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US$65m Damages To ClassicStar "Mare Leasing" Investors

Wednesday, 5th October 2011

In the US, Judge Joseph Hood declared “the gig is up” in awarding a mammoth US$65 million in damages to 6 investors “in the now-defunct ClassicStar mare leasing program that was a high-flying entity from 2001 until 2006” reported bloodhorse.com. In a 99-page judgement, Hood ruled former ClassicStar operators “had set up the mare leasing program with the intent to funnel money into gas exploration operations & then swap out stock into Gastar Exploration (a publicly held spin-off company)”. The defendants who have been ordered to pay the investors are: David Plummer & his son Spencer Plummer; Geostar (parent firm of ClassicStar); & Geostar executives Tony Ferguson, Thom Robinson & John Parrot. The 2 Plummers & Parrot (along with accountant Terry Green) “have pleaded guilty to committing tax fraud totalling US$200 million & each faces a 5-year prison sentence”. Noting that the case fell within “the criteria for damages to be awarded under the federal Racketeering Influenced & Corrupt Organizations Act (known as RICO), Hood awarded US$49.4 million to the investors, 3-times their original investments. He also awarded the plaintiffs US$15.6 million in interest.” The suit against ClassicStar was filed by former investors Arbor Farms, Jaswinder Grover, Monica Grover, MacDonald Stables, Nelson Breeders & West Hill Farms. With “Plummer acting on its behalf, ClassicStar generated headlines when it became involved in the thoroughbred industry, buying about US$45 million worth of horses at public auction. ClassicStar also privately purchased some high-profile broodmares, inclulding champion mare Xtra Heat, for which it paid a reported US$1.5 million. ClassicStar also entertained investors & potential investors with parties & hosted large groups at major racing events, including the Kentucky Derby.” In outlining ClassicStar’s “mode of operation”, Judge Hood said the entity “sold leases in mares allegedly owned by ClassicStar. Those mares were to be bred to prominent thoroughbred stallions, with the mating producing a foal that would be profitable to the investors. Although some breeding did take place, Hood said that ClassicStar sold more leases than it could ever provide foals.” Although ClassicStar sold more than US$600 million in leases to high income individuals, “it never owned more than US$56 million in horses in any given year. In order to cover up the difference, ClassicStar substituted Quarter Horse breedings in its statements to investors, although it did not own those mares either.” ClassicStar’s “bubble began to burst when the Plummers left ClassicStar in 2006. Shortly thereafter, federal agents raided the farm & seized records.” In September 2007, ClassicStar “filed for Chapter 11 bankruptcy protection, with court documents listing claims from more than 200 persons totalling nearly US$1.4 billion.”

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