The spruik horse at the Inglis Sales is not typically an unproven first season sire. Yet Equiano proved the pundits wrong. In the Group 1 Kings Stand Stakes at Ascot he had taken on the ‘battlers’ hero’, Takeover Target, and won. Takeover Target was the kind of horse ordinary people dream about owning. Bought for $1250 by a Queanbeyan taxi driver, the gelding earned his owner more than $6 million in winnings, a lifetime of experiences and the option of another career.
People do not forget a horse like Takeover Target. Nor do they forget the horse that beat him.
And so an Equiano colt sold for $420,000 at the 2014 Inglis Melbourne Premier Yearling Sale, the highest price ever paid for a yearling by a first season sire in Victoria.
Another Equiano colt sold at that same sale, this time for the more modest price of $60,000. The purchaser was Cloud 9 Thoroughbreds, the brain-child of former multiple Group 1 jockey, Brent Stanley. After 18 years in the saddle, Mr Stanley was forced to retire after facing the jockey’s curse, the challenge of maintaining weight. He had opened a training facility at Sutton Grange, and to all intents and purposes was doing well.
Brent Stanley after winning Race 1 on Turnbull Stakes Day
The concept of ‘loss leader’ is part and parcel of the trainer’s game. A trainer will buy horses at sales like Inglis, often on credit, and then source owners to pay for the purchase price and training fees. Hopefully success will follow on the track. No doubt, keeping creditors in check is a significant stress in a trainer’s life.
The financial pressure placed on trainers by these credit arrangements should not be underestimated. See my previous post on a Supreme Court case concerning Sheila Laxon and John Symons to understand what can happen when it all goes wrong.
The Equiano colt, now called Equita, soon gained himself 10 owners. One of them was Contract Racing Pty Ltd, of which the principal owner, David Moodie, is the Chairman of Racing Victoria. Mr Moodie has reportedly said that he gave Mr Stanley his start in racing, and, even gave him a home when he was 17 for a few years.
Unfortunately for Mr Stanley, he now faces a stint on the sidelines due to his dealings with Equita, having been convicted and disqualified for nine months by the Racing Appeals and Disciplinary (RAD) Board in Victoria.
The principal charge will be familiar to readers of my recent post on the Richard Callander penalty. Mr Stanley pleaded guilty to Australian Rule of Racing 175(a).
AR 175(a) provides: The Principal Racing Authority (or the Stewards exercising powers delegated to them) may penalise: (a) Any person, who, in their opinion, has been guilty of any dishonest, corrupt, fraudulent, improper or dishonourable action or practice in connection with racing.
The matters giving rise to Mr Stanley’s penalty may strike a familiar chord. After a barrier trial in Australia, Equita was sold to Hong Kong based trainer Danny Shum. The person who brokered the sale was leading jockey Glyn Schofield.
The horse has since done well at Sha Tin. Now called Dancing Flames, the colt won his first race and has placed in others. He has had a few riders. Mr Schofield is one of them.
Equita, or Dancing Flames, could be described as a ‘good earner’.
The former owners might ordinarily be satisfied by this outcome. A ‘win/ win’ as it were. They were paid $200,000 for a colt now doing well, but not amazingly well. What they did not know was that Danny Shum, in fact, paid $290,000 for the horse.
What happened to the missing $90,000?
Reports suggest that Mr Stanley, under considerable financial strain, kept $70,000. Mr Schofield retained $20,000 as commission for brokering the deal.
Whether Mr Shum knew about Mr Schofield’s commission (or how much) is unclear. In the similar Richard Callander transaction, NSW stewards found Mr Shum had negotiated a 5% commission with Mr Schofield.
Whether the owners knew about the $20,000 commission, or any of it, is also unclear.
Once the ‘real’ purchase price came to light, it appears Mr Stanley paid the owners his share of what they were due. Mr Schofield apparently retained the funds paid to him.
It is perhaps now best for the RAD Board to pick up the story in the penalty hearing for Mr Schofield. After referring to a “helpful statement of agreed facts” which the RAD Board has declined to share with interested observers, the Chairman continued:
Suffice to say that the matter involves the sale of the horse, Equita, to Hong Kong effectively for $290,000, with the owners being under the belief that the sale price was $200,000. Mr Schofield acted as an intermediary. It is no way suggested that he did anything dishonest or was aware of what the owners had been told.
However, he did take $20,000 commission and passed on to trainer, Mr Brent Stanley, $20,000 in cash in the jockeys’ carpark at Randwick racecourse, his belief being that this was Mr Stanley’s commission. Mr Stanley’s case will be dealt with later this day.
Mr Schofield was charged under a different rule, AR 85C(1).
AR 85C(1) provides that a licensed jockey shall not, without the express written permission of the Principal Racing Authority that has issued his licence, have any interest in or be otherwise involved in the buying, selling, trading or leasing of thoroughbred bloodstock.
Despite an “eloquent plea” by Mr Schofield’s counsel, the RAD Board was ultimately persuaded that a hefty fine of $50,000 (rather than the requested modest fine) was the way to go. A suspension had been considered, said the Chairman, who nevertheless determined a different path:
We accept that Mr Schofield had some ignorance of the operation of the rule, and may even have entertained an erroneous belief following some communication with Stewards in New South Wales.
