Husbandry, hope, and equicide

The late 1980s saw a frenzy of financial deregulation and the loosening of bank and insurance company investment rules; for the first time since the Depression era they were free to put clients' money into ever-riskier bets. Horse farms, despite having the old-money reputation of conservative management, weren't immune to the lure of easy stock market gains, and banks were eager to lend to them.

Collateral for horse farm loans is a blend of husbandry and hope. Horse breeding operations sell interests in breeding rights for champion horses, either a stud fee for a well-bred stallion to impregnate a mare, or a fee when a live foal is produced by the union. A talented stud could breed many times a year, so retired racehorses continued to bring in money. However, in the 1980s the practice expanded into a bewildering array of fractional investing, such as buying an option on the future earnings of a horse's offspring, the stake's value tied to its performance on the track as well as its relative success in eventually breeding champions. The whole enterprise began to resemble a tulip mania or stock market bubble.

All this speculation came to a head when one of the oldest and most respected farms in Lexington, Spendthrift, a local institution for half a century, decided it was time to take the then-shocking step of going public and selling shares in the farm—that is, shares in the future performance of its brood mares and studs. It looked like a great idea at the time—in 1978 Spendthrift had syndicated interests in its horses, meaning it sold breeding rights to two back-to-back Triple Crown winners, Seattle Slew and Affirmed.

In 1983 the son of the farm's founder sold millions of dollars worth of stock in the farm. Things looked great for a while, with Queen Elizabeth visiting the farm in 1984 to consider having her own thoroughbreds mated there. But the farm quickly became overextended financially and the lawsuits began the following year, with unhappy investors claiming that the farm had overvalued its assets and was spending money on personal expenses. It only took a small market downturn for the whole thing to go sour.

Spendthrift wasn't the only farm this happened to, but the firm I worked for represented one of its largest creditors, which meant I had the dubious distinction of going to the farm and going through mountains of paper as it anticipated filing bankruptcy. My document review process took several weeks and I drove out to the beautiful farm every morning, past cantering foals and lush green fields surrounded by whitewashed fences. I was ready but not eager to sit down all day and sort through mountains of paper.

That such a thing could happen to such a historic place was demoralizing to everyone. The few people still working at the farm, mostly young and mostly from the bluest of Lexington blueblood families, were already grieving the loss of such a historic place as we requested file after file, each another nail in the farm's coffin. Spending habits and iffy valuations that had worked for generations when the farm was run on a handshake as a family business now ran up against its auditors, its investors, and the Securities and Exchange Commission. New tax laws less favorable to breeders and a sharp downturn in the oil market exacerbated the problem.

Controlling interest in the farm changed hands repeatedly and its stock value continued to plummet until it finally filed for bankruptcy reorganization in 1988. Most of its breeding stock and much of the farmland were sold off in a corporate reorganization to service the debt. Still, many lenders were left holding the bag. The sinking of the giant Spendthrift ship promised to take many smaller businesses down in its wake. The farm's affairs were so complex and their banking relationships so convoluted that it seemed as though every attorney in town had a piece of the action. Managing it all was Judge Joe Lee, who was fair and patient but ran a no-nonsense courtroom. Other historic farms had also gone public and gone bust in the same era, so he had multiple similarly complex horse farm cases going on at the same time. One of the biggest involved another historic farm, Calumet, which had been a successful breeding operation since 1924.

On the death of the farm's matriarch in 1982, control of the farm passed to Duane Lundy, the husband of the family's only heir, and he borrowed heavily against the farm's assets. There seemed to be plenty of money at first, as the farm bred many successful racehorses and boasted the leading sire of his day, Alydar. But Lundy over-leveraged the farm and was deeply in debt at the time of Alydar's mysterious death; the horse was insured for $36 million. The legal wrangling eventually sent Calumet into bankruptcy and a cloud of suspicion settled over Lundy and the farm's attorney, who was also its chief financial officer. Investigations into Alydar's death were stymied for years, hampered by destruction of physical evidence at the scene and the disappearance of veterinary X-rays.

In 2000 Lundy and the CFO were convicted of fraud and bribery and sentenced to prison. (For an excellent book about the decline and fall of Calumet, see Wild Ride by Ann Hagedorn Auerbach.)

Alydar's death has never been proven to be intentional and the federal judge overseeing Lundy's criminal trial said the preponderance of the evidence didn't show that Lundy was responsible. A reporter asked Lundy, "You didn't have anything to do with that horse's death?" It was the first time he spoke about his alleged involvement and he said, "Hell, no. I loved that horse. Loved him."

A wealthy investor stepped in to prevent Calumet's liquidation and eventually the farm found its way back into the winner's circle, with one of its horses winning the 2013 Preakness. Over the years Spendthrift's assets were repeatedly bought and sold and its breeding stock handled more soberly, and it too has gradually approached its old glory; as of 2020, it was again one of the top money-makers for horse breeding in the US.

The Times, summer, 1986. The farm's patrician founder had turned the farm over to his son, who made bad business deals. Now, "it's all strangers and lawyers and people not trusting each other."