investigations; U.S. Postal Inspection Service; the Federal Bureau of Investigation (FBI); the Department of Justice, Criminal Division, Fraud Section; and the Kentucky Office of the Attorney General.
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The indictment of a person by a grand jury is an accusation only and that person is presumed innocent until and unless proven guilty.