One of the cottage industries that has grown up around the business of Bankruptcy is the buying of claims. Claims buyers try to keep in close touch to events in bankruptcy cases and then try to make money by contacting creditors and buying their claims at a discount to what they think the claims are actually worth. I certainly recognize that this practice fulfills a legitimate need. Some folks need to sell their claim for whatever they can get and the process of paying out money in bankruptcy cases can be frustratingly slow.
Recently I learned that claims buyers are offering to buy Eastern Livestock claims from creditors for 10 to 11 cents on the dollar. No doubt these prospectors have read some recent court filings and are trying to get out ahead of any formal court-approved disclosures. These claims buyers may also be motivated by the plan I recently filed which proposes a significant settlement with the debtor’s prime lender, Fifth Third Bank. My plan includes projections that might produce much higher payouts than these firms are offering. My plan can't be mailed to all creditors until the court approves a statement containing information about the plan. I think this will occur in September.
There is much maneuvering going on the Eastern's case over the terms of my plan. Several parties, mostly whom I am suing, or who are claiming funds belonging to Eastern, allege that I and my counsel should be removed from this case. They claim that since my law firm and my main counsel's law firm have represented another bank who invested in Fifth Third’s loan, we are biased an unable to negotiate with the bank. But their motions ignore the fact that special counsel (an Indianapolis firm who never had dealings with Fifth Third) was engaged by me to investigate the bank and analyze potential claims. That firm agrees with me that we should settle now and avoid the costs and risks of litigation. In other words, even if we were successful against Fifth Third, we would be in litigation for years. And, if we lost, creditors would get very little money, probably less than the amounts now being offered by the claims buyers.
The Court will consider the removal motions in early September, and unless they are granted, the Court soon will consider letting my plan be mailed out in late September. In the meantime, think carefully about any proposals to buy your claims. You have been taken once, don't let it happen twice.
In light of the fact that no objections were filed to the proposed settlement with Florida Creditors, the hearing previously scheduled at the Court in New Albany, Indiana for this coming Monday, July 9th, 2012 has been cancelled.
Tom Gibson receives 10 year jail sentence; Federal charges still pending. UPDATE: Unfortunately, I don’t know anything other than what is in the article, which can be found HERE.
Eastern Livestock asserted claims against Gary Seals, one of its former branch managers, many of which pertained to actions which we alleged he took in the final days of Eastern’s business operations.
After lengthy negotiations with Mr. Seals and his counsel we eventually reached a settlement of all claims for a substantial amount to be paid partly in lump sum with a balance paid in monthly installments over 18 consecutive months which includes a discount for timely payment.
On Tuesday of this past week, Eastern's former Chief Financial Officer, Steve McDonald, its former controller, Darren Brangers and Grant Gibson (son of Eastern's owner, Tommy Gibson) were sentenced in Kentucky state court based on guilty pleas and restitution agreements made with the office of the Kentucky Attorney General. Still pending are criminal charges in Federal Court against Tommy Gibson and McDonald. Tommy Gibson who also has entered a guilty plea is to receive his state court sentence on June 26th. Click HERE for more information.
Several creditors have inquired whether Eastern Livestock has claims against Fifth Third Bank. At the direction of the Court, the Trustee has conducted an investigation over many months and the Report on the results of the investigation was recently filed with the Court. You can review the report by clicking HERE.
First Bank & Trust Company (“FBT”), a lender to Tom Gibson, has filed suit in Hamilton County Ohio against 5th Third Bank (“5/3”), the primary lender to Eastern Livestock. The lawsuit claims that 5/3 recklessly (or perhaps knowingly) allowed Eastern to kite checks for some time, and that the Bank’s motivation to do this was based on the fees it earned from the banking relationship. Among other things, FBT identifies approximately $450,000 in deposits to 5/3 of cattle sales proceeds that FBT claims were subject to FBT’s lien because they represented sales of Tom Gibson’s cattle by Eastern. The lawsuit also claims that when it ceased advancing funds to Eastern, 5/3 know that Eastern’s checks to cattle sellers would bounce, but that proceeds from cattle buyers would continue to come into 5/3 reducing its loan balance. There are many other allegations ( see the attachment). The Bank’s time to respond to the complaint has not yet expired.
