In mid-2012, Bill Diener was appointed as Chairman of the Indiana Horse Racing Commission (IHRC) to replace the allegedly retiring Sarah McNaught to finish out her term which was to expire on September 1, 2014. On October 1, 2014, instead of reappointing Mr. Diener to a full term of his own, Governor Mike Pence choose to go in a different direction by appointing Susie Lightle to serve a four-year term through September 1, 2018. At the same time, current IHRC Commissioner Tom Weatherwax was tapped to become the next Chairman of the IHRC. (We are still waiting for the IHRC's press release on these changes.) While not being reappointed may have come as a surprise to Mr. Diener, his comments at the June 26, 2014 IHRC meeting regarding the thoroughbred breed development program were a cause for concern for many. With that backdrop, the following is our open letter to new IHRC Chairman Tom Weatherwax.
Chairman Weatherwax,
At the end of the June 26th IHRC meeting, former Chairman Diener made some remarks about the thoroughbred breed development program. While Mr. Diener considered his remarks as needing to "unwind a little bit personally", his lack of overall knowledge of the thoroughbred racing and breeding program was evident. As neither a horse owner, a horse breeder, or even considering himself being a horse racing fan, while Mr. Diener characterized his remarks as not speaking on behalf of the commission, IBOP's concern is that Mr. Diener's remarks will influence the current composition of the commission, especially considering each commissioner's limited tenure in their position. Frankly, Mr. Diener's views of the thoroughbred program demonstrated to every horseman in the room that his opinions were formed by misinformation, inaccurate information, and delivered with a general lack of a historical perspective on the program. Mr. Diener also suggested that he wasn't speaking for the commission staff either; however, the influence of the attitudes of Executive Director Gorajec were very evident in his comments.
Mr. Diener's comments were correct in that national thoroughbred foal crops having declined over the last few years. According to The Jockey Club, the national foal crops have dropped from 37,835 in 2005 to what is an estimated 21,725 for the 2012 foal crop which are the racing two-year olds of 2014. What Mr. Diener failed to mention is that Indiana foal crops over that timeframe have increased significantly. According to The Jockey Club, the Indiana-bred foal crops of racing age, ages 2 through 5 (foals born in 2009 through 2014), is 2,834 thoroughbreds which comprises 2.6% of the entire North American foal crop. Immediately preceding the slot-era, the four foal crops, ages 2 through 5, was just 1,525 which was 1% of the North American foal crop.
Considering the decline in the North American foal crops and the increase in available Indiana-breds, the impact to the average field size in Indiana thoroughbred races has been somewhat minimal. In 2008, Indiana held 1,028 thoroughbred races with an average field size of 8.9 per race. In 2013, Indiana held 1,088 races with an average field size of 8.6 per race. The national average in 2013 was 8 starters per race. The average field size for a race restricted to Indiana-breds was in excess of 10 per race. Studies have proven that field size is one of the most important factors in wagering volume.
Mr. Diener seemed to express his concerns regarding short fields in 2014 and wagering interest, "So my concerns, and as an old lawyer my glass is always half empty so I have to apologize to you. Are we going to see a bunch of short fields even some cancelled race dates this summer? If we will, that doesn't do much for patron interest in racing or even simulcast patrons going to wager on Indiana races." Yet, the IHRC's '2013 Annual Report' downplays the importance of both patrons and wagering with, "Fifty years ago, track attendance and pari-mutuel handle were the primary metrics followed by the horse racing industry." The report goes on to explain why daily track attendance is not even considered today and suggested that wagering (pari-mutuel handle), and associated revenues from wagering aren't that important by saying:
"Pari-mutuel handle in states with racinos, like Indiana, have ceded its importance to adjusted gross receipts (AGR) of slot play. Most of Indiana track’s revenue and purses are now derived from slot machines. Comparing pari-mutuel handle between states yield little by the way of competitive status or the underlying health of a state’s racing industry."
Wagering on Indiana racing is at an all-time low point and the 2013 Annual Report almost seems apologetic for those poor results.
While some of Mr. Diener's concerns are warranted, he fails to recognize the effect of the so-called 'Quality of Racing Program' that was initiated by Mr. Gorajec and approved by the commissioners in mid-2010. This ill-conceived program forces certain types of races to be carded in the thoroughbred program. In other words, this program is the equivalent of the commission playing racing secretary as opposed to the racing secretary having the freedom to card races based upon the supply and demand of available horses. No other commission in the country hand-cuffs a racing secretary in such a way. As IHRC Chair, this is now your policy, and therefore, you should be familiar with it. Following this link will lead you to the Final version of the program: http://freepdfhosting.com/09bf391e76.pdf.
The effect of forcing the carding of a certain percentage of supposedly higher quality open races actually works to decrease field size and wagering. Other than days like the Indiana Derby, these higher-purse races usually have the shortest fields in Indiana thoroughbred racing with the poorest wagering. Many times the fields on these races are so short, the full compliment of wagers aren't available. This hardly ever happens with an Indiana-bred race. A complete review of the effectiveness, or the lack thereof, of the "Quality of Racing Program" should be a priority for your commission. This is especially true considering that each year the commission has granted exceptions to the funding formula in this program because the program DOES NOT WORK by shackling both the racing secretary and the Thoroughbred Breed Development Advisory Committee. This is something that Mr. Diener did not recognize.
