Owner And COO Of Defunct Eastern Livestock Company Sentenced In Federal Court For Committing Mail Fraud
– Founder Thomas Gibson sentenced to 70 months in federal prison;
– COO Michael McDonald sentenced to 57 months in federal prison
May 22, 2013LOUISVILLE, KY – The former owner and former chief operating officer of now-bankrupt Eastern Livestock Company, LLC, were sentenced in U. S. District Court today, by Senior Judge Thomas B. Russell, for mail fraud arising from their part in a check-kiting scheme that caused the loss of millions of dollars to hundreds of businesses and individuals, including approximately 200 sellers of cattle located in Kentucky, who did business with Eastern Livestock in 2010, announced David J. Hale, United States Attorney for the Western District of Kentucky.
Founder and former owner, Thomas P. Gibson, age 73, of Lanesville, Indiana, was sentenced to 70 months in federal prison, followed by two years of supervised release, and former Chief Operating Officer Michael Steven McDonald, age 61, of Lanesville, Indiana, was sentenced to 57 months in federal prison, followed by two years of supervised release, for their parts in a multi-million dollar check kiting scheme. There is no parole in the federal system.
“Gibson and McDonald caused widespread damage to the livestock industry and devastating harm to numerous individual cattle farmers in Kentucky and elsewhere. Many other businesses associated with the livestock industry were also damaged by the Eastern Livestock fraud. These lengthy prison sentences hold Gibson and McDonald accountable for their federal crimes,” commented U.S. Attorney 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. Equitable disbursement of these funds to victims will be accomplished through a coordinated process involving two Eastern Livestock bankruptcy cases pending in the Southern District of Indiana, and the forfeiture action brought by my office in federal court in the Western District of Kentucky.”
Eastern Livestock was one of the largest cattle brokerage businesses in the United States, processing cattle sales and operating branch facilities in eleven states, including Kentucky, until its closure on November 2, 2010. According to the plea agreement, between August 9, 2004 and November 2, 2010, in Nelson County, Kentucky, and elsewhere, the defendants 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. To further support the fraudulent scheme, the defendants caused false and fraudulent documents to be submitted on a daily basis to Fifth Third, which contained grossly inflated accounts receivable figures. The U.S. mail and/or commercial interstate carrier service was used in the execution of the scheme in that the defendants caused checks to be issued from Eastern Livestock accounts, which were mailed to business associates who agreed that checks from their business accounts could be deposited into the Eastern Livestock account at Fifth Third, thereby 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, Kentucky, on or about September 5, 2008. 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, and these checks were dishonored 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.
U.S. Attorney Hale commended the 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.
This case was prosecuted by Assistant U.S. Attorney Marisa Ford, and Special Assistant U.S. Attorney James R. Lesousky, Jr. Assistant U.S. Attorney Amy Sullivan is prosecuting the civil forfeiture claim.