Three ClassicStar principals – David Plummer, Spencer Plummer, and Terry Green – have pleaded guilty to charges of conspiracy to defraud the U.S. through a fraudulent tax shelter under the ClassicStar Mare Lease Program, according to the U.S. Department of Justice..
In a release issued Oct. 26 through Oregon Acting U.S. Attorney Kent S. Robinson, the government said the Plummers and Green pleaded guilty before U.S. District Judge Ancer L. Haggerty to "information" charging them with one count of conspiracy to defraud the United States.
The Oregonian newspaper reported that Allen Garten, the U.S. attorney who led the ClassicStar prosecution, told the judge the Plummers and Green are cooperating with the government in its continuing investigation of ClassicStar. The newspaper reported the maximum sentence for conspiracy to defraud the govenment is five years.
The Information filed by the government states the investors in the mare lease program filed tax returns with the IRS claiming false tax deductions of more than $500 million, resulting in a tax loss to the government of over $200 million, the justice department release said.
According to the government release, David Plummer created the mare lease program and oversaw the program at ClassicStar. His son, Spencer Plummer, assisted David Plummer in the operation of the mare lease program. Terry Green was a certified public accountant and assisted investors in the mare lease program in preparing and filing income tax returns on which they reported fraudulent deductions, according to the information. Green also assisted customers in their IRS audits by creating false and back-dated documents and presenting them to IRS auditors, the government alleged.
As described in the release about the guilty pleas, here is how the mare lease program worked:
"ClassicStar’s mare lease program purported to offer wealthy individuals the opportunity to invest in Thoroughbred horse breeding. According to mare lease program promotional materials, investors leased the reproductive capacity of specific Thoroughbred mares. If the mare had a foal during the time that the investor held the lease, the investor would own the foal.Mare lease program promoters told investors that they could take deductions on their federal income tax returns for the losses generated by the Thoroughbred horse breeding operation. These deductions reduced or eliminated the investors’ taxes, and many investors received tax refunds, including refunds for years prior to their investments. These deductions were fraudulent because, among other reasons, the mare lease program used fraudulent loans to finance investors’ participation, and the program induced investors to lease Thoroughbred mares that the operators of the program knew ClassicStar could not provide.
"Most investors financed at least 50% of their investments in the mare lease program through loans from the National Equine Lending Co., a purportedly independent financial institution. In fact, NELC was controlled by ClassicStar. ClassicStar’s operators claimed NELC would transfer funds to ClassicStar on behalf of an investor to finance his or her investment in the mare lease program. In reality, NELC had no funds of its own and would instead accept money from ClassicStar. Typically, ClassicStar transferred insufficient funds to NELC to finance an investor’s entire loan. To conceal the lack of funds, NELC and ClassicStar repeatedly transferred the same funds between their bank accounts to create a paper trail that gave the appearance that the investor’s loan was fully funded by NELC. At the conclusion of the investor’s participation in the mare lease program, he or she, often having made no payments on the supposed loan, had the loan extinguished through fictitious trades involving an entity that purportedly owned interests in coal bed methane gas wells.
"In addition to the fraudulent lending arrangements of the mare lease program, ClassicStar sold mare lease program investments knowing that it lacked sufficient Thoroughbred mares to fulfill its contractual obligations to the investors. To justify the deductions that the investors claimed on their income tax returns, ClassicStar substituted less-valuable Quarter Horse mares for the Thoroughbred mares that ClassicStar had promised."
"The IRS uses all its investigative tools to uncover abusive schemes designed to create fraudulent tax deductions," said Eileen Mayer, Chief, IRS Criminal Investigation. "Investment schemes that seem too good to be true should be a signal to individuals to stay clear. The IRS is actively pursuing promoters who market these tax evasion schemes ."
ClassicStar made a big splash within the Thoroughbred industry earlier this decade, buying about $45 million worth of horses at public auction. In addition to those acquisitions, which included many high-profile broodmares, the entity paid a reported $1.5 million in a private purchase of the mare Xtra Heat.
ClassicStar hosted lavish marketing parties and entertained its clients at major racing events.
In early 2006, federal agents raided the farm and seized records shortly after the Plummers left ClassicStar. Later that year, ClassicStar’s mares were sold at the Fasig-Tipton Kentucky fall mixed sale, generating more than $20.8 million that was used to pay off financial obligations to the sales company, Fifth Third Bank, and Taylor Made Sales Agency.
In 2007, John Sykes of Cloverleaf Farm II bought 48 ClassicStar mares for $9.8 million and later that year purchased ClassicStar’s Central Kentucky farm in partnership with Tony Ferguson and named it Woodford Thoroughbreds.
In September 2007, ClassicStar LLC filed for Chapter 11 bankruptcy protection, with court documents listing claims from more than 200 persons totaling nearly $1.4 billion.
Earlier this year, Sykes purchased Ferguson’s interest in Woodford Thoroughbreds.