12/16/2004 1:00AM

Ethics code encourages disclosure, lacks teeth

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LEXINGTON, Ky. - The Sales Integrity Task Force announced its long-awaited code of ethics Thursday, taking a firm stance against undisclosed dual agency and giving support to increased disclosure requirements for veterinary procedures. But it offered no penalties for ethics violations, and did not require agents or sale companies to disclose the identities of buyers and sellers in transactions.

The code of ethics was prepared by a 22-member panel that was formed this summer by the Thoroughbred Owners and Breeders Association. This is the first attempt to establish formal ethics standards for the U.S. Thoroughbred marketplace, and all the major auction houses were represented on the panel.

In broad terms, the code of ethics requires:

* Disclosure of veterinary procedures that alter horses' conformation permanently, such as transphyseal bridging and similar surgeries to straighten limbs.

* A ban on temporary conformation- or condition-altering procedures, such as shock-wave therapy or injecting internal blisters that appear to aid limb conformation. A buyer who discovers such a procedure within 14 days of the auction may return the horse.

* A form to be signed by veterinarians disclosing any equity interest in sale horses examined for a client.

The code also declares undisclosed dual agency to be fraudulent and offers sample legal agreements that buyers and agents may use in transactions. Under the code, sellers are asked to complete a disclosure form listing veterinary procedures for the horses they're selling. Consignors will file that form, which will be voluntary for foals of 2004 but mandatory starting with foals of 2005, at auctions' health-information centers or repositories, and buyers will receive a copy of the form.

The code does not set forth penalties for infractions or offer specific recourse for aggrieved parties, beyond referring accusations to a TOBA-run "clearinghouse" that might offer advice.

A recent British code of ethics allows The Jockey Club in Britain to ban violators from sales and race courses, a power that The Jockey Club in the United States doesn't have.

"Our industry structure is ill-suited to provide teeth from a central power," said Cot Campbell, the task force's chairman. But, Campbell said, the code of ethics will "scare and slow down the crooked agent and greatly diminish problems" by "shining a spotlight" on unethical practices, facilitating legal recourse, and educating new market players about potential pitfalls.

"It will not stamp it out," Campbell said, referring to unethical auction practices, "but we think it will diminish it seriously, and it's an excellent starting point."

The code does not require full disclosure of buyers' or sellers' identities at auction, a major concern that Satish Sanan, a task force member and major auction buyer, expressed this summer during a boycott of the select auction market. At Sanan's behest, the task force spent four months examining three main areas of concern: veterinary practices and disclosure of veterinary procedures on sale horses; dual agency, in which an agent represents both a buyer and a seller in a transaction without disclosing that to either party; and full disclosure of sales horses' ownership. The last point proved to be the most contentious.

"There was a lot of resistance to full disclosure," said Sanan. "There are some genuine reasons for that. It's a democracy, and this was a 20-member team, and the majority agreed. I think we've reached a decent compromise on it."

One Sanan suggestion that the committee rejected was for consigning agents to ask inquiring bidders to sign a nondisclosure agreement before telling the bidder who owns a horse. Sanan said he would continue to call for ownership disclosure in sales horses in a way that balanced the right to privacy with a buyer's right to know.

The code of ethics calls on sales companies to "make every effort to provide to the public the most complete and accurate information on buyers and sellers possible, consistent with the above cited protections of privacy." That leaves sales companies and agents plenty of latitude to decide whether they will disclose information related to a horse's ownership.

"But we need to make sure that privacy is not used as a veil behind which fraudulent practices take place," Sanan said.

TOBA will implement the code of ethics and handle distribution of forms, buyer information, and any educational materials. A three-member Monitoring Committee also will assess the code and its application in the marketplace. That committee will meet twice annually, in July and January, and may reconvene the entire task force to revise the code.

The Monitoring Committee members are Lexington bloodstock agent Reynolds Bell, chairman; Sanan, who is based at Padua Stables in Florida; and Fred Seitz of Brookdale Farm near Lexington. They will serve for one year, beginning in January, and will appoint their successors.

Campbell said he would continue as chairman of the Sales Integrity Task Force until January, when he would hand the reins to TOBA and the Monitoring Committee.

"They need to put a focused effort on this now," Sanan said. "That means manpower and financial and marketing resources to make this code work. Otherwise, it will just die on the vine again."