Horse Net News pg. 2
By MEGAN K. STACK HOUSTON (January 17, 2000 6:00 p.m. EST http://www.nandotimes.com) - For years, J.T. Lundy sat atop a kingdom of fast horses, easy money and bluegrass. But when Lundy toppled from the peak of the horse industry, he took with him one of the world's most renowned stables. The 1991 financial collapse of Calumet Farm in Lexington, Ky., was the largest such downfall in thoroughbred racing history. When the smoke cleared, one of the world's most celebrated stallions was dead, a Houston bank lay in ruins and the high-rolling president of the storied Calumet sat in a Miami jail. Jury selection is set to begin Tuesday in the fraud and bribery case against Lundy and Gary Matthews, who served as Calumet's president and chief financial officer, respectively. They face seven counts each of fraud, bribery and making false statements, including allegedly paying a Houston-based bank a $1.1 million bribe. In exchange, federal prosecutors charge, the defunct First City Bancorp granted the stables $65 million in unsecured loans without checking the farm's credit or appraising the horses. In its day, Calumet was untouchable. By the time the stables tumbled into bankruptcy, its trophy case included eight Kentucky Derbys, seven Preakness Stakes, two Belmont Stakes and two Triple Crowns. "They were the be all, end all of the horse business," said attorney Allen Goodling, who is representing Matthews. But behind the screen of fast horses and international acclaim, the stables were falling apart. When Calumet collapsed in 1991, it was more than $100 million in debt. Lavish spending and faulty borrowing are blamed for ruining the farm, which declared bankruptcy within six months of famed stallion Alydar's mysterious death. One morning in 1990, Alydar, a contender for the 1978 Triple Crown, was found in his stall with a broken leg. After a few days of fruitless treatments, the horse that had sired champions Alysheba, Easy Goer, Turkoman and Althea was given a lethal injection. Former horse groomer Alton Stone was on stable duty when Alydar's leg was broken. In November 1998, his contradictions over what happened the night Alydar was injured led to a five-month prison term for lying to the grand jury. Alydar's death resulted in a $36.5 million insurance payment to Calumet, of which $20 million went to First City for a lien it had on the horse. Authorities have never determined just how Alydar broke his leg, although the FBI continues to investigate. First City struggled with economic woes after Calumet, one of the bank's biggest loan clients, folded. Shortly after the horse stables declared bankruptcy, the Houston bank failed. The stables were later sold at auction. First City vice chairman Frank Cihak and four associates were eventually convicted on fraud and money laundering charges. Cihak was sentenced to more than 12 years in federal prison in 1994. In March 1999, federal prosecutors in Houston unsealed indictments against Lundy and Matthews, and Lundy was arrested in Miami as he returned from a business trip to Venezuela. He was released after paying $1.2 million in bond, and was ordered to turn over his tax returns and the names of his contacts in Venezuela to prosecutors. Matthews was arrested in Kentucky, and released on $10,000 bond, his attorney said.
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