You would think Eileen Mayer never heard of P.T. Barnum.
Mayer is Chief of Internal Revenue Service - Criminal Investigation. Her job involves overseeing probes into claims of tax fraud. Barnum, of course, was the famous 19th century master of hoaxes, founder of the outfit that would become the Ringling Bros. and Barnum & Bailey circus, and the man erroneously credited with saying, “There’s a sucker born every minute.”
After three principals of the former ClassicStar horse breeding operation—David Plummer; his son, Spencer Plummer; and accountant Terry Green—were reported last week by the U.S. Department of Justice as having pleaded guilty to charges of defrauding the United States, it was Mayer who said, “Investment schemes that seem too good to be true should be a signal to individuals to stay clear.”
Furthermore, Mayer said, “The IRS is actively pursuing promoters who market these tax-evasion schemes.”
P.T. Barnum was a self-proclaimed promoter. So, too, was David Plummer, who founded ClassicStar and recruited investors to participate in the company’s mare lease program. A release from the government about the guilty pleas said Spencer Plummer “assisted David Plummer in the operation of the mare lease program,” and Green assisted investors by “preparing and filing income tax returns on which they reported fraudulent deductions” and “assisted customers in their IRS audits by creating false and backdated documents and presenting them to IRS auditors,” the government alleged.
The information presented in the government’s case by the justice department claims participants in the ClassicStar 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 more than $200 million.
Other allegations against ClassicStar include: lacking sufficient mares to fulfill its obligations to investors and at times substituting Quarter Horse mares; providing loans to investors through National Equine Lending Co., said to be an independent company but actually owned by ClassicStar; and often, at the conclusion of an investor’s participation, having the outstanding loan “extinguished through fictitious trades involving an entity that purportedly owned interests in coal bed methane gas wells” through ClassicStar’s parent company, GeoStar.
ClassicStar began buying mares earlier this decade: $4,171,000 for 15 mares in 2001; the leading purchaser by money spent in 2002 and 2003, with 27 mares for $17,535,000 in 2002, and $13,570,000 for 20 mares the following year; and $9,835,000 for a dozen mares in 2004.
It didn’t take long for things to unravel.
In 2006 ClassicStar’s Kentucky farm was raided by federal agents, as was David Plummer’s Buffalo Ranch in Utah. Later that year a group of ClassicStar mares was sold at auction for $20.8 million. The following year 48 ClassicStar mares were purchased for $9.8 million by John Sykes of Cloverleaf Farm in Florida, who would also purchase ClassicStar’s Central Kentucky farm in partnership. The money was used to pay creditors.
In September 2007, ClassicStar filed for Chapter 11 bankruptcy protection; court documents listed claims from more than 200 persons totaling nearly $1.4 billion.
Numerous civil suits alleging fraud involving ClassicStar and its practices are still pending. Newspaper reports have said the Plummers and Green, who each face a maximum sentence of five years for conspiracy to defraud the government, are cooperating in the continuing investigation.
It is hard to imagine anyone who makes his living breeding Thoroughbreds fully believed the veracity of the mare lease program’s claims that were the underlying principle of ClassicStar.
People have been breeding horses for many years, and there are many intelligent and experienced attorneys and accountants who handle nothing but equine accounts. They are well versed in the tax codes as they apply to breeding and racing horses, including those leased from one entity to another.
Eileen Mayer is an experienced attorney herself, and as she said, if it sounds too good to be true, it probably is.
