UPDATE: Indiana Livestock Brokers Indicted For Theft From Producers

Managers of one of the nation's largest livestock brokers face federal and state charges alleging they cheated some 200 animal producers through a check-kiting scheme.

The U.S. Attorney's Office for the western district of Kentucky said a federal grand jury has indicted Thomas P. Gibson, former owner of Indiana-based Eastern Livestock Company, and Michael S. McDonald, a company administrator, with one count each of mail fraud. The Kentucky attorney general, meanwhile, said a county grand jury has indicted Gibson, McDonald, and two other Eastern employees on 172 counts of theft by deception.

Authorities allege the company used the check-kiting scheme to cheat banks and cattle producers out of thousands of dollars in proceeds. The charges are the result of an investigation that began in late 2010, after Eastern Livestock failed to pay nearly 800 producers nationwide an estimated $130 million, according to a statement from Kentucky Attorney General Jack Conway.

The federal indictment said Gibson and McDonald inflated the company's accounts receivables in order to tap into a line of credit worth $32.5 million from Fifth Third Bancorp (FITB) and Wells Fargo & Co. (WFC). Eastern used the line of credit to support purchases of cattle that averaged $10 million to $20 million each day, according to the indictment.

Attorneys for both men said they're cooperating with authorities.

Gibson "immediately began cooperating ... in an effort to facilitate the investigation and to hopefully assist in helping people be repaid," said his attorney, Brian Butler, in a phone interview.

Scott C. Cox, an attorney for McDonald, said his client "has been cooperating with both federal and state authorities since the beginning of their investigations."

Both prosecutors alleged the scheme resulted in losses for about 200 cattle producers in Kentucky. At the start of the investigation, Eastern Livestock was one of the nation's largest cattle brokers, according to the Kentucky attorney general.

-By Marshall Eckblad and Curt Thacker, Dow Jones Newswires; 312-750-4070; marshall.eckblad@dowjones.com

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