OMAHA (DTN) -- Thomas Gibson, the former head of cattle brokerage Eastern Livestock Company, has been convicted of mail fraud as part of a check-kiting scheme that sent $130 million of bad checks to cattlemen and businesses across the country.

This latest conviction in U.S. District Court in Kentucky focused on federal charges against Gibson, now 73. He was sentenced to 70 months in federal prison along with two years of supervised release. Former chief operating officer of Eastern Livestock, Michael Steven McDonald, age 61, was sentenced to 57 months in federal prison and two years supervised release for his part in the multi-million dollar 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," stated David Hale, United States Attorney for the Western District of Kentucky, in a news release. "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."

These two men had previously been sentenced on state charges. The new federal charges will run concurrent with the state charges, which added up to 10 years jail time for both Gibson and McDonald. The state charges followed a guilty plea by the two men to the following: one count of criminal syndication, engaging in organized crime, 17 counts of complicity by theft by deception over $1,000, 144 counts of complicity to theft by deception over $500 but under $1,000, and 11 counts of complicity to theft by deception of less than $500.

Gibson and McDonald admitted they were part of an ongoing "criminal collaboration" between 2009 and 2010, which involved theft, falsely inflating accounts, and check kiting. In Kentucky, about 200 cattlemen were issued checks for their cattle that did not clear the bank.

To date some $600,000 has been paid in restitution to producers, and more checks are expected to be issued in the months to come.

In an earlier article reporting on the state charges, DTN Markets Editor Katie Micik spoke to Edmonton, Ky., cattleman Gary Bell. He sold 20 steers to Eastern Livestock in November 2010. His check, like others sent to ranchers and feedlots around the country, didn't clear.

Following the state convictions, Bell said: "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 he knew couldn't cover property taxes that year, and some still owed money on the cattle Eastern bought and had to mortgage other property to pay the bank.

Hale said the seizure of $4.7 million early on from the defendants' accounts preserved what he described as a "significant portion of the crime proceeds" which can be distributed to the victims. The disbursement is being handled through two bankruptcy cases pending in Indiana, and the forfeiture action brought by Hale's office in federal court in the Western District of Kentucky. The bankruptcy cases are still ongoing but are nearing their final stages.

Before its downfall, Eastern Livestock was one of the biggest cattle broker operations in the U.S. It worked in 11 states until they were closed down November 2010 after issuing bad checks to more than 700 ranchers and businesses. The plea agreement says defendants Gibson and McDonald were involved in fraud and check kiting for nearly 6 years, from August 2004 to November 2010.

(KM/CZ )

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