We appreciate the plea of guilty, and he cooperated fully with the Stewards. We fully understand that this whole business has placed him under considerable stress and attracted to him unfavourable publicity. We could well understand that this might have impacted adversely on his riding opportunities.
However, we are also of the opinion that it is not just Mr Schofield’s image that has suffered. The whole image of racing has suffered because of it. General deterrence in relation to this sort of activity must be remembered.
For example, the handing over of $20,000 in cash in the jockeys’ carpark is just one circumstance that has a very poor look. Jockeys should not be acting as intermediaries in the sales of bloodstock.
We are of the opinion that a substantial fine is warranted. We bear in mind that the $20,000 taken by Mr Schofield as commission has been kept by him and not returned. [emphasis added]
Mr Schofield has dealt with his penalty with a sense of humour.
Contemplating cash transactions
Pausing briefly, let us consider the concept of cash transactions. First of all, who does them? And why? For most of us, our lives involve swiping cards, punching in PIN Codes and remembering passwords. Dealing in large amounts of cash seems decidedly retro.
In the Richard Callander case, Mr Schofield was found by NSW Stewards to have come to Mr Callander’s home where he was handed $10,000 in cash over and above his agreed commission with Mr Shum: refer Stewards’ critical findings.
The remarkable ability of trainers, jockeys and others to deal with each other using round numbers and wads of cash is intriguing, to say the least. If this apparent trend were applied to the rest of us, mundane encounters could take on a delightful new complexion.
For instance, after a pleasurable day at a sporting event, you and I might farewell each other in the car park. In the course of shaking hands I might find myself the recipient of a handful of cash. ‘How lovely’, I might think. ‘You’ve obviously realized I could do with a new frock at the [insert important race meeting name]. And you’ve decided to help’.
Or I might come to your house for a bite to eat or drink. On my departure, you might hand me $10,000. ‘Tremendous’, I might think. ‘I wish I’d brought a bigger handbag.’ I might also feel embarrassed at my own modest offering of a bottle of wine.
If there is a business reason for handing me this money, a few other thoughts might go through my head. These might include: ‘Why can’t I just give you my bank account details?’ OR ‘How am I going to count this?’ OR ‘Where did you get this from?’
Australians are edging towards a cashless future, as consumers use debit cards or other electronic payment methods in preference to cash at the checkout and online. The rise of contactless, credit and debit cards is outstripping ATM withdrawals, suggesting that cash is on its way out. And when we do get money, it is often debited straight into our accounts. If there was any doubt that the cashless future is already upon us, figures from Reserve Bank of Australia provide solid evidence. Cash withdrawals slipped from a total of 64.4 million in January 2012 down to 61.6 million in January 2014: Source – BMK Financial Services]
For most of us, the prospect of being paid large amounts in cash, whatever the reason, sounds decidedly peculiar. If jockeys and trainers are prepared to buck the trend, there may be reasons why regulators should tell them to stop.
Suggestions for improved regulation
In the last 12 months there have been at least three instances where licensed personnel in Victoria and New South Wales have been fined or disqualified over improper sales practices.
To their credit, all involved pleaded guilty. Some owners were also compensated.
If those are the known examples, it does not take a genius to work out there are likely to be unknown examples.
Since writing the Richard Callander post, I have been contacted with further information of skullduggery. I respect confidentiality and will not share the details, but it goes against any ‘isolated instances’ theory.
In welcome news for owners, David Moodie has indicated that the issue of protecting owners in the sale of horses has become a priority.
On 8 April 2016, Racing Australia will hold its next Board meeting. Protecting owners is on the agenda. Mr Moodie has reportedly said: “…we need to put in place rules that better govern the behavior of everybody in the industry and I’ve got no doubt Racing Australia will move to action that”.
In fairness, syndicators are already subject to extensive regulation because they are deemed to run a managed scheme subject to the Corporations Act 2001.
Regulatory Guide 91 is one of the instruments supplied by ASIC to help syndicators understand their obligations, and is worth a look. Racing Victoria also provides a helpful overview of syndication regulation. For those with a point of view, ASIC is presently consulting with people about whether its approach to regulating the horse racing and breeding industry should stay the same or change.
Regulators such as ASIC do not take a heavy approach with small-scale operations. After all, most owners are in it for the fun, and (definitely) not to make money. Accordingly, ASIC leaves alone schemes where no more than 20 people own a racehorse and the promoter is not in the business of doing so.
The conundrum is that there is very little to protect small-scale owners, who sit outside the syndication world, when horses are bought and sold.
Rule AR175(a) (referred to above) is a very useful catch-all provision, but should there be more specific rules designed to stamp out dodgy practices?
I have made four suggestions below, intended to be constructive. Please comment if you would like to add more.
When commenting, just keep in mind my comments policy of “Play the issue; not the man”.
- Licensed personnel should report cash transactions of $10,000 or more
Travellers entering and departing Australia are required to report any currency they are carrying of $10,000 or more in Australian dollars, or a foreign currency equivalent.
