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2007 Preakness winner Legal Controversy

Winner of second leg of US racing Triple Crown is in court dispute over ownership

 

6-3-07  nyt.com

Curlin, the winner of the Preakness thoroughbred race in the USA, seems to have lots of "claims" on him.

However, these are of the legal kind.

Very complicated story that involves a lot of owners, and legal claims against those owners.

Full story is at:

www.nyt.com

 

This link courtesy of New York Times--this is very informative for investors, equine agents, bloodhorse brokers and trainers.

060307updatePreaknessWinnerOwnershipInDoubt

 

June 4, 2007

A Great Horse, but Who Takes the Winnings?

By JOE DRAPE

When Curlin chased down the Kentucky Derby winner Street Sense to capture the Preakness Stakes, his owners bounded to the winners’ circle at Pimlico Race Course. They were an eclectic bunch that included a winemaker, a computer magnate, an investment banker and two lawyers.

W. L. Carter was just as ecstatic while his wife narrated the race over his cellphone as he drove through the horse country of Ocala, Fla. “They could hear me all the way up to Gainesville,” he said.

But his delight depends on the answer to one of racing’s thorniest questions: who will Curlin be running for in the Belmont Stakes on Saturday?

Mr. Carter believes he has a piece of Curlin, a mammoth chestnut colt whose value increases with every stride of his brief but brilliant career and who is already worth as much as $30 million as a stallion prospect.

Mr. Carter is among more than 400 plaintiffs in a civil suit who were found to have been defrauded by their lawyers out of $64.4 million — money intended to pay for injuries caused by the diet drug fen-phen.

Two of those lawyers, William J. Gallion and Shirley A. Cunningham Jr., together own a fifth of Curlin and were in the Pimlico winners’ circle.

“We own part of that horse — there’s about 400 of us,” Mr. Carter said. “We may not have our names on the papers, but it’s our horse. He was bought with our blood money.”

It may soon be up to the courts to determine just who owns Curlin. Mr. Gallion and Mr. Cunningham have had their law licenses suspended. A federal grand jury has begun to investigate potential criminal wrongdoing arising from the fen-phen settlement.

Angela M. Ford, who represents Mr. Carter and most of the other plaintiffs, argues that her clients own all of Curlin. She contends that Mr. Gallion and Mr. Cunningham originally purchased the colt with ill-gotten gains — they paid $57,000 for the colt at the 2005 Keeneland September Yearling Sale — and had no legal right to sell 80 percent of the horse for $3.5 million, as they did in February.

“If the court determines that Curlin was originally purchased with money that belonged to my clients, then the entire horse belongs to my clients and clear title could not have been conveyed,” Ms. Ford said.

Mr. Gallion’s and Mr. Cunningham’s new partners are no strangers to the vagaries of the horse business.

One partner, Jess Jackson, the founder of Kendall-Jackson wines, has sued several of his former advisers, charging they defrauded him out of $3 million by overcharging him for horses he purchased and taking kickbacks from sellers.

Another partner, Satish Sanan, who made his fortune addressing the computer concerns brought on by Y2K, said he, too, had been victimized by slick horse traders. It prompted him to push for a code of ethics for sellers and buyers. Mr. Sanan is now in the forefront of the industry’s reform movement.

Mr. Sanan said that he and his partners were not aware of the legal problems faced by Mr. Gallion and Mr. Cunningham when they purchased their portion of Curlin. He says that the lawyers that worked on the contract on their behalf have, however, assured them that their interest in the colt is protected.

Still, Mr. Sanan concedes that having a colt competing in Triple Crown races under a legal cloud is not the face he or the sport of thoroughbred racing wants to put forward.

“I don’t think it says a whole lot good about the industry, to be honest with you,” said Mr. Sanan, who said he had spent $150 million breeding and racing horses.

“It takes the limelight away from the horse,” he said. “At the end of the day, racing is all about the horses. Unfortunately, now the focus is on the ownership and the team.”

The pursuit of a Kentucky Derby champion can make for strange bedfellows. When Curlin demolished eight other horses, romping by 12 lengths, in his very first race, on Feb. 3 at Gulfstream Park in Florida, Mr. Gallion and Mr. Cunningham were bombarded with dozens of offers to sell the colt.

Most of them were for far more than the $3.5 million offered by Mr. Jackson, Mr. Sanan and George Bolton, an investment banker in San Francisco. But the higher bids were for the whole horse. Mr. Jackson, Mr. Sanan and Mr. Bolton were willing to let Midnight Cry Stable, the banner under which Mr. Gallion and Mr. Cunningham race, retain a piece of Curlin and chase a Kentucky Derby victory.

In the days before the Derby, in which Curlin finished third, photographs of Mr. Cunningham and Mr. Gallion in connection with the colt appeared in a couple of Kentucky newspapers. It did not go unnoticed among the fen-phen plaintiffs in a horse-crazy state.

“You can imagine how my phone began to ring off the hook,” said Ms. Ford, who expects a ruling on damages in the civil suit in the next couple of weeks. “Here are the lawyers that had defrauded them, and now they have a Derby contender.”

The $200 million fen-phen settlement, paid by American Home Products Corporation in 2001, was earmarked to compensate the plaintiffs for claims of heart damage caused by the drug combination, which had been withdrawn from the market at the request of the Food and Drug Administration.

When the plaintiffs sued the drug maker, they agreed to pay the lawyers 30 percent to 33 percent of any money that was recovered, in addition to expenses. In this case, that would have left the 440 clients to divide perhaps $135 million. The clients, however, received only $74 million and, on average, received less than 40 percent of what the settlement agreement specified, instead of the roughly 70 percent to which they were entitled.

Mr. Sanan said he and the other partners are focused

x-x-xx—x

 

Mr. Sanan said he and the other partners are focused solely on Curlin and have found Mr. Cunningham and Mr. Gallion pleasant team members. On the night before the Preakness, the group met for dinner at a farm near Pimlico owned by Mr. Bolton’s father. They will unite in New York on Saturday to see if Curlin can win for the fifth time in six races when he goes in the Belmont Stakes, the final leg of thoroughbred racing’s Triple Crown.

W. L. Carter cannot be as benevolent. But Mr. Carter, a builder of industrial models from Lawrenceburg, Ky., will be watching the Belmont intently, rooting for a horse and its growing worth, a value he someday hopes to share in.

“I’m cheering for the colt,” Mr. Carter said. “He was bought with stolen money, but I want Curlin to do well. He is one magnificent racehorse, and I’m invested in him.”

 

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