The cattle empire that turned out to be a giant ponzi scheme

One that loves you, he wrote. “The other that stole from people.”

For years, McClain had kept cattle here in his hometown and on the Texas Panhandle, buying calves at auction and selling them for profit three months later. His 80,000-head operation—powered by a $50 million loan from an agricultural bank and $120 million from investors—appeared to be a blowout success for the former chemicals plant worker. He lived in a 4,100-square-foot brick home surrounded by a manicured lawn, with gold-framed photos from his recent wedding in the entryway.

He also had a big secret: Most of the cattle were imaginary.

Once the lender got around to a physical check to count cattle and value McClain’s collateral—the first full inspection after more than four years of sending him money—it enumerated only 8,916 animals.

In the end, the rancher burned through the $170 million taken in from the bank and investors—some of them friends from his small Kentucky town. He managed to placate the bank when it occasionally raised concerns about financial figures that just didn’t make sense—including how his feed costs were wildly out of tune with the number of animals he claimed. And he kept his investors on board by paying out “shares of the profits,” which often stayed on paper as they rolled them into new investments.

He made around $2 billion in cattle transactions to build his “ghost herd,” according to bank records filed in Texas federal bankruptcy court, which is trying to pick apart the web of alleged fraud. The mystery that forensic accountants haven’t found an answer to remains, where did the money go?

McClain’s elaborate scheme came apart in April 2023, when a local truck dealer who had invested around $650,000 insisted on repayment. After bounced checks, he brought in the county sheriff.

The rancher killed himself before the law could arrive.

Now, amid suits and countersuits among the lender bank, investors, a bankruptcy trustee and McClain’s family, details of the alleged Ponzi scheme are coming out.

According to the bankruptcy trustee, McClain attracted investors with partnership agreements promising annualized profits of around 30%—sometimes telling them he had futures contracts that locked in the higher prices. But instead of paying investors with actual profits, he mostly used cash coming in from new investors.

Lawsuits by the trustee and investors also allege McClain’s lender, Rabo AgriFinance, was negligent in trusting McClain’s word that he had bought 87,000 cattle with its money. More than 100 investors are also being sued for allegedly receiving fraudulent transfers—whether knowingly or unknowingly.

Rabo itself is suing some investors and seeking to invalidate claims asserted by the bankruptcy trustee.

“Brian McClain orchestrated and actively deceived many banks, investors, and individuals,” a spokeswoman for Rabo said. “Rabo AgriFinance was one of the biggest victims in this situation.”

She said recent decisions from the bankruptcy court demonstrate that many of the allegations and claims against Rabo are unfounded.

Kent Ries, the bankruptcy trustee, said he believes Rabo and alleged participants in the scheme should be held to account for McClain’s operation continuing as long as it did. “There were a lot of people facilitating this that should have known better,” he said.

“It’s very much a merry-go-round, and that merry-go-round had to keep spinning faster,” he said. “At some point it moved from a cattle scheme to a money scheme.”

He added he hasn’t found homes stashed away in the Caribbean or lavish spending. “That’s the big question,” Ries said. “How does $170 million disappear?”

McClain’s previous wife, Crystal McClain, who was divorced from McClain in 2020, said she had no role in running or managing McClain’s business. McClain’s wife at the time of his death, Chelsea McClain, and other members of McClain’s family didn’t respond to requests for comment.

Some family members settled legal claims by the trustee, by returning just under half of $7.7 million in insurance proceeds they had received. Some investors have also made settlements with the trustee.

In 2022, a rancher was sentenced for defrauding Tyson Foods out of more than $244 million by charging it for cattle that didn’t exist. In February, five people in a cattle business were indicted for an alleged $220 million Ponzi scheme. One pleaded guilty, one pleaded not guilty and it couldn’t be determined if the other three had entered pleas. Investors sent them money to raise cattle that largely didn’t exist, according to federal prosecutors. “We know it sounds too good to be true,” read one of the company’s ads about the promised returns of 15%-20%.

