THE chief executive officer and chief financial officer of defunct Eastern Livestock Co. LLC were sentenced to federal prison terms last week.
Eastern founder and CEO Thomas Gibson was sentenced to six years in a federal prison for mail fraud, and CFO Michael Steven McDonald was sentenced to five years in a federal prison for his role in the scheme. They were also assigned to two years of probation following their release from prison.
The terms were handed down in the U.S. District Court for the Western District of Kentucky in Louisville, Ky. Both men pled guilty to the charges in January.
Eastern, headquartered in New Albany, Ind., was one of the largest livestock auctions in the U.S. It bought and sold livestock through its auction barns in 11 states and did business with farmers and ranchers in 30 states.
However, three years ago, the Grain Inspection, Packers & Stockyards Administration (GIPSA) filed a complaint that charged Eastern with failing to pay livestock producers for their animals and failing to maintain an adequate bond (Feedstuffs, Nov. 29, 2010). GIPSA acted after receiving a complaint from a producer that a check from Eastern had bounced.
Subsequent investigations discovered that the company had inflated the value of its cash collateral account to win a $32 million line of credit from Fifth Third Bank. The company continued to write checks on its account after Fifth Third closed the line of credit in October 2010.
Eastern owes payments to about 740 producers, three of whom forced it into involuntary bankruptcy (Feedstuffs, Dec. 13, 2010). The bankruptcy is pending in the U.S. Bankruptcy Court for the Southern District of Indiana.
Last year, Gibson and McDonald pled guilty in the Metcalf Circuit Court in Kentucky to being engaged in organized crime and theft and were sentenced to 10 years in state prison. The sentence was probated due to the federal charges.