Flipping Horses for Profit?
A Minnesota racehorse owner and breeder’s lawsuit takes on one of the world’s biggest Thoroughbred operations along with a group of California horsemen who have been accused of defrauding him in the sale of horses in his stable.
In a complaint originally filed in December 2009 and most recently amended March 17, 2011, Jeffrey Nielsen’s Everest Stables alleges a conspiracy -- involving, at different times, Dubai Sheikh Mohammed’s Godolphin Racing, trainer A.C. Avila, trainer Julio Canani, and owner Roger Licht -- led Nielsen to the sale of horses in his stable at prices he believes were hundreds of thousands of dollars below their true value. Nielsen is seeking a jury trial, compensatory damages, disgorgement of profits, triple damages under California law, legal fees, and punitive damages. The complaint was filed in U.S. District Court for the Central District of California.
The complaint, which only portrays the plaintiff’s side of the dispute, boils down to two conspiratorial allegations by Nielsen/Everest Stables.
The first involves a horse named Two Step Salsa, a two-time Grade 3 winner at Hollywood Park in the summer of 2008. Two Step Salsa, by Petionville out of a Seattle Slew mare, was bred by Everest Stables and trained by Canani.
In the complaint, Nielsen says he began to receive offers of up to $2 million from various entities – the highest offers coming from “Middle Eastern interests” -- to buy Two Step Salsa prior to the 2008 Breeders’ Cup, in which the horse eventually finished third in the Dirt Mile, beaten 1 3/4 lengths. He turned them down at first, but as the Breeders’ Cup approached, Nielsen said he told Canani, his longtime trainer, he was interested in selling Two Step Salsa. Canani, according to Nielsen, then told him for the first time Two Step Salsa had a bone chip in a knee that could cause the horse to fail a veterinary exam.
Immediately after the Breeders’ Cup, trainer A.C. Avila contacted Nielsen with an offer to purchase Two Step Salsa for $750,000. That offer was rejected, but the two parties eventually settled on a price of $1.4 million. Veterinarian Vince Baker examined Two Step Salsa on behalf of the buyer and approved the horse’s physical condition.
After the deal closed, Nielsen became aware that ownership of Two Step Salsa was subsequently turned over to Godolphin. In the suit, Nielsen claims Avila lied to him and concealed the identity of the actual buyer, contending Godolphin agents conspired with Avila and ultimately paid Avila considerably more than the $1.4 million sale price received by Nielsen.
In 2009, Two Step Salsa would go on to win the $1-million Godolphin Mile at Nad Al Sheba in Dubai, racing for Godolphin.
The complaint against Avila alleges civil conspiracy, unjust enrichment, fraud, theft by false pretense, misrepresentation and breach of duty of good faith and fair dealing.
The complaint against Godolphin alleges aiding and abetting fraud and civil conspiracy.
The judge in the case ruled to dismiss Nielsen’s original complaint against Godolphin on grounds an agent is not obligated to disclose the identity of a buyer. Last week, Godolphin’s attorneys filed a new motion to dismiss the amended complaint. The judge has not ruled on the latest motion to dismiss the portion of the complaint against Godolphin.
The other conspiracy and fraud allegations involve 10 horses that had been owned by Nielsen and wound up in the hands of Licht, Canani, or clients of Canani, and that Licht and Canani conspired to defraud Nielsen.
Shortly after the sale of Two Step Salsa, Nielsen told Canani he wanted to transfer eight horses in his West Coast string to his trainer on the East Coast. Canani allegedly told Nielsen many of the horses had physical problems and were not worth shipping east, but that he might be able to sell some of the horses in a package deal to television producer David Milch.
According to the complaint, Canani told Nielsen that Milch offered to buy six of the horses (All Man, Catana Perez, Clue Me In for $25,000 each; Ditto This for $20,000; Mini Do for $40,000; and Stand Tall for $15,000) for a total of $150,000 through Tarma Corp., a company Canani said was owned by Milch. Nielsen alleges he told Canani the price was too low, but that Canani persisted, saying it was Nielsen’s best chance to sell the horses at a favorable price. On Nov. 12, 2008, Nielsen agreed to the sale on the belief he was getting Canani’s best advice and representation. Two days later, two additional horses owned by Nielsen that he wanted to transfer to a different California trainer, Island Hop and Voodoo’s Vision, were sold to Tarma for a total of $70,000.
Based on information and belief, Nielsen alleges that Canani and not Milch is the owner of Tarma Corp. and that Canani unjustly enriched himself by misrepresenting the buyer in the transactions.
According to the complaint, Canani quickly “flipped” a couple of the horses in the deal to make a profit, selling Ditto This within two weeks at a profit of $40,000 and Catana Perez one day after buying him for a profit of $20,000.
A similar “buy and flip” conspiracy involving Licht and Canani took place with two other horses owned by Nielsen, his complaint alleges.
On Nov. 19, 2008, Licht faxed an offer to Nielsen to purchase two horses, Lady Lumberjack and Silent Stalk, for $350,000. According to the complaint, Licht said he had no relationship to Canani and that another trainer would likely get the horses if the sale went through. Licht is a Los Angeles attorney, former chairman of the California Horse Racing Board, and recently announced the formation of the California Thoroughbred Horsemen’s Association, a group of owners and trainers with designs on replacing Thoroughbred Owners of California as the state’s representative organization for horsemen.
Nielsen said he felt the offer from Licht was low, but said Canani subsequently told him that Lady Lumberjack had a physical problem. Nielsen elected to sell the two horses for what he felt was a low price of $350,000 on the belief that Lady Lumberjack’s physical condition was compromised. The deal was completed Nov. 24, 2008. Canani was to receive a 5% commission from Licht.
Nielsen said Licht did not require a vet exam to proceed with the purchase. He also alleges Canani told him he had no relationship with Licht.
The complaint alleges, however, Licht and Canani had a relationship going back 25 years, that Licht had provided free legal services to Canani and that Canani did not charge Licht to train his horses. Further, it alleges, Canani loaned the money that Licht used to buy the two horses from Nielsen, and that they had agreed to split any profits on the re-sale of the horses, with 75% to Canani and 25% to Licht. It also says Canani never received a 5% commission from Licht, which the complaint called a “ruse.”
On Nov. 29, Lady Lumberjack was entered to race for Licht and Canani, shortly after Canani allegedly told Nielsen she was unfit to race. Lady Lumberjack went on to be a graded stakes-placed winner of more than $200,000.
On Dec. 11, 2008, according to the complaint, Silent Stalk was sold for $200,000 to Joseph Scardino and Anthony Fanticola, two clients of Canani, for a profit of $50,000.
In April 2009, 95% of Lady Lumberjack was sold for $332,000 to David Milch, a profit of $132,500, the complaint alleges.
Everest Stables alleges that Licht and/or Canani committed breach of fiduciary and agency duties, fraud, unjust enrichment, theft by false pretense, violations of California Business and Professional Code, and breach of duty of good faith and fair dealing.
Licht and Canani have each filed responses denying the charges.