Why does such physical currency have to be reported? Austrac in its FAQs explains why: “Carrying money across borders is a common money laundering technique.”
If a similar reporting obligation were placed on licensed personnel, it would make explicit what is presently implicit. Handing over wads of cash is a poor look.
A reporting obligation would not be a ban. This is about disclosure. Politicians must disclose things everyday. So must doctors and other regulated professions. Licensed personnel already must disclose various things (e.g. trainers must keep records of substances given to horses). This would be just a small addition to the list.
For the jockey or trainer about to hand over a large cash sum, whether for the sale of a horse or otherwise, it would hopefully cause a person to think twice.
As trainer Robert Smerdon can attest, the problem with catch-all provisions is that they can also catch people by surprise. In 2013 the RAD Board fined Mr Smerdon $10,000 under the ‘poor look’ rule.
AR 175A, the ‘catch-all’ which tripped up Mr Smerdon, prohibits conduct prejudicial to the interests of racing.
The issue? He was an intermediary asked to hand Damien Oliver $11,000 in cash. Mr Smerdon, according to the evidence given by stewards to the RAD Board, recalled it was a wad of notes, but did not know how much. He did not ask what the money was for. Mr Smerdon asked Mr Oliver to come to his house and there gave him the money.
This conduct was not per se prohibited. So Mr Smerdon was likely – and to some extent probably justifiably – annoyed to find himself the subject of a fine. That’s the problem with catch-all provisions. They do not offer any clear ‘dos and don’ts’.
If there had been an express rule requiring licensed personnel to report large cash transactions of, say, $10,000 or more, Mr Smerdon would have been required to count the money (to see if it fell inside or outside the disclosure obligation), ask a difficult question (what is it for?) and then report it. Query in this case whether the scenario leading to penalty would have occurred.
The cash was Mr Oliver’s winnings from a prohibited bet in 2010, leading to stewards disqualifying Mr Oliver in a separate hearing for eight months and suspending him from riding in races for another two months: see RAD Board Reasons, Robert Smerdon
An express reporting obligation for large cash transactions could also assist members of the integrity department. A breach of a reporting rule is relatively easy to prove. This could assist stewards and others when those metaphorical buried bodies are somewhat harder to find.
If you have nothing to hide, other than the hassle of paperwork, there should be no issue filling out a declaration. For instance, a declaration could read:
Amount of cash: $10,000
Location of transaction: Carpark
To whom made: [Provide name]
Purpose of transaction: Commission from brokering sale of a horse
If the other party is also a licensed person, that person would be required to make a corresponding disclosure. Then, if only one party to the transaction were to disclose, but not the other, alarm bells at headquarters might ring.
- All commissions should be disclosed to all affected stakeholders
This is a no-brainer. The rules should require this. Transparency is key. Anecdotal evidence suggests many trainers do stipulate commissions in written terms and conditions.
Most owners are unlikely to have any difficulty with the payment of commission. However, they will want to know about it, at least to ensure it is proportionate to the amount paid.
This could help deter a licensed person from withholding a certain amount of money from owners on the grounds it is unspecified ‘commission’.
The executive director of the Hong Kong Jockey Club, Andrew Harding, has commented in relation to such matters, “transparency is the key in all these dealings”. He definitely has a point.
- Be required to say how much the horse cost when you register it
Registration papers require things like the identity of the horse, owner details, their respective ownership proportion, and, in due course, the horse’s name.
I am happy to stand corrected, but there appears no obligation on a trainer or owner also to register the purchase price of the horse.
This would constitute a representation of price, and be easily available for inspection via an online search.
Consider what might then happen if an unsuspecting purchaser looked up the register to find that they price they paid is more than what was recorded for the sale.
- Licensed personnel dealing with racehorses should be subject to similar obligations as real estate agents
Real estate agents are heavily regulated. Here are a few regulations (from Victoria) that could be easily adapted to the Australian Rules of Racing.
- act in their client’s best interests, except if it would be unlawful, unreasonable, improper or against their client’s instructions
- disclose to their client any personal or commercial relationship they have with a supplier, if they recommend that supplier
- act fairly and honestly and to the best of their knowledge and ability
- exercise skill, care and diligence in performing their functions
- make all reasonable enquiries to ascertain information relevant to a transaction
- provide all verbal and written offers to a client, unless instructed otherwise by a client in writing.
- must not induce a client to enter into an agency authority that may lead to commission being paid to more than one estate agent, without first giving them written advice of the possible consequences
- must not put their interests in conflict with those of their client by acting for another person
- must not accept commission from both a client and a consumer for the same transaction
Should police become directly involved in these issues? Perhaps not, at least whilst AR 175(a) exists in its present form. True it is, the rule refers to ‘fraud’ but it also refers to conduct such as ‘improper or dishonourable’ practices. This would not be of interest to police.
To involve police when someone has pleaded guilty to such a broadly worded rule might deter the next guilty plea or voluntary compensation payment.
Therefore, police intervention, in my view at least, should be strictly on a case by case basis, and by no means mandatory.
Protecting owners is one thing. A witch-hunt is another.