NEWS
Farm investors sue ClassicStar
Posted: Tuesday, September 12, 2006
Four Pacific Northwest companies have filed a lawsuit against Versailles, Kentucky-based ClassicStar, alleging improprieties in the commercial breeding operation's mare lease programs.
West Hills Farm LLC and Arbor Farms LLC, both of Portland, Oregon, and Nelson Breeders LLC, of Bellevue, Washington, filed a lawsuit against ClassicStar on July 28 in the United States District Court Eastern District of Kentucky accusing ClassicStar of defrauding the companies of nearly $500-million during a five-year span.
Anderson Corporate Finance and Investments filed a lawsuit against ClassicStar in Seattle.
The plaintiffs state that the United States government is currently pursuing a criminal investigation into ClassicStar's mare lease programs and says that acting on federal search warrants, books, and records were seized from the Versailles farm in February. On February 23, IRS agents raided the farm but at that time offered little information on any investigation.
The plaintiffs said that through the mare lease program, ClassicStar, "deliberately sold mare lease programs with a total value of tens of millions of dollars greater than the Thoroughbred interests owned by defendants."
The suit alleges that in 2004 alone, ClassicStar sold more than $160-million of mare lease programs at a time when it owned only approximately $40-million of Thoroughbred bloodstock.
The suit also names David Plummer and Tony Ferguson, who at the time operated ClassicStar. Also named in the suit are National Equine Lending Company, where investors borrowed money to participate in the mare lease programs, and GeoStar, which was owned by Ferguson and served as ClassicStar's parent company.
The suit says that ClassicStar defendants also had close ties to National Equine Lending Company.
In mare leasing, rather than investing directly in a mare by way of purchase, participants lease the rights to a mare for a breeding season and then purchase a stallion nomination to be used in connection with the leased mare. Participants then retain or sell the resulting foal.
While mare leasing is legal, the plaintiffs accuse ClassicStar of inflating the value of its mare lease programs and selling more programs than Thoroughbred interests owned by ClassicStar. The suit also accuses ClassicStar of suggesting tax benefits in its program that did not exist.
The defendants said ClassicStar misrepresented the costs and sales figures used to calculate historical data return on investment, grossly overstating both the actual costs which would have been involved and the value of the horses involved.
Current plans call for ClassicStar to offer about 90 broodmares at the Fasig-Tipton fall selected mixed sale on November 5 in Lexington.—Frank Angst
