A federal judge has granted a second stay in the Commodity Futures Trading Commission’s (CFTC) lawsuit against rancher Cody Easterday, pending the outcome of the bankruptcy case with Easterday Farms and Easterday Ranches Inc.
Judge Stanley A. Bastian of the U.S. District Court for the District of Eastern Washington granted the stay until May 10 or the effective date of the Chapter 11 bankruptcy plan, whichever comes first.
Easterday lawyers requested the stay, stating as part of the bankruptcy agreement, Easterday needs to “negotiate in good faith an allocation protocol in connection with the proceeds from the sale of real property.” CFTC did not file an objection to the motion.
The CFTC filed a lawsuit on March 31, 2021, charging Easterday with making false statements to an exchange and violating exchange-set position limits. As president of Easterday Ranches, Easterday reported nonexistent cattle in two hedge exemption applications in 2017 and 2018, seeking permission to exceed the exchange’s position limits.
According to CFTC, the false statements were made to avoid disciplinary actions when Easterday Ranches exceeded exchange-based position limits in the live cattle and feeder cattle futures markets.
Under Chicago Mercantile Exchange (CME) rules, one entity cannot hold more than 300 feeder cattle contracts (each contract represents 50,000 pounds). The CME does allow exemptions to this limit, but only if the trader can prove that they are hedging actual cattle, not trading speculatively.
In December 2021, Bastian issued an order granting a permanent injunction against Easterday Ranches Inc., requiring the company to pay $233 million in restitution and a $30 million civil monetary penalty.
Due to the bankruptcy proceedings, these amounts have been subordinated to the claims of other Easterday Ranches creditors. The company was also ordered to cease and desist from further “violating the Commodity Exchange Act and CFTC regulations, from trading on or subject to the rules of any CFTC-registered entity, and from engaging in any activities requiring registration with the CFTC.”
Bankruptcy
Creditors with Easterday Ranches Inc. and Easterday Farms are moving one step closer to settling the bankruptcy proceedings. On March 16, Judge Whitman L. Holt of the U.S. Bankruptcy Court of Eastern Washington will hear settlement cases for Washington Trust Bank and CHS Inc.
On Feb. 17, court documents were filed on a proposed settlement agreement and release for Washington Trust Bank (WTB) for over $49 million. WTB, in the settlement, agreed to reduce their claim by $2.28 million while relinquishing any other claims. As part of the agreement, a 10 percent discount would be applied if the total amount of funds is received no later than June 30, 2022.
According to court documents, the Easterday family took out a $45 million line of credit on Sept. 3, 2020, with WTB granted a first-priority lien in certain of the debtors’ personal property. On April 13, 2020, the Easterday family entered into an agriculture loan agreement with CHS Capital LLC for $6 million. On May 21, 2021, CHS assigned all of its interests in the CHS loan documents to WTB.
Lawyers for Easterday filed a second notice on Feb. 18 to approve a settlement with CHS Inc. and CHS Hedging LLC (formerly known as Country Hedging Inc.). According to court documents, on April 9, 2021, during bankruptcy proceedings, when a statement of financial affairs was filed, it revealed that prior to Easterday Ranches filing for bankruptcy, CHS Hedging received payments in the aggregate amount of $17.7 million. On the same date, Easterday Farms filed a statement of financial affairs, showing CHS Hedging received a payment of $160,393.
Before the bankruptcy filing, Easterday, on behalf of Easterday Ranches, utilized CHS Hedging’s services to hedge against fluctuations in the price of cattle. CHS Hedging earned commissions related to Easterday Ranches’ hedging activity.
On May 28, 2021, CHS filed two unsecured claims against Easterday Ranches for $460,986 and $239 on account of feed and fuel that CHS sold to Easterday Ranches prior to the filing. The court documents stated that to complete the resolution of the claims by CHS and the debtors, CHS has agreed to pay $7.4 million, and both sides shall mutually release their claims and obligations.
The debtors believe this will maximize the value for stakeholders as the expense and delays of litigation regarding “patronage equity” in CHS would be “exponentially exacerbated.” Easterday Ranches had accrued $6.7 million in “patronage equity,” and Easterday Farms had accrued $1 million at the time of the filing.
On Nov. 3, 2021, the debtors sent CHS a request for redemption and payment on account of patrons’ equity and cash percentage inclusive of patronage amounts for 2020 that were authorized by CHS, but not yet paid to the Easterday family. CHS stated the redemption of the accrued patronage equity “is the sole discretion of the CHS board of directors.”
Bastian also delayed sentencing for Easterday in January for the third time, citing several reasons for granting the motion to delay, primarily “for the convenience of the bankruptcy court.” Easterday is scheduled to be sentenced on June 13 and faces up to 20 years in prison after pleading guilty to one count of wire fraud in March 2021. — Charles Wallace, WLJ editor
