Former Spendthrift Chief Pleads Guilty to Tax Fraud

Brownell Combs, the former head of Spendthrift Farm near Lexington, has pleaded guilty to federal income tax fraud, the Columbus Dispatch reported Wednesday.

The paper reported Combs, 68, entered the plea in federal court on May 2, but the agreement was sealed until recently. The report said Combs hid about $1 million in assets in an offshore bank account and admitted filing a false tax return in 1994.
Combs apparently hid the money in an attempt to avoid paying further settlement costs from a lawsuit filed by Spendthrift investors from when the company went public and then failed.

Combs has not been sentenced, but could face up to three years in prison and be fined $250,000.

Spendthrift was founded by Combs' late father, Leslie Combs II. In 1983, 14 persons shelled out $32 million for a one-third interest in the famed breeding farm. Spendthrift went public four months later.

In 1986, the stock plummeted and a lawsuit was filed in San Francisco by investors claiming stock fraud. Combs won that suit, but still owed millions in out-of-court settlements with other investors. Spenthrift declared bankruptcy in 1988.

The Columbus paper also said a former Spendthrift investor, Richard D. Schultz, pleaded guilty to a similar tax charge. Schultz attempted to hide assets to avoid paying legal fees associated with the San Francisco court case. When Spendthrift won that case, the court ordered the Spendthrift defendants by paid $5 million in legal expenses.

Schultz, who also has not been sentenced, reported on his 1994 tax return making $6.5 million from the sale of a company when he actually realized $11.3 million.