Cattle are surprisingly hard to count and keep track of. Frauds have involved the animals being moved, or double counted, or put to graze in someone else’s land. McClain’s cattle were spread across multiple yards in both Kentucky and Texas, leaving the impression that more cattle were elsewhere.

“Cattle are tricky collateral,” said Ty Lucas, Chief Lending Officer for NebraskaLand Bank in North Platte, Neb., the heart of cattle country. Some banks also have longstanding relationships with their customers, especially in agriculture, where many deals rely on handshakes, said Lucas. Sometimes that means audits are skipped.

“I think a lot of the problem is that ag relationships are based on trust, and agriculture borrowers tend to work with banks for multiple generations,” he said. NebraskaLand, which didn’t do business with McClain, audits farm customers monthly or quarterly, Lucas said.

In McClain’s case, as the law closed in, the 52-year-old wrote a note for his family: “Almost all my life has been a lie about money.”

McClain wasn’t born into farming, but in rural southwest Kentucky, it wasn’t far away. His grandmother was a livestock auction clerk.

He grew up winning at sports—even being competitive at board games—and he went to work in a chemicals plant after high school. He got married and had two daughters. After a divorce, he remarried at 26 to his second wife, Crystal. They had two more daughters and adopted another.

McClain lived quietly at the end of a rural lane, according to interviews with people who knew him. His former pastor said McClain had in earlier years devoted hours to his church and organized food and activities for hundreds of children in a vacation-time Bible school.

McClain’s other passion was competing on horseback, showing off skills to round up calves. He served as president of the U.S. Team Penning Association and went on the road promoting competitions.

Around 2016, he befriended a couple running an events arena, and started supplying them calves for shows. They would eventually become among his biggest investors.

McClain won a penning world championship in October 2018 in West Monroe, La., and was interviewed afterward wearing a green plaid shirt, cowboy hat and a belt buckle from a horsing association, with his thumbs tucked in his jeans pockets. His teammates did most of the talking. When the interviewer put the microphone in front of him, McClain described the week: “It’s been very busy, but it’s been really good.”

McClain wasn’t a big talker, but came across as confident and knowledgeable about livestock. He made clear he didn’t need much company. “I could sit here for the rest of my life and never see another person,” McClain told an investor on a trip to Texas in 2020.

McClain was in his 30s when a neighbor taught him the cattle business.

McClain bought calves at auction, fattened them up and got them used to antibiotics. He would hold them for around three months, for the intermediate stage in their lives called backgrounding, because the animals build up health and immunity before being sold again to feedlots for final fattening.

He attracted investors who would buy the cattle that McClain would raise and sell, sharing in the profits if they were sold for more than it cost to buy and feed them.

Meagan, his eldest daughter, studied agricultural science and worked for him, as did her husband. His second eldest daughter, Kinsey, ran errands and helped with operations.

He appeared to do well. To acquaintances at auctions, McClain said his edge was keeping death rates low, from know-how handling sick and scared calves. He told the investor he saved money by buying cheaper but harder-to-handle male calves that haven’t been castrated and having his own team do it.

At a convention in 2017, McClain signed up for credit with a lender exhibiting there, Rabo AgriFinance, part of a Dutch cooperative dating to the 19th century that was formed by farmers struggling to get credit. In the U.S., Rabo is one of the largest lenders to food producers to finance their land, equipment and daily operations, often after they outgrow a local bank.

After making some credit checks, Rabo denied McClain credit, according to documents filed in the lawsuits. Its officers found a lack of basic bookkeeping records and mismatched information. For one thing, Rabo’s lending was supposed to be secured on McClain’s purchased cattle, but he didn’t brand the animals or have another system to show ownership.

It would turn out that much of McClain’s herd—the cattle that actually existed—belonged to his investors, and he was just doing the work of raising the animals.

A Rabo relationship manager gave McClain another chance. He worked with McClain for months to firm up his financial statements, and in summer 2018, Rabo lent around $7 million.

