BENTON, Ky.—“There are two sides of me,” Brian McClain scrawled on a piece of paper to his wife.

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.