By TIM THORNBERRY
LEXINGTON, Ky. — The chronicle of the Eastern Livestock Co. (ELC) continues, as the case has gone from criminal proceedings to bankruptcy court to mediation and, now, to a lawsuit.
The suit was filed by a host of cattle producers, auction markets and dealers in several states who lost money when the company’s assets were frozen by principal lender Fifth Third Bank. With that action, millions were lost by plaintiffs who sold cattle to ELC on behalf of livestock producers through auctions and sales venues.
Under federal regulations those auction markets cannot demand payment the same day of a sale from companies such as ELC, as long as they have the proper credentials from the USDA, which Eastern did. But the stockyards are obligated to pay the seller, leaving them vulnerable in a case like this.
The suit, filed against Fifth Third Bank on Nov. 2 in Allen Circuit Court by the DelCotto Law Group of Lexington, stated, “From plaintiff’s perspective, this action can be described as a calculated scheme by a major national financial institute at modern day cattle rustling – i.e. the interruption and seizure of cattle payments without rendering payment for the cattle to hundreds of unwitting, unpaid sellers.”
ELC began to unravel more than two years ago when the USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) received a complaint by a seller that a check issued for sold livestock by ELC had been returned due to insufficient funds. That eventually led to an investigation that indicted top executives at ELC and led to bankruptcy after Fifth Third Bank froze its accounts.
The lawsuit further alleges, “The cattle rustling was carefully timed and expressly engineered by Fifth Third to conceal its long running willful misfeasance and malfeasance in connection with a failed $32.5 million structured financing of Eastern, now a debtor in bankruptcy.”
The lawsuit also alleges, “Fifth Third’s scheme resulted in the return of approximately $30 million in checks due sellers of cattle, including amounts due plaintiffs on checks totaling approximately $3.8 million. This excludes approximately $2.1 million due plaintiffs on invoiced cattle sales for which no checks were even issued in the days following Fifth Third’s opportunistic ‘hold’ of Eastern’s accounts while its scheme unfolded. “In doing so, Fifth Third interfered with and redirected plaintiff’s and other unpaid cattle sellers’ normal payment flows for its own purposes – literally hijacking millions of dollars from the national livestock industry due plaintiffs and others from the sales of cattle.”
While only 22 plaintiffs from Kentucky, Tennessee, Alabama, Mississippi, Georgia and North Carolina are represented in this case, the effects could reach well beyond the boundaries of the Southeast. At the time the investigations began, GIPSA estimated the company to owe more than $130 million to 743 sellers in 30 states, and had documented $81 million in returned checks.
Those plaintiffs listed in this action include CPC Livestock, Bluegrass Stockyards, Bluegrass Stockyards of Campbellsville, Bluegrass Stockyards East, Bluegrass-Maysville Stockyards, Bluegrass Stockyards of Richmond, Bluegrass South Livestock Market, Alton Darnell, East Tennessee Livestock Center, Piedmont Livestock Co., Southeast Livestock Exchange, Moseley Cattle Auction, Alabama Livestock Auction, Sealy and Sons Livestock, Ashville Stockyard, Athens Stockyard Billingsley Auction Sale, Carroll County Livestock Sales Barn, Macon Stockyards, Strickland Farms, Robert Rawls Livestock and John Doe.
Earlier this year the Kentucky attorney general’s office announced “former Eastern chief executive officer and founder, 71-year-old Thomas ‘Tommy’ Gibson, and Eastern’s former chief financial officer, 58-year-old Steve McDonald, each pled guilty to all counts against them.”
Those include one count of criminal syndication, engaging in organized crime; 17 counts of theft over $10,000; 144 counts of theft under $10,000/over $500; and 11 counts of theft under $500.
Those pleas were entered in Barren-Metcalfe Circuit Court and related to a case brought against ELC in Metcalfe County after producers lost $850,000 relating to auction sales at a local sales facility. As part of the plea agreements, farmers who sold at the Metcalfe market, approximately 170 victims, were to receive full restitution.