Lawsuits in the case would later allege the bank cut corners to support McClain with this first loan and millions of dollars in loans over the next few years—driven by fee income and other financial incentives to boost lending.

For McClain, the money would soon lead to larger and larger loans and more financial entanglements.

That year, he stopped going to church and divorced his wife of 23 years. Ten weeks later, he married a 30-year-old friend of his eldest daughter.

His financial accounts became more and more disordered, according to the court documents. In the two years after his first Rabo loan, McClain fell into overdraft dozens of times, sometimes almost daily.

In October 2019, when the rancher’s bank accounts were $2.5 million in the red, internal messages at Rabo read “2.5 million!? WTF.” By December that year his shortfall had hit $5 million.

Around that time, a Rabo credit officer filed an internal report about McClain saying the account had signs of check kiting—a type of fraud that exploits the time it takes for banks to clear checks. A delay between checks paid in and checks paid out can give the temporary illusion of more funds available.

Rabo personnel visited McClain at his Kentucky farm to discuss overdrafts and other issues that had raised questions.

McClain smoothed things over as growing pains. There’s no record of an inspection of cattle that day.

By early 2020, the bank had lent McClain $23 million, including funds for him to expand in Texas.

Another meeting in April 2020 included a remote inspection because of Covid-19. The report says it included “an in-depth desktop review of all documentation” and a phone interview with McClain—and no visit to look at cattle.

It said various errors were found in the record-keeping, with inspectors advising: “He just needs to double check his work.” But overall it was a positive review, and Rabo praised McClain’s “high skill in sourcing and handling cattle.”

At the end of 2020, Rabo put him on a list as a client of key concern—internal analysts determined his business projections seemed too good to be true, according to the court documents. For one thing, his costs for raising tens of thousands of cattle should be running much higher.

“I still can’t grasp how he feeds all that cattle,” a Rabo employee wrote in an email to colleagues involved in the lending. McClain’s relationship manager, in the responses on the email chain, said: “If it ain’t broke, don’t fix it is what I say.”

In February 2021, a Rabo analyst prepared an internal report that said McClain’s cattle sale prices made zero sense. “We have no idea who owes who and how much,” the analyst wrote.

Even so, Rabo again moved forward with McClain. In August 2021, it raised his operating credit to $45 million.

After bed rest and painkillers, McClain seemed to get reckless, the people who knew him said. He partied on a boat on Kentucky Lake, a nearby recreation area.

In September 2020, McClain and Crystal divorced, a year after she had moved out of the house. She received a $1.2 million payout in the split. (She would later receive a $550,000 life insurance payout for him.)

Still, he had a close relationship with his children, according to the family’s social-media posts, and photos show him spending time with them, including on a Disney vacation.

In December 2020, McClain married Chelsea, his daughter’s friend. In a Valentine’s Day quiz Chelsea posted in 2022 on Facebook, she said they met at the ranch rodeo after the chuck wagon races and went for pizza on their first date. She described McClain as the first to admit being wrong, always helpful with the cooking and asleep before his head touched the pillow.

By 2022, McClain was in a regular rotation of 90- to 120-day deals with investors, the time it took to raise a calf to selling size. He would raise money from fellow cattlemen and armchair investors—dozens of people across Kentucky, Tennessee, Oklahoma, Texas and Canada. Some were friends, and others met McClain at cattle auctions or came from word-of-mouth. Two people employed at banks and a former hedge-fund manager were among the investors.

McClain said he would purchase the cattle at auction, feed them in his lots and sell them on to finishing yards. The “profits” he shared with investors were mostly on paper, because many investors rolled the money back into the business in continuously revolving deals.

Some of the investors said they felt McClain was trustworthy and a Christian family man. He had joined them on trips hunting deer and introduced his family over meals at Cracker Barrel.

John Tindal, a truck seller in nearby Mayfield, Ky., said he worked on McClain’s farm vehicles and invested $600,000. A few months later, he got back a check for $650,000—which he mostly reinvested with McClain.

