Defunct livestock cattle broker Eastern Livestock’s founder and its former chief operating officer were sentenced to prison Tuesday for mail fraud that arose from a check-kiting scheme that resulted in losses of millions of dollars to banks and individuals, including area farmers.

Company founder and owner Tommy Gibson, 73, of Lanesville, Ind., was sentenced in U.S. District Court in Louisville to 70 months in prison to be followed by two years of supervised release.

Michael Steven McDonald, 61, of Lanesville, the former COO, was sentenced to 57 months in prison to be followed by two years of supervised release.

The pair had engaged in a check-kiting scheme between 2004 and 2010 in Nelson County and elsewhere. When the company closed, billions of dollars worth of checks issued from various bank accounts were deposited in amounts that exceeded the balances available in those accounts, artificially inflating the company’s cash collateral account.

As a result of the fraud, Fifth Third Bank released funds from a $32 million line of credit to Eastern Livestock, according to court records.

The Indiana-based company processed cattle sales and operated branch facilities in 11 states, including Kentucky.

McDonald and Gibson also submitted fraudulent documents to Fifth Third that contained grossly inflated accounts receivable figures.

Two checks totaling $192,476.41 from company bank accounts were mailed to an address in Nelson County in 2008, leading to the mail fraud count. 

The company’s line of credit with Fifth Third expired Oct. 15, 2010, but Gibson and McDonald continued the scheme by depositing millions of dollars of checks from various bank accounts, in amounts exceeding available balances, into one of the company’s operating accounts with Fifth Third, according to federal court records.

According to the U.S. Attorney’s Office for the Western District of Kentucky, company officials then issued worthless checks from that account, defrauding both the bank and numerous farmers when the bank refused to honor the checks.

“Gibson and McDonald caused widespread damage to the livestock industry and devastating harm to numerous individual cattle farmers in Kentucky and elsewhere,” U.S. Attorney David Hale said in a statement. “Many other businesses associated with the livestock industry were also damaged by the Eastern Livestock fraud.”

Federal prosecutors seized $4.7 million that will be distributed to victims of the scheme by way of two bankruptcy cases in Indiana and the forfeiture action brought by the U.S. Attorney’s Office of Western Kentucky.

Gibson, McDonald and three other former executives pleaded guilty last year in Metcalfe Circuit Court to charges of theft and engaging in organized crime stemming from an investigation into the check-kiting scheme.

Gibson and McDonald were given probated sentences in state court on the condition that the probation be served concurrently with the federal prison sentences.

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