Task Force Recommendations Draw Praise, Criticism

Preliminary recommendations aimed at self-regulation for the equine auction industry were unveiled by the Sales Integrity Task Force during a public forum held at the Keeneland sales pavilion Oct. 15.

Preliminary recommendations aimed at self-regulation for the equine auction industry were unveiled by the Sales Integrity Task Force during a public forum held at the Keeneland sale pavilion Oct. 15, but the driving force behind Kentucky legislation seeking reform in the public selling arena quickly voiced displeasure with the suggestions.

The recommendations, which provide suggested regulatory guidelines for owner transparency, agent licensing, and medical disclosures, were developed over the course of seven months by the 36-member task force.

Featuring representation from the buying, selling, and operational segments of the auction industry – though critics said it was unbalanced in favor of consignors and agents – the task force in February was given charge of evaluating proposed 2007 Kentucky legislation championed by Thoroughbred breeder/owner Jess Jackson that sought to establish state law on the public sale of horses.

The recommendations will “further strengthen the integrity of the sales process,” said task force moderator, National Thoroughbred Racing Association president and chief executive officer Alex Waldrop.

The task force seeks self-regulation for breaches in key integrity areas that have dogged the auction industry in recent years, practices that have been thrust into the national spotlight by nefarious fraud allegations detailed in high-profile lawsuits by such owners as Jackson and James McIngvale.

“The regulations will have real teeth, and will be market-driven,” Waldrop told a group of about 150 that attended the public forum. “At the same time, Kentucky can ill afford to be put at a competitive disadvantage.(Legislators) are free to adopt all recommendations. They are not window dressing. They are there to address positive change in the auction industry.”

But Jackson, while praising the efforts of a few on the task force, in particular officials with Fasig-Tipton and Keeneland, claimed in a terse seven-page written response to the recommendations that the task force was “manipulated” by what he believes was an unbalanced consortium.

“The tragedy is that the task force effort has been manipulated and essentially hijacked from the very start by a handful of individuals,” wrote Jackson, who is a member of the task force. “These individuals successfully manipulated the subcommittees and the larger task force in such a way as to advance their own agenda and derail any effort at meaningful and serious sales integrity reform.

“The membership of the task force was selected in secret by a group of individuals and entities who had previously publicly opposed the tabled legislation,” Jackson also wrote, “and are, purposefully or not, responsible for and profiting from the current and historical sales integrity problems in this industry.”

The task force recommended against statutory licensing of agents, suggesting bad apples who participate in such practices as dual agency can be dealt with through rules set forth in auction company condition of sales and a separate code of conduct that in many ways mirrors one adopted by United Kingdom entities in 2004.

Disagreements can be dealt with individually by the parties, submitted to binding arbitration, or litigated in court actions. Sanctions levied by auction companies can include exclusion from sale grounds for up to two years for a first offense, up to five years for a second offense, and up to a permanent exclusion on a third offense.

Reynolds Bell Jr., who headed the subcommittee dealing with licensing, said the licensing recommendations were passed “overwhelmingly.”

But Jackson said the votes on all the recommendations were held at times he could not attend. “Any assertion that the task force unanimously approved these recommendations should be tempered with the fact that the vote was taken in my absence, and I would have voted no on each recommendation,” he wrote.

The task force also recommends voluntary ownership disclosure rather than the mandated transparency sought in the Jackson-backed bill. Under the task force suggestions, auction companies would establish a voluntary ownership registry, and would demand written notice if an ownership change of more than 10% occurs after the publication of a sale catalog, though there would be no requirement to identify to whom ownership is transferred.

If an ownership disclosure dispute arises, the task force recommendations direct purchasers to pursue the collection of “liquidated damages” representing 50% of the hammer price. The burden of proof, by “clear and convincing evidence,” lies with the purchaser.

Ownership transparency was a hotly-debated topic, subcommittee D.G. Van Clief said, but ultimately, the task force sided with privacy. “It came down to a right to know versus a right to privacy,” he told the forum. “The legitimate right to privacy in selling commodities prevailed.”

Van Clief later said the vote on owners transparency recommendations were unanimous, but disclosed the vote was taken with a few task force members absent.

Jackson, who criticized the task force membership for being “predestined” and lacking in significant owners’ interests, called a voluntary registry a “toothless gesture.”

“The legislation sought to disclose the true ownership of the horse to prevent the gamesmanship and deceitful shell-game tactics that injure not only the appearance of integrity but the actual integrity of the sales arena,” he wrote.

The Jackson-backed bill, which was sponsored by three members of the Kentucky legislature, also sought disclosure of drug therapies that include use of anabolic steroids. The task force, which expressed concerns about testing standards, recommended in part for the inclusion of prohibited-practice policies in condition of sales, asked for research into naturally occurring levels of steroids, and encouraged potential buyers to inspect information included in veterinary repositories.

The recommendation also allows for a purchaser to request anabolic steroid testing “immediately after” a horse is sold, and if such substances are found, could result in the buyer returning the horse.

Jackson’s written response did not include any mention of whether he would or would not ask for the bill to be re-introduced into the 2008 legislative session, but his corporate attorney said such an action would be under consideration.

“We quite definitely consider legislation to be a viable alternative to the present recommendations,” Kevin McGee said. “We have not yet decided whether to push for the passage of legislation because the task force process is not yet concluded.”

The task force will accept written opinions on its recommendations until Oct. 31, and will post signed comments on its Web site (www.salesintegrity.org). The task force hopes to have its recommendations finalized by early November, and submitted to the Kentucky legislature by a Dec. 31 deadline.