Massive Ponzi Scheme Unveiled in Kentucky: Cattle Operations Seek $122 Million in Unpaid Sales

Jun 14, 2023

At least 96 cattle operations and individuals have filed claims totaling over $122 million with the U.S. Department of Agriculture (USDA) against a west Kentucky farm and its associated feed yards. The farm is accused of orchestrating a Ponzi scheme that has left numerous sellers unpaid and facing substantial losses. Progressive Farmer magazine published a report detailing the escalating claims under the Packers and Stockyards Act.

The allegations involve McClain Farms, 7M Cattle Feeders Inc., McClain Feed Yard Inc., and the estate of Brian McClain, the farm's owner who passed away in April 2023. In May, agricultural finance company Rabo AgriFinance initiated a lawsuit against these entities, citing breach of contract, wrongful conversion of collateral and livestock, and breach of security agreement, among other claims. Rabo AgriFinance alleges that McClain guaranteed investors a 30% return on investment, using borrowed money to pay off initial investors in what appears to be a Ponzi scheme.

The lawsuit reveals that McClain and the associated companies amassed millions of dollars in debt with Rabo AgriFinance between 2018 and 2023. Rabo AgriFinance discovered discrepancies during an audit, finding a significant reduction in the number of cattle reported as collateral compared to the actual count. The defendants allegedly sold or transferred a substantial number of cattle, violating a forbearance agreement.

Bankruptcy filings in Texas by the three companies revealed liabilities amounting to $175 million, including claims by creditors and the USDA. Fourteen of the filed claims are for $1 million or more, with several feeder and livestock businesses in Kentucky and Texas among those affected.

The bankruptcy trustee, in agreement with Rabo AgriFinance, believes that the McClain businesses were involved in "massive fraud." The situation has sent shockwaves through the agricultural community, leaving many cattle operations grappling with significant financial losses.