Yesterday, March 27, 2012, Tommy Gibson and Eastern’s former Chief Financial Officer, Steve McDonald, each plead guilty to seventeen counts of theft over $10,000; 144 counts of theft over $10,000/over$500; eleven counts of theft under $500 and one count of criminal syndication. "Criminal Syndication" is a Class B felony carrying a sentence of 10-20 years in prison. The Kentucky Attorney General is recommending a ten year prison sentence for McDonald and Gibson which would run at the same time as any federal sentence these two might receive from the current federal criminal charges which are still pending against them. Darrin Brangers and Grant Gibson also plead guilty to facilitating the operations of a criminal syndicate and to facilitating instances of theft committed by Tommy Gibson and Stanley McDonald. The Kentucky Attorney General is recommending a five year sentence for each of these Defendants which would be probated in the event they pay the agreed upon restitution. Grant Gibson agreed to $680,000 of restitution and Brangers agreed to $210,000 of restitution. Final sentencing is scheduled for June 12, 2012, however Tommy Gibson will be sentenced on June 26, 2012. Please see the attached link for further information. Tommy Gibson / Steve McDonald / Darren Brangers and Grant Gibson enter felony guilty pleas - restitution ordered
It turns out that the Eastern Livestock’s banking problems were not the first time that Tom Gibson was involved in issuing checks that were not covered by funds on deposit at the time of issue. In a reported legal case, First National Bank of Sikeston v. Transamerica Insurance Company, 514 F2d 981 (1975), Tom Gibson was part owner of a business operated as Gibson Livestock Company in Marion, Kentucky. Tom Gibson owned the business with the president of First National Bank, one Donald Bohannon. In 1970 and 1971 Gibson Livestock was using First National as its bank and Bohannon as president had authorized Gibson Livestock’s deposits to have immediate credit without waiting for the checks to clear. This practice had been criticized by the Comptroller of Currency both because it violated banking law and also because it represented a conflict of interest for Bohannon as president of the bank and an owner in the cattle company. Bohannon subsequently arranged for a line of credit at Union Planters Bank guaranteed by a third party trust and the proceeds from the line of credit at Union Planters would be used to make sure that deposits at First National were covered. Bohannon then went to yet another bank (Providence Bank) and told them about the arrangement with Union Planters Bank and First National and requested Providence give immediate credit to Gibson Livestock checks since they would always be covered by the arrangement between First National and Union Planters. Relying on the arrangement from Bohannon, Providence Bank began giving immediate credit for checks deposited from Gibson Livestock and checks issued by Gibson Livestock for cattle purchases. Providence then sent the checks to First National through the Federal Reserve System which, in 1971, took four to six days for the check to arrive at First National. Since Bohannon was still an officer of First National, each day he would determine the amount necessary to cover checks presented to First National and then transfer money from the Union Planters credit facility to cover the checks. As the Court later noted, the problem with this arrangement was that the Gibson Livestock credit line at Union Planters was being used to cover checks presented at First National which, but for the daily transfers in from Union Planters were insufficient funds. Ultimately the arrangement blew up and at the time Gibson Cattle was processing about Thirty Million Dollars a year through First National. Checks honored by Providence Bank cause the bank to loose approximately $340,000.00 and Providence Bank sued First National claiming that it relied on the promise of First National’s president, Bohannon, that the checks would always be covered.
There have been several requests by Creditors of Eastern Livestock and its affiliates for prior budgets. They now can be found by clicking, HERE. Please note, prior to the period beginning July, 2011, ELC operated on an “actual” basis, with periodic reporting to Fifth Third. Thank you.
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