344,000 head, but they had only about 17,000 head on hand. The rest were fictitious. The losses inflicted on cattle customers and banks were estimated at $160 million. Young and McConnell pleaded guilty to five criminal counts, including mail fraud and wire fraud, and were sentenced to prison in 2004. Having some 17,000 head of cattle on hand made it difficult for banks and cattle owners to detect the fraud. When a banker or cattle owner conducts an inspection and sees thousands of cattle in pens and pastures, they find it difficult to determine a shortage. No one lender or cattle customer knew of the entirety of the Young operation, nor did they know how many cattle one lender might claim as its collateral. As a result, the fraud went undetected for years. Another large cattle fraud was found in the State of Washington. There, Cody Easterday defrauded Tyson Fresh Meats out of $240 million in a scheme to overcharge it for raising cattle. Easterday admitted to charging Tyson for feeding cattle that didn’t exist. Easterday, who allegedly had a gambling addiction, used the fraud to recoup his gambling losses and feed that expensive habit. He pleaded guilty to fraud in March of 2021 and was sentenced to 11 years in prison. He agreed to pay restitution of $244 million, mostly to Tyson. Conclusion: What We Can Learn From These Cases; Trust, but Verify Lenders are taught to inspect and verify collateral, ask questions, insist on seeing financial information and hold the borrower accountable for promises and pay downs. Continuing these practices can help identify or curtail fraud. Watch for Warning Signs There’s no surefire way to identify a borrower engaged in fraud. As these cases teach us, often, the fraudster enjoys a good community reputation and simply appears to be operating profitably. But a few clues might have helped the vigilant lender. 1. Extravagant lifestyle or sudden change in spending habits If a borrower is evincing an especially grand lifestyle, it doesn’t mean he or she is committing fraud, but it might be a warning sign. Someone in the midst of a wildly profitable fraud scheme has a hard time refraining from spending the money. It might be used for frequent trips, a new vacation home, a luxury car or other high-end items. Watch for a sudden change in spending habits. 2. Unwillingness to reveal details about their operations People engaged in an ongoing fraud scheme worry about getting caught. They may seek to minimize the financial information they provide to lenders. For example, a farmer who reports that he farms thousands of acres of leased land but actually farms far less may refuse to identify all landlords from whom he leases. A cattle feeder who overstates the number of cattle on hand may put off inspections. He or she may also under-report income on tax returns. Seek details of your borrowers’ operations, and watch for unreasonable or stubborn refusals to provide details. 3. Promising investors or customers very high returns If your customer runs an operation in which he has partners or investors and your customer is promising to deliver high returns, something else may be going on. Very few ag-based businesses operating within the law can generate reliably high returns year after year. 4. Erratic behavior Deceiving the community, friends, family, bankers and colleagues about your operations takes a toll on mental health. Erratic and surprising behaviors by the person engaged in fraud may provide a clue. Alcohol or drug abuse, gambling, marital problems, and even incidents of violence may be unrelated to a fraud scheme, but they might also be signs of a bigger problem. T. Randall (Randy) Wright concentrates his practice on creditors’ rights, bankruptcy and commercial litigation. He represents lenders, other creditors, purchasers of assets out of bankruptcy, trustees and other stakeholders. He also represents select debtors in bankruptcy. He has courtroom experience in state, federal and bankruptcy courts throughout the Midwest. Counselor’s Corner — Continued from page 19 20
RkJQdWJsaXNoZXIy ODQxMjUw