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Indianapolis lawyer is trustee on multi-state livestock bankruptcy case

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Before taking on a livestock bankruptcy case stretching into multiple states and encompassing millions of dollars, Indianapolis attorney James Knauer hadn’t had much exposure to the cattle industry.

He’d handled millions of dollars in Ponzi scheme, investment and transactional cases and oversaw the management of missing cemetery funds, but cattle weren’t on his radar until late last year.

Now that the veteran attorney is serving as U.S. trustee on a massive cattle fraud case against a collapsed Indiana livestock brokerage company, Knauer’s perspective has changed and he is doing something that has more twists than what he’s been exposed to in the past. The need to keep all parties in the litigation informed has led him to turn to the blogosphere to help get word out about how the bankruptcy case is progressing.
 

jim knauer Indianapolis attorney James Knauer has been named the trustee in a multi-state bankruptcy case involving an Indiana cattle brokerage company. (IL Photo/ Perry Reichanadter)

“This is pretty unique, not just the business of cattle being at the center of it, but the kind of fraud that occurred isn’t something you see every day,” said Knauer, a partner at Kroger Gardis & Regas. “Every time you get involved in a case involving white collar crime or fraud, they’re all unique to an extent and it’s tough to relate them. But this presented some new areas for me.”

Southern Indiana’s Eastern Livestock Co., formerly one of the largest cattle brokerage companies in the country with operations in multiple states in the South,
Midwest, and West, was forced into an involuntary Chapter 11 bankruptcy by its creditors in December. That happened a month after Cincinnati-based Fifth Third Bank froze the brokerage’s accounts based on allegations that the large-scale cattle brokerage ran an elaborate check-kiting scheme. An Ohio court complaint from November shows that a bank audit discovered what Eastern Livestock owner Thomas P. Gibson had been doing.

That investigation showed the brokerage company reported $3.9 billion in sales for fiscal year 2010, more than three times the amount that had been reported a year earlier. Money was being moved from the Fifth Third Bank in Ohio to Gibson’s own account at Your Community Bank in New Albany, and an investigation showed the purpose of the transactions was to manipulate the communications lag between financial institutions in order to create an artificial balance that Eastern Livestock could then withdraw from.

Days before hot checks started hitting last fall, the lawsuit says that Gibson deposited $7.9 million into Eastern Livestock’s operating accounts, and the money was then withdrawn and deposited into the other account. Funds were ultimately frozen after the company defaulted on a $32 million loan and was overdrawn by millions of dollars.

A Grain Inspection and Packers and Stockyards Administration investigation estimates Eastern Livestock owes more than $130 million to 743 cattle settlers in 30 states, the result of bad checks written. Now, hundreds of those creditors and cattle industry players are wrapped up in the bankruptcy proceedings in the Southern District of Indiana. Knauer is responsible for winding down Eastern Livestock’s business, executing outstanding cattle contracts, and figuring out where the money went.

The FBI in January seized $4.7 million from Gibson’s bank account, and that money appears to have come from Eastern. Knauer said the FBI won’t keep the money and plans to distribute it to Eastern Livestock’s victims, but details haven’t been finalized on how that will happen. One possibility is for a receiver to be named in the bankruptcy case, allowing creditors to file claims and have the money properly allocated.

“One of the unusual aspects of this case is the FBI seizure of that bank account, and you have the criminal system and bankruptcy court processes intertwining,” Knauer said. “That’s almost a new emerging area of law, where these criminal justice seizures are colliding with the influence of the bankruptcy… that’s a hot ticket right now.”

Nationally, the collapse of such a large cattle brokerage company has hit the livestock market hard in many states. Indiana hasn’t suffered much, despite Eastern Livestock being based here, but larger livestock states such as Kentucky, Oklahoma, and Texas are among the hardest hit.

“This has quieted down some since it first came out, and luckily our state’s impact has been minimal compared to others in the Midwest and southern states,” said Joe Moore, executive vice president of the Indiana Beef Cattle Association.

Early on, Indiana saw some impact based on money received from Eastern Livestock for cattle bought. The association received $1 from every head of cattle sold, as it goes to the qualified beef counsel for the particular state of origin. The Indiana association saw some initial remittance checks from states of origin, but of the $25,000 to $30,000 of cattle going through Eastern Livestock each month, Moore said that fewer than $500 was from Indiana because most don’t use those large-scale brokerage companies. Instead, most rely on the 23 smaller businesses located statewide.

This has been an expensive but significant lesson for those in the industry, Moore said, signaling that more regular audits need to be done of these types of cattle transactions, especially for larger outfits.

“But while it hasn’t hindered the process here in Indiana, this mess has put some cattle producers to the point of bankruptcy,” he said.

Knauer said he still doesn’t know the total number of people and businesses in the livestock industry that this has impacted.

The entire case entails some different aspects from regular commercial disputes he’s used to, Knauer said. The industry is replete with unusual contract forms because most involve multiple livestock and multiple parties, between the cattle raiser and seller, broker, buyer, and auction house. Knauer said many transactions aren’t well-documented or paperwork isn’t helpful in this type of meltdown.

As a result, that’s caused many contract disputes over what everyone’s rights are, he said. Knauer obtained court permission to immediately sell most of the remaining cattle inventory as soon as possible, and any liens attached to the cattle would be transferred to the proceeds. Other cattle purchasers didn’t know what to pay Eastern, and it was a mess.

Interpleader actions surfaced nationwide from feedlot owners who paid money owed to Eastern into a local court, so Knauer pushed to have all of those suits removed to the Indiana bankruptcy court so that inconsistent procedures weren’t adopted. A list of those actions and progress is on the webpage Knauer set up for this case, as well as a blog he’s posting to periodically to update aspects of the litigation.

He’s writing and updating online at www.easternlivestockbkinfo.com. Over the course of a few months, Knauer has posted invitations for parties to make claims about owed funds or payments and about findings such as discovering that someone wrote a $578,000 check for a cattle shipment and apparently used the signature stamp of someone who died long before the check was issued.

“My thinking for doing this blog is that we could post information about hearings and general progress of the litigation as a way to let people know what’s going on and developing,” he said. “There’s a whole host of issues that have yet to come to light publicly, and can’t because of the legal restrictions, but I’m enjoying being able to update as we go along.”

Despite the size, significance and interesting nuance of a case involving cattle, Knauer said this case is similar in many ways to what he’s done before.

“Other than the unique laws that I’ve mentioned, a lot of it is still just an enormously large amount of commercial law disputes,” he said. “When you boil it down and look outside the fraud and cattle, the case itself is about checks and payments and sales issues. Whether it is cattle or automobiles or anything else, the issues tend to be similar in the end.”•

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  1. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  2. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  3. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  4. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  5. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

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