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Hundreds of Millions Spent on Racehorses Based on False X-Rays, Buyers Claim (#GotBitcoin?)

Bobby Flay, George Soros and the sheikh who rules Dubai helped push proceeds past $377 million last year for the most important annual sale in the thoroughbred industry. But behind the ebullience, trouble was brewing. Hundreds of Millions Spent on Racehorses Based on False X-Rays, Buyers Claim (#GotBitcoin?)

Last September, wealthy horse buyers, breeders and trainers from around the world descended on Lexington, Ky., to spend more than $377 million at the most important annual sale in the global thoroughbred industry.

The 13-day Keeneland September Yearling Sale yielded a record average price of $129,331 for the 1-to-2-year-old horses on auction, with a few bids topping $2 million. Representatives for celebrity chef Bobby Flay and a group tied to billionaire investor George Soros’s Soros Fund Management LLC were on hand, as was Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum, who owns one of the world’s largest thoroughbred racing and breeding operations.

But behind the ebullience, there were growing questions among sale participants about the integrity of a key step in the process: establishing the health of each horse.

Keeneland requires that horses on auction be X-rayed no more than 21 days before the September yearling sale and no more than 15 days before all other sales. Thousands of horses must be X-rayed during that period, with most of the work being done by a small number of top Lexington veterinary practices.

The X-rays are placed in a digital repository so that veterinarians working for buyers can review them to ensure thoroughbreds are free of lesions, bone chips or other abnormalities that could prevent them from becoming prize-winning racehorses. The auction house has called the repository a “vital aspect of what we offer at Keeneland for transparency and buyer confidence.”

But through an unexpected sequence of events last year, doctors from one of the industry’s most storied veterinary practices—Hagyard-Davidson-McGee Associates PLLC, which dominates the business of taking the X-rays—admitted to the Kentucky Board of Veterinary Examiners that they had for years routinely misdated the images to make it appear they were taken within the prescribed period. For one veterinarian, the misdating had been occurring for two decades and continued until as recently as January 2018, according to a letter he sent to the KBVE.On Sept. 27, just after last year’s auction, the KBVE said there was probable cause to conclude that 10 Hagyard veterinarians—a figure later adjusted to nine—had violated state law by committing an “unfair, false, misleading or deceptive practice.”

Keeneland, which declined to comment, established the repository in 1996 to help buyers avoid the cost and disruption of sending their own veterinarians to evaluate animals.

On Feb. 7, Lexington law firm Miller Edwards Rambicure PLLC filed a proposed class-action lawsuit in Fayette Circuit Court on behalf of all buyers at Keeneland since the repository became digital in 2006. The defendants include Hagyard and four of the veterinarians who admitted to misdating X-rays.

The complaint alleges that billions of dollars worth of horses have been sold based on X-rays that “by definition—do not depict the condition of the horse on the day they were falsely claimed to have been taken.”

“Thousands of buyers have participated in a sale based on their reasonable belief that the repository contained authentic records, and had they known it was a sham, they never would have participated in the sale in the first place,” the complaint states.

Hagyard believes the lawsuit is “without merit and will demonstrate it is based on a fundamental misrepresentation of the facts,” said Michael Casey, a lawyer for the veterinary practice. Hagyard has moved to dismiss the suit.

“The KBVE acknowledged ‘there was no evidence that any radiograph taken [by a Hagyard veterinarian] did not accurately reflect the condition of the horse’ for sale purposes,” said Hagyard partner Luke Fallon in a statement. “Nevertheless, it should never have happened. We have taken measures to ensure it never happens again.”

The misdating revelations have caused alarm in some corners of the lucrative breeding business.

“This has called into question the integrity of the information that’s housed within the repository,” said Jeffrey Berk, president of the American Association of Equine Practitioners. “It does affect [buyers’] perception of their ability to rely on this information in the same way that they did before.”

Bradley Weisbord, whose company BSW Bloodstock LLC buys horses on behalf of clients such as Mr. Flay and former SAC Capital Advisors LP executive Sol Kumin, a co-owner of Triple Crown winner Justify, said the industry can’t function without transparency.

“If buyers get scared or feel that they’re not playing in a fair market, the market gets screwed,” said Mr. Weisbord, who also sells horses through a separate company.

The misdating of X-rays may never have come to light but for another lawsuit—filed by three former Hagyard veterinarians in July 2017 and awaiting trial—that alleges breaches of promise related to their being made partners.

The three veterinarians wanted to resign from Hagyard, but needed to get out of noncompete agreements to continue working in Lexington, according to Mason Miller, an attorney representing the veterinarians in the lawsuit against Hagyard and spearheading the proposed class-action suit. They sent a letter to Hagyard’s executive committee in January 2018 stating their objections to the practice allowing surgeons to alter dates on X-rays and demanding the misdating end immediately.

When Hagyard’s partners received the letter, they decided the offending veterinarians would self-report to the KBVE, Dr. Fallon said in an interview.

“We felt that it was important because of our reputation for providing service with integrity, and we wanted to get ahead of it,” he said, adding that he and a number of other partners didn’t know about the misdating before the letter and didn’t condone it. “We can’t control what’s going on with some 70 different veterinarians.”

Founded in 1876, Hagyard goes back nearly as far as the sport of thoroughbred racing in America. It has tended to many of the world’s top horses and has trained generations of equine veterinarians. Dr. Fallon is the great-great-grandson of its founder.

Hagyard charges consignors around $500 per set of X-rays, 30% of which goes to the surgeon whose team performs them, according to court testimony related to the civil lawsuit. Sales work also offers an entree to farms and hundreds of horses that require regular care, equine veterinarians said.

In interviews with the KBVE, transcripts of which were reviewed by investigators, the Hagyard veterinarians said some misdating happened before the advent of digital X-ray technology. More recently, some of the veterinarians admitted in the interviews they changed computer settings to postdate digital X-rays on occasion.

If the veterinarians arrived on a farm to do X-rays when some horses weren’t yet eligible to be scanned, they said, they would sometimes program in a later date before taking the X-ray to make it look like they were shot within Keeneland’s required window.

In January, all nine veterinarians reached settlements with the KBVE. Two agreed to pay $25,000 each in “administrative payments” to offset the cost of the KBVE’s investigation. The others agreed to pay amounts ranging from $1,000 to $15,000.

None of the Hagyard veterinarians were restricted from practice. All of their settlement agreements stated: “The Board agrees and acknowledges that there is no evidence that any radiograph taken by the respondent did not accurately reflect the condition of the horse.”

Most of the veterinarians who admitted to misdating X-rays told the KBVE that when they did so, it was typically by two or three days in order to ensure they fell within Keeneland’s window. Michael Spirito, who agreed to a $25,000 settlement, told the board he had misdated by as many as seven days before the January 2017 and January 2018 Keeneland sales to make time for his family’s Christmas vacations.

The sale rules “didn’t make any sense, but apart from that, it was just quite inconvenient,” he told the KBVE.

Dr. Spirito, who declined to comment for this article, estimated in his interview with the KBVE that he had misdated 10% of the more than 500,000 individual images he had submitted to the Keeneland repository over the past two decades. He said no one had ever questioned the accuracy of his images.

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Monty H. & Carolyn A.

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