A Pueblo County, CO, rancher was sentenced to 41 months in prison and ordered to pay over $4.9 million in restitution for a cattle investment scheme to develop a new breed of cattle.
According to court documents, Richard K. Sears began collecting funds in 2008 to develop the Rocky Mountain Romangus—a cross between Angus heifers and Romagnola bulls—which never came into existence.
For an “entry fee,” Sears claimed he would purchase the animals and then “lease-back” the cattle for a set period and be responsible for paying all costs related to the cattle. According to court documents, Sears would solicit customers through advertising with his big game business, Trophy Outfitters Inc., to make appeals to hunting customers for funds toward the expansion of his cattle herd.
Sears agreed to pay the investors an annual “cash return” or “lease-back payment” of 10 percent and to repurchase the cows for no less than the original purchase price at the end of the lease period.
Sears initially made lease-back payments to investors to show their investments were successful. In 2011, Sears stopped purchasing cattle yet continued to solicit new investors. At the same time, he misrepresented the true number of cows in his possession.
By September 2013, Sears’ plan began to unravel, and he continued to solicit investors, obtaining over $800,000. Prosecutors brought into evidence a letter Sears wrote to one investor that the operation was suffering from a series of operational setbacks and financial problems. Sears blamed the troubles on a lack of pasture due to drought, subsequent increasing hay and feed costs, reductions in available irrigation water and trichomoniasis, which required his herd to be quarantined and caused the loss of “between 45 and 50 percent of our calf crop due to aborted calves.”
Prosecutors stated Sears used the funds for personal use, including repayment of back taxes and to recover from earlier losses. Sears was convicted of three counts of failing to file tax returns from 2004-2009 with the IRS in December 2013, according to a press release from the Department of Justice.
Additionally, the IRS attempted to collect $37,000 in taxes for the 1991-1993 tax period. Sears was ordered to pay $278,274 in back taxes owed for 1991-1993 and the tax loss from his failures to file income tax returns for 2004-2009.
Prosecutors stated Sears purchased only a fraction of cattle he was contractually obligated to purchase, or none at all. An investor became suspicious in 2014 of Sears’ operation, demanding the cattle be inventoried. Brand inspectors with the Colorado Department of Agriculture determined that Sears possessed substantially fewer cattle than he was contractually obligated to possess for all of his other investors. According to the indictment, Sears promised in excess of 5,000 cattle, and “Sears only purchased or acquired and branded approximately 2,000 cows for investors despite his promises.”
Sears filed a petition for bankruptcy in 2015, attempting to discharge his financial commitments to his investors and “conceal the fact that he purposely failed to actually purchase, acquire and/or brand the requisite number of cattle promised to investors.”
An employee of Sears pled guilty to bankruptcy fraud, admitting he helped Sears fraudulently conceal assets and income that were legally required to be disclosed in his employer’s bankruptcy case. In March, Stephen Flowers was sentenced to serve six months in federal prison and six months of prison home detention.
Prosecutors said Flowers provided “substantial assistance” to aid investigators in gathering evidence against Sears. At Flowers’ sentencing, Judge William J. Martнnez said the investors were victims of a Ponzi scheme and that he felt so bad for the victims.
According to court documents, Sears and his four corporations received over $7 million from 111 investors, and his scheme caused over $4.9 million in losses. Sears pled guilty to one count each of mail fraud and money laundering. Prosecutors dropped nine other charges against Sears after Sears agreed to repay investors. Sears will be on supervised probation for three years upon his release. — Charles Wallace, WLJ editor
