Ghost Cattle Operations in Kentucky and Texas at the Center of Major Fraud Allegations

The cattle industry is wondering how wide of an impact the apparent cattle marketing fraud unfolding this spring will have in cattle country. According to reports from Drovers and Beef Magazine online, upwards of 80,000 cattle may have been involved- and based on the bankruptcy filings of the companies connected to Brian McClain of Benton, Kentucky- there could be $50 to $100 million dollars worth of liabilities that creditors may not find recoverable.

Apparently- investors have been swindled out of millions- and some cattle producers have sold loads of cattle and had checks bounced as this scheme has come to a head.

McClain committed suicide in mid April- and Beef Magazine cites sources that say two others connected with the case have committed suicide- a commodity broker as well as one investor.

McClain Farms Inc., 7M Cattle Feeders Inc. and McClain Feed Yard Inc. all filed Chapter 7 bankruptcy in the United State Bankruptcy Court for the Northern District of Texas at the end of April. Farm Credit Associations in Texas, Oklahoma and Kansas, Lazy J Arena in Stillwater, Cactus Feeders Finance LLC, First Capital Bank of Texas, Caterpillar and Rabo AgriFinance are just a few of the over 100 creditors owed by the entities. Estimated assets range from $1 million- $10 million while estimated liabilities range from $50 million- $100 million. 

According to the Drovers article written by Greg Henderson- “McClain’s scheme allegedly dates back six years when, as sources told Drovers under condition of anonymity due to the nature of the allegations, he began seeking investors for his cattle operations with the “guarantee” of a 30% return on investment. Over time McClain’s inventory of cattle grew and some investors did see hefty profits. But those investors were apparently paid with more borrowed money.”

The AMS issued a release on May third- as they search for anyone that may have been caught up in selling their cattle and not getting payment- saying “The U.S. Department of Agriculture’s (USDA) Agricultural Marketing Service (AMS) is notifying anyone who sold livestock to and has not received payment from McClain Farms Inc., 7M Cattle Feeders Inc., McClain Feed Yard Inc., or Brian McClain to file Dealer Trust claims promptly.

“Unpaid livestock sellers may be protected under a provision of the Packers and Stockyards Act of 1921, that requires all livestock purchased by a dealer in cash sales, and all receivables or proceeds from such livestock to be held in trust for the benefit of all unpaid cash sellers.

“Unpaid sellers must act quickly as the law requires that claims be filed with USDA and McClain within 30 days after payment is due, or within 15 business days after a payment instrument issued to the livestock seller has been dishonored.  Claim amounts should be for the gross amount McClain agreed to pay for livestock.

“Claims should be submitted to: Agricultural Marketing Service, Fair Trade Practices Program, Packers and Stockyards Division, Midwestern Regional Office, 210 Walnut Street, Room 317, Des Moines, IA 50309. Claims may also be emailed to PSDDesMoinesIA@usda.gov.

“For questions regarding the claims process, please contact the PSD Midwestern Regional Office at (515) 323-2579.”

Cattle market sources tell the Oklahoma Farm Report that it’s important to understand that if a purchase of cattle was made through a livestock market or a commission firm like found at the Oklahoma National Stockyards- the seller of the cattle would be protected from bad payment from one of these companies of McClain that might issue a check that bounces. The Market or Commission Firm would be bonded and have funds to protect the original cattle owner- but if a cattle producer made a direct private treaty sale- they would have no such protection.

If you have had an encounter with these companies or with the late Brian McClain- email Ron Hays at ron.hays@radiooklahoma.net and tell us your story.

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