Eastern Livestock Company facing financial challenges
November 12, 2010
The talk at livestock auctions across the country this week is the Eastern Livestock Company situation. Speculation runs wild on what caused the New Albany, IN-based company to write bad checks for livestock that are being returned as “Insufficient Funds.” Problems began to surface around Nov. 3.
As of Monday, Nov. 8, the Livestock Marketing Association (LMA) reported that Eastern had $94 million in unpaid livestock transactions, based on audit figures released by the Grain Inspection, Packers and Stockyards Administration (GIPSA).
“Fifth Third Bank has frozen the account, which means there very well could be proceeds that have been frozen, too,” LMA CEO Mark Mackey said. “$94 million is a lot of money, but in terms of total livestock transactions, it will not have an impact. We will all get through this.”
To put that $94 million figure in perspective, Scott Vance, owner of Faith Livestock in Faith, SD, penciled it out to roughly the equivalent of 120,000 loads of cattle.
“How many people does it affect – that will be a big factor,” Vance said, noting cattle producers, order buyers, truckers and receivers could potentially feel the impact.
On Wednesday, Nov. 10, Fifth Third Bank, Cincinnati, OH, filed suit against Eastern Livestock Company, claiming a security interest in all of Eastern’s assets.
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“LMA has been able to verify that Fifth Third Bank has security interests in assets, including livestock, inventory, accounts receivable and general liabilities, contracts and contract rights” Mackey said.
In connection with that suit, summons has been issued to Eastern Livestock Company and its owner, Thomas Gibson. According to LMA, the bank has filed a motion for a temporary restraining order and permanent injunction, and for the emergency appointment of a receiver. Elizabeth Lynch, with the firm of Development Specialists, Cleveland, OH, has been appointed receives, Mackey said.
In private treaty transactions outside of the auction market, buyers need to be aware that if they signed a consent form with Eastern Livestock Company, Fifth Third Bank also needs to sign-off on that consent form. “When the smoke clears, if there’s not enough funds to cover [the debt], they have the right to go back and recover those funds,” Mackey said.
Who exactly does this affect? “Anyone doing business with them,” Mackey said.
Larry Schnell owner of Stockmens Livestock in Dickinson, ND, sold cattle to Eastern Livestock Company last year via video. “From the Mississippi River to the ocean, they are huge – a major buyer. But we haven’t really been affected (this year), thank goodness,” Schnell said.
“Producers that sold cattle through a livestock auction don’t need to worry,” Mackey said. “But if they sold cattle on contract, they still might be exposed.” That’s because auction markets transfer ownership from the seller and to buyer and assume the risk. Eastern Livestock Company has buying stations and collection points scattered throughout the Southeast and Midwest. Many of these producers are holding NSF checks.
“It’s a big deal to people who are affected by it, but it hasn’t affected the market; others have stepped up to buy those cattle,” Mackey said. LMA has heard of some feedyards not accepting cattle if they were contracted through Eastern Livestock Company, but they will buy those same cattle when sold through a livestock auction market, in order to get a clear title.
LMA urged its members to contact the Livestock Board of Trade and LMA’s legal team VanHooser & Eftink, P.C. if they are holding returned checks or otherwise unpaid livestock transactions and/or Eastern Livestock Company.
While Mackey wouldn’t speculate on how Eastern Livestock Company and Thomas Gibson got themselves into this situation, he said the details would be revealed in the court documents.
“It’s a perfect example of how local livestock markets protect their markets,” Mackey said. “You don’t hear a lot about this because livestock auction markets assume the risk for a very small cost – commission.
“That’s the beauty of selling at a livestock auction market. They assume that risk for a minimal charge. If you don’t want to pay commission, you usually get what you pay for.”