A fraudulent cattle feeding scheme defrauding investors and Rabo Agrifinance LLC in excess of $100 million came to light following the death of a Kentucky producer.
Brian McClain, 52, of Benton, KY, owner of McClain Farms Inc., 7M Cattle Feeders Inc. and McClain Feed Yard Inc., died from an apparent suicide on April 18.
McClain allegedly ran a cattle Ponzi scheme of promising a guaranteed return for investors in the businesses and paid them with borrowed funds.
All three businesses filed Chapter 7 bankruptcy proceedings in the United State Bankruptcy Court for the Northern District of Texas on April 28. Court documents show the estimated number of creditors is between 50-100 and assets range from $1-10 million, while estimated liabilities range from $50-100 million. Among the creditors are several individuals, livestock companies and financial institutions, including Rabo Agrifinance LLC.
According to a Notice of Default on April 6, McClain reported to Rabo in December 2022 collateral consisting of 89,522 head of cattle worth over $97 million as property collateral. McClain then reported in February 2023, 37,992 head worth over $36 million. “In other words, the loan parties themselves reported a decrease in owned cattle of 51,350 and a corresponding decrease in cattle valuation of over $60 million,” the notice states.
Rabo came out to the properties to conduct an audit and found only 10,559 head, a decrease of over 27,000 head from the February report by McClain. As a result of the default and the events, Rabo declared the loans were due and required payment in full.
McClain signed a forbearance agreement with Rabo executed on April 8, totaling over $52 million for a line of credit and three real estate loans dating back to 2018. All property, including contract rights, inventory and farm products, including cattle and equipment, were used as security to obtain the loans.
According to court documents, Rabo learned that 20,000 head totaling no less than $20 million were either sold or transferred to MAP Enterprises and Wildforest Cattle Company LLC in Mayfield, KY.
Rabo filed suit against the two companies and the estate of McClain on April 25 in U.S. District Court for the Western District of Kentucky.
“Both MAP and WF (Wildforest) appear to be entities with no actual physical business locations or ongoing business operations, rendering them unlikely to be forthcoming to answer the final judgment of the court respecting the same,” court documents show. “Rabo, therefore, believes that there is an immediate danger that the proceeds from the sale of livestock may become unavailable to levy by reason of the proceeds being further transferred, concealed, converted, wasted or otherwise transferred from the jurisdiction of this court.”
According to DTN, Wildforest, MAP and 2B Farms reportedly owed McClain’s businesses more than $25 million at the end of March. Rabo alleges the companies are tied to accounts that drained McClains’ accounts at Mechanics Bank from over $22 million on April 7 to being overdrawn by $7.4 million in just four days.
Rabo is asking the court to appoint a receiver and place a temporary restraining order to stop the sale of the cattle and award them the possession of the collateral to secure the loans.
On May 10, Rabo filed a motion to dismiss McClain’s wife from the lawsuit without prejudice after an administrator was appointed in the probate case.
USDA claims
On May 8, USDA’s Agricultural Marketing Service (AMS) notified anyone who sold livestock to any of McClain’s three businesses and has not received payment to file Dealer Trust claims promptly.
“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,” the notice states. “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.
DTN stated the Kentucky Department of Agriculture is assisting USDA’s AMS Packers and Stockyards Division on an investigation into the McClain operations “as it relates to businesses and clients in Kentucky.” — Charles Wallace, WLJ editor
