09/07/2006 11:00PM

Lawsuit claims kickbacks

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LEXINGTON, Ky. - James McIngvale, the Texas-based Thoroughbred owner, has filed a federal lawsuit alleging that bloodstock agents J.B. McKathan and Kevin McKathan received kickbacks on a horse McIngvale purchased at auction in 2003.

The lawsuit, which was filed in U.S. District Court in Galveston, Texas, charges that the McKathan brothers, who operate out of Florida, received an undisclosed 10 percent commission from consignor Murray Smith on the purchase of Work, a 2-year-old whom McIngvale bought at the 2003 Keeneland juvenile sale for $950,000 on the advice of the McKathans. The suit includes an exhibit of a copy of a check for $95,000 made out to Our Team LLC, a company affiliated with the McKathans, from Smith.

McIngvale's lawsuit is the second high-profile suit filed within the last year to allege that bloodstock agents received undisclosed kickbacks on horse sales. Late in 2005, Jess Jackson, the owner of Stonestreet Stables, filed a lawsuit alleging that his former bloodstock advisers had collected undisclosed commissions on horses he purchased between 2003 and 2005. That suit has rattled the central Kentucky breeding industry and has led to various reform movements, including a bill passed this year by the Kentucky legislature outlawing undisclosed commissions.

The McIngvale suit also names the Southern California trainer Bob Baffert as a defendant, though it does not identify any transactions with Baffert. The suit does not name Smith as a defendant.

In the lawsuit, McIngvale said that he reached an oral agreement to pay the McKathans 5 percent of each purchase as a commission. The McKathans did not disclose that they were receiving other commissions on sales, the suit alleges.

"Defendants knew they should have disclosed all commissions they would receive and all commissions they did receive on transactions involving McIngvale," the suit states.

Neither J.B. nor Kevin McKathan returned a message left for them at their Florida farm. The two were said to be traveling to Kentucky on Friday for the upcoming Keeneland September yearling sale, which begins Monday.

Baffert did not return a message left on his cell phone.

The suit asks for unspecified damages and a full accounting of any commissions received by Baffert and the McKathans, among other judgments.

McIngvale said on Friday that he could not comment directly on aspects of the suit, but said that the allegations would not affect his continuing involvement in Thoroughbred racing. McIngvale first began purchasing horses at auction in the 1990's.

"I view this as a moral imperative to pursue this as diligently as possible to protect the hardworking people who are honest and conduct their business transparently," McIngvale said. "It's my contention that 99 percent of the people in the horse business are good, honest people, and I hate to see the bad apples spoil it for them."

Smith said on Friday that she had no "prior arrangement" with any buyers at the 2003 sale to provide commissions, including the McKathans, and said that the $95,000 check was a form of "appreciation" that is standard at bloodstock sales. She said she made out the check two months after the sale took place.

"It's not a rule of thumb, but it's more customary than not to send a form of appreciation," Smith said. "Some people send wine, some people send flowers. Everybody is working hard, and everybody is just trying to get by, and that was a big home-run horse for me, so you do what you can."

Asked if she believed the compensation was unethical, Smith said, "It was after the fact, it was two months later, there was no prior agreement, and it came out of my pocket, no one else's, so no."