The Washington Department of Agriculture has launched an investigation into how 200,000 cows at the center of a massive fraud allegation against a Pasco ranching operation may have slipped through its inspection process.

The ghost herd is key to a legal fight between Tyson Foods and Easterday Ranches, which on Monday filed for Chapter 11 bankruptcy protection. The Easterdays are one of the largest farming and ranching families in the state, and the company claims in court filings it owes more than $236 million to its top 20 creditors.

The Pasco-based ranching and feedlot operation is seeking to reorganize using Chapter 11 federal bankruptcy law amid allegations by Tyson Foods that the ranch illegally charged the food company for 200,000 cattle that never existed.

Court records released Tuesday disclose that the family-run operation faces a mountain of debt that could have a major trickle-down economic impact on veterinarians, farmers, truckers and parts stores that support the Easterday operations.

Connell-based attorney Toni Meacham, who also runs a ranching operation with her husband, said she’s known the Easterday family for years. She said she’s glad that Easterday Ranches filed for Chapter 11 reorganization rather than for Chapter 7, which would have liquidated the family’s holdings.

Easterday Ranches President Cody Easterday is “always who I’ve known to be the figurehead” of the operation, Meacham said. “Debby and Cody have been great for our community. This is a terrible blow for the Columbia Basin.”

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The legal case brought by Tyson describes a modern-day cattle rustling operation that was carried out on paper rather than by masked, horseback villains riding off with a stolen herd.

Robbie Parke, manager of the state’s Livestock Inspection Program, said a check of records provided by Easterday Ranches to the state shows no evidence of a missing herd.

“What we can see from our records is that the same number of cattle we inspected” arriving at Easterday’s Pasco feedlot matches the records that Easterday provided indicating the cows were shipped to slaughter.

However, Parke said that since Easterday’s feedlot is one of 11 certified by the state Department of Agriculture, physical inspection occurs only when a cow arrives at the feedlot. Everything from then on is a paper trail that Easterday managed.

If Tyson Foods’ allegations of fraud are correct, the scam would be on an unprecedented scale, “probably one of the biggest in state history,” he said. The 200,000 head is “close to 20% of our annual head count that we look at. That’s enormous.”

Parke said the state has launched an audit of all of Easterday’s records to try to sort out what it submitted versus the allegations Tyson has made.

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“I don’t know if that’s a very big deal for Tyson, but it’s a big deal for Washington to lose place of 200,000 animals,” Parke said.

The Easterday family, of Mesa, has for decades operated one of the largest agriculture operations in Washington, with more than 25,000 acres of farmland, a dairy operation and thousands of feeder cattle.

In a complaint filed last week, Tyson Foods alleged Easterday Ranches had defrauded the company over a period of years of more than $225 million by claiming to have purchased, fed and provided about 200,000 cattle that never existed. The food company is seeking immediate legal intervention to protect an additional 54,000 head of Tyson-owned cattle in Easterday’s possession.

For several years, Tyson Foods and the Easterday family, led by Cody Easterday, had provided a service by which Tyson would reimburse the Easterdays for the purchase and feeding costs of cattle housed in Easterday feedlots that were then provided to Tyson’s meatpacking plant in Wallula.

Tyson attorney Alan D. Smith wrote in the complaint that “President Cody Easterday admitted to the fraudulent scheme, and has explained that he concocted the scheme in order to offset over $200 million in losses he incurred in the commodities trading market.”

As of Oct. 3, Easterday Ranches claimed it had 186,000 cattle valued at about $321 million. Then in November and December, Tyson began to discover discrepancies, according to the lawsuit.

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“Its investigation, including the admissions of Defendant’s President Cody Easterday, showed there were over 200,000 head of cattle that Defendant reported to be in inventory, but which did not exist,” Smith wrote.

Meacham, the Connell attorney who is not representing the Easterdays, said she can’t understand how the alleged scheme could have gone on so long unnoticed.

“With the checks and balances, it boggles the mind,” Meacham said. “But we haven’t seen the other side of the story. The Easterdays have not spoken out. We are in the cattle industry together. I have nothing bad to say about them.”

The Easterdays were represented Monday in state court by Thomas Buford, of the Seattle law firm Bush Kornfeld. Buford did not immediately respond to requests by phone and email for comment.

The Easterday agriculture empire was started in the 1950s by Gail Easterday. He died Dec. 10 when he pulled onto Interstate 182 in Pasco going the wrong direction. A potato truck owned by Easterday Farms smashed into his pickup, killing him. He was 79, according to published reports.

Meacham said Gail Easterday “always had a smile and a handshake. It was completely devastating. I can’t even begin to comprehend the trauma the family is going through.”

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But as for the legal ramifications, all the companies, farmers and banks that the Easterdays owe money now will begin the process of getting what’s owed to them, Meacham said.

On Monday, Buford, the Easterday attorney, said in a court hearing that the family’s other major operation, Easterday Farm Inc., will also file for bankruptcy protection.

Mecham said she could not overstate how important it is that the family is seeking to restructure versus liquidating all their assets to pay off their debts.

“They have deeded ground and leases. All those leases would go by the wayside. What is going to happen to the cattle? You would have this tremendous impact on the community and the cattle industry,” she said.

Under Chapter 11, the Easterdays have employed the Paladin Management Group to restructure the debt. According to the court filings, Paladin’s credit restructuring officers will charge up to $795 an hour for their services.

“But at least the Easterdays are still going to be there. It brings certainty to their lessees and for the people who work with them and for them,” she said. “If not, those people would be out of their money. Those are huge hits, especially in today’s economy.”