by Katie Micik, DTN Markets Editor
Friday, March 30 — OMAHA (DTN) — Thomas Gibson, owner of Eastern Livestock Company, earlier this week pled guilty to Kentucky state charges that he engaged in organized criminal activity and committed 172 acts of theft.
Three other Eastern executives also pled guilty. Steve McDonald, the cattle brokerage’s chief financial officer, pled guilty to the same charges as Gibson. Kentucky’s Attorney General’s office recommends a sentence of 10 years for both men, to be served concurrently with any penalty that may come from a federal charge of mail fraud. Final sentencing for Thomas Gibson will be on June 26 while the other three will be sentenced on June 12.
Grant Gibson, Thomas Gibson’s son who regularly did business with Eastern Livestock, and Darren Brangers, Eastern’s accountant, pled guilty to facilitating Gibson’s and McDonald’s criminal syndicate and to facilitating the several instances of theft committed by the co-defendants, according the Kentucky Attorney General’s office.
Grant Gibson is expected to pay $680,000 and Brangers $210,000 in restitution to the approximately 170 Kentucky ranchers left holding Eastern Livestock’s worthless checks. Allison Martin, a spokesperson for the Kentucky Attorney General’s office, said that if Grant Gibson or Brangers don’t pay the restitution or miss a payment, the state may seek five-year prison sentences for each. The first restitution payment will be made at the sentencing hearing and two more payments will follow, she said.
Thomas Gibson declined to comment. A message left at Grant Gibson’s home wasn’t returned. Contact information for McDonald and Brangers wasn’t immediately available.
Edmonton, Ky., rancher Gary Bell sold 20 steers to Eastern Livestock on Nov. 2, 2010, a day after Fifth Third Bank froze Eastern’s accounts because it had detected a check kiting scheme. His check, like others sent to 700 ranchers and feedlots around the country, didn’t clear.
“We’re pleased that the AG’s office did what they did and we got restitution, but it is bittersweet because a lot of people suffered consequential damages that the restitution will not fully cover,” Bell told DTN. Some ranchers couldn’t cover property taxes that year, for example. Some owed money on the cattle Eastern bought and had to mortgage other property to pay back the bank.
Kentucky ranchers may be the lucky ones. Eastern Livestock’s collapse affected ranchers in more than 30 states holding about $130 million of bad checks, according to USDA estimates. Whether or not they’ll get paid depends on the outcome of the bankruptcy case.
Colin Woodall, the National Cattlemen’s Beef Association vice president of legislative affairs, said the guilty pleas will satisfy one area of rancher’s discontent.
“But the biggest thing for us and for our members is OK, yeah it’s great they plead guilty, but where is the money and how can we get that returned to the producers who were going about their regular business and have been left high and dry?” Woodall said.
The bankruptcy case is bogged down in litigation. Bankruptcy trustee Jim Knauer is in the process of suing people and businesses who he believes still owe Eastern Livestock money. He reached an agreement to liquidate Eastern’s share in a feedlot and is looking to sell off other shares of businesses Eastern owned.
All of this is complicated by Eastern Livestock’s lack of records, false records and under-the-table deals, according to the case’s first status report earlier this month.
The longer it takes the trustee to make sense of Eastern’s records, the more money his operations require. “And that’s our concern. Will that money run out before we find where the rest of it is, or will we actually have an opportunity to get some money back to producers?” Woodall said.
Two other big questions still remain on producers’ minds about accountability: Why didn’t the Grain Inspection, Packers and Stockyards Administration notice Eastern’s behavior and stop it, and what did Fifth Third Bank know and when did they know it?
Woodall said NCBA is seeking a congressional hearing to review GIPSA’s oversight. GIPSA’s audit history of Eastern Livestock is thinner than other sale barns and order buyers believe it should be. GIPSA’s Packers and Stockyards Program is charged with guarding against deceptive and fraudulent trade practices that affect the movement and price of meat animals and their products.
“It really is about trying to get a final answer about what GIPSA knew or didn’t know,” he said. “But as we move forward just looking at the future, we’re going to want to know how these guys get held accountable for major failures like this.”
The bankruptcy trustee has also employed a special legal team to investigate Fifth Third Bank’s legal claims and responsibilities. There’s been some questions and speculation among farmers that Fifth Third knew what was going on in Eastern’s accounts and chose to freeze the funds when they thought they’d have the highest chance of recovering their losses.
The special investigators received more than 30,000 pages from Fifth Third, according to a preliminary report filed by Hoover Hull, the outside legal team.
According to the preliminary report, Hoover Hull is investigating if a) there are any common law claims against the bank such as fraud, aiding and abetting or conspiracy with Fifth Third; b) if it would be proper for the court to make the bank’s claim subordinate to other creditors’ claims; c)analyzing if the bank received any preference of payments; d) whether any cash recovered by the bank counts as a preferential payment under bankruptcy law; and e) whether the bank was a good faith purchasers for the value of Eastern’s cattle if the cattle purchase only transferred a voidable title.
In short, the firm is looking at whether Fifth Third’s claims in the case are valid and if they have a right to the liens on cattle, which are in dispute because of some of the terminology used in cattle contracts.
Hoover Hull’s final report with an answer to these questions is scheduled to be completed about 30 days from March 16, barring any unforeseen circumstances or lack of cooperation by the bank.
“Hopefully this report will let us know exactly what the situation is,” Woodall said.
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Posted with DTN Permission by Haylie Shipp