The owner of an area pharmacy, Sam Brown, said he knew little about cattle but poured tens of millions of dollars over several years into deals that earned around 20% annualized returns.

Brown said he flew to Texas and drove with McClain to different yards, matching cattle ear tags to a list in an envelope labeled with Brown’s name that was on the center console of McClain’s truck. “I was just purchasing cows,” Brown said. “It was pretty simple.”

The bankruptcy trustee in court is trying to claw back payouts to Tindal, Brown and many others, saying the gains were fraudulent. From Brown, the trustee is seeking the return of millions of dollars.

Brown said any idea that he knew about the fraud “couldn’t be farther from the truth,” and he said he estimates he lost $5 million of his own money in the investments.

Meagan later said she was doing more paperwork, but her dad still handled all the agreements with investors. “I just plugged in the numbers I was supposed to plug in,” she said in a lawsuit deposition. “If I raised any questions, he would say, ‘it’s for me to worry about.’”

Around December 2022, the Rabo manager who had supported all the lending told McClain to slow down growth and hire a chief financial officer. To see McClain through the latest overdrafts, Rabo lent another $4.5 million.

McClain claimed he had 87,000 cattle then, according to his submissions to the bank.

But the time he was turning around calves unrealistically sped up to weeks or days, according to the bank records and cattle invoices entered in court filings.

McClain’s loan was so large now, more than $50 million, it needed approval from Rabo’s Utrecht, Netherlands, headquarters. Decision makers there slammed on the brakes.

In February 2023, Rabo sent an inspector to McClain’s Texas yards for the first full cattle count in more than four years. Rabo expected to find around 60,000 animals in Texas, but the inspector counted 8,916. McClain, who was present to watch, said there were another 20,000 in Kentucky, and that some were out on the road or at competitions.

“This is basically a worst-case scenario,” the inspector reported back to her bosses. She texted a colleague, who replied: “This house of cards is pretty well crashed.”

In addition to the Rabo loans, McClain owed around $120 million to about 100 investors for unpaid cattle sales, according to claims later made under a USDA program and in bankruptcy court.

In early 2023, Tindal, the truck seller, heard local talk that McClain was partying and doing drugs, and stopped by McClain’s house with a friend. McClain seemed fine, but Tindal was struck by the piles of paper in his office. “I mean, it was just stacks and stacks,” he said.

It would later become clear through the court cases that the piles of paper included cattle invoices, in large part fake. McClain had books of blank checks in boxes—his daughters would later describe how they delivered presigned but blank checks to some top customers and had them fill out the totals themselves. And balance sheets prepared for the bank were stashed under a tarp in a nearby disused barn filled with snakes and rats, according to a security guard who worked for the bankruptcy trustee and secured the site after McClain’s death.

The Texas operations were even worse. Ries, the bankruptcy trustee, said offices in Texas were disused and decrepit—his foot went through the floor when he visited one location around two months after McClain’s death. Fencing was rusted and laying on the ground, and the grass was waist high.

Tindal, meanwhile, said he received a photo in early 2023 from a friend who sometimes hauled livestock. It showed dead cattle strewn around McClain’s Texas lot.

Tindal asked McClain for his money back, then around $600,000. The checks bounced. For weeks, McClain texted excuses about wire delays and holdups with other investors. Other investors were also asking for their money.

Finally, in April, Tindal went to the local county attorney and sheriff to have McClain arrested for writing bad checks. Authorities agreed to pick McClain up the next morning.

Around 9:15 a.m. that next morning, McClain called Meagan’s husband and told him to meet him at a farm property. When he arrived about seven minutes later, the son-in-law found McClain lying in front of his truck, bleeding from a gunshot wound. The rancher died on the scene.

In one of McClain’s final notes, he wrote: “It all came undone today.”

Write to Margot Patrick at margot.patrick@wsj.com and Patrick Thomas at patrick.thomas@wsj.com