Mr. Diener also didn't recognize improvements in the quality of the thoroughbreds being bred in Indiana. As a novice at best, he has no basis for his statements, "And then my nagging second question is quality of the thoroughbreds racing. We know that Indiana breds represented only about seven percent of horses starting in open races last year. Contrast this with our Standardbred program where about half of the Standardbred starters are Indiana breds. Indiana bred Thoroughbreds are improving quality wise but only slightly, only slightly. Well behind bloodstock for Standardbreds." Given his lack of knowledge on the subject, Mr. Diener failed to consider the significant differences between standardbred breeding and racing and thoroughbred breeding and racing to what was a painful degree for those horsemen in attendance.
Stating that only 7% of Indiana-bred thoroughbreds start in open races is quoting another failed metric proposed by Mr. Gorajec and approved by the commissioners. Solely using this metric to determine quality demonstrates a significant lack of understanding of horse racing. Frist, all standardbred races, other than their stakes program, are Indiana preferred which means upon the taking of entries an Indiana horse can prevent horses bred in other states from making the field. As long as one horse from out-of-state gets into the field, the race is considered to be an open race. In essence, an open race in standardbred racing can consist of nine Indiana horses and one out-of-state horse. This preference system does not exist in thoroughbred racing and it shouldn't. Secondly, Mr. Diener fails to recognize what it means for a thoroughbred to 'run through their conditions' or to 'lose a condition.' A large part of the rate of return POTENTIAL in the thoroughbred program is to run through your Indiana restricted conditions prior to running in open conditions.
The biggest fallacy of basing quality on the percentage of Indiana-breds running in open company in Indiana is that this metric fails to consider Indiana-breds running and winning at tracks outside of Indiana. Through October 7, 2014, Indiana-breds have won at levels that would normally qualify them for a breeder award had they race in Indiana at the following race tracks around the US and in Europe:
Aqueduct, Arapahoe Park, Arlington Park, Belterra, Beulah Park, Calder Race Course, Camarero, Canterbury Park, Churchill Downs, Delaware Park, Ellis Park, Evangeline, Fair Grounds, Fair Meadows, Fairmount Park, Fort Erie, Goodwood (ENG), Gulfstream Park, Hawthorne, Los Alamitos, Louisiana Downs, Lyon (FR), Monmouth, Mountaineer, Parx, Presque Isle, Rillito, Santa Cruz, Tampa Bay Downs, Thirsk (ENG), Thistledown, Turfway Park, and Will Rogers.
At these tracks, Indiana-breds have won a total of 81 overnight races and two stakes! There have also been five other times Indiana-breds have place in stakes races outsider of Indiana. One of the out-of-state stakes winners, an Indiana-sired horse that won a $100,000 stakes race in Colorado, could only muster a third place finish when recently competing in an Indiana-sired stakes losing by five lengths.
A list of these Indiana-breds can be found at the following link: http://freepdfhosting.com/3822906bac.pdf. The total of 83 out-of-state race wins towers over the 70 races Indiana-breds won out-of-state in the entire year of 2013. In 2012, the number of out-of-state winners was in the high 30's. In 2013, according to The Jockey Club, Indiana-breds won only 82.96% of their earnings in Indiana which is down from the mid-90 percent just a few years ago. The idea that Indiana-breds running in open company in Indiana is a measure of quality is actually quite ridicules. But, that type of misinformation has become the norm being provided to the commission and the public by Mr. Gorajec. Here's another example regarding the attempts to sell his so-called 'Quality of Racing Program':
After the Indiana Downs meet in 2010, the quality of the Indiana thoroughbreds was a topic within a July 31st article in 'Thoroughbred Times.' Authors Jeff Lowe and Frank Angst somehow came to a conclusion after interviewing IHRC Executive Director Gorajec that, “The commission decided to raise the bar as revenue from slot machines began to boost purses in 2007.” Interestingly the authors believed, somehow, that slot machines provided increases in purses a full year before the machines were opened in July of 2008. That's misinformation. In the article they went on to say, "....and as analysis showed that increases in the amount of money available through the state’s Thoroughbred Breed Development program had not resulted in a significant improvement in the quality of the Indiana-bred Thoroughbreds.” This thought is propaganda. At that time in 2010, the first crop of the slot-era thoroughbreds were yearlings and not eligible to run any where in the country. No one on the IHRC's staff at that time or since then has the expertise to judge the quality of a crop of thoroughbreds prior to their racing careers beginning. Yet, based upon that type of thinking, significant changes to the thoroughbred program were made. Not a single commissioner at the time could see through this.
Mr. Gorajec's statements to the commission at the January 29, 2010 IHRC meeting should have been questioned as well when he said, "What I am saying is there is a structural flaw in the program whereby horses aren't encouraged to be bred to face horses any better than the ones they will face that were bred in Indiana. So in the Indiana-bred program you're not competing against horses that were foaled or bred in Kentucky or in Pennsylvania or in Ohio or Iowa or Louisiana. You are competing against horses that were bred in the county next door."
Every breed development program is really an economic development program plain and simple. The goal should be to maximize the economic impact of breeding and racing in a state. What Mr. Gorajec should have said was that we need a program that provides the incentives for horses that would have been foaled in Kentucky or would have been foaled in Pennsylvania or would have been foaled in Illinois or Iowa or Louisiana were moved to Indiana.
Just 17 days after Mr. Gorajec's above-mentioned statement was directed at the Indiana thoroughbred breed development program, a colt was born in Indiana that became a Grade 2 winner at age two and became the first Indiana-bred to participate in the Breeders’ Cup World Championship race. The mare of this colt was owned by a Kentucky resident who wanted to participate in the Indiana program based upon the incentives to do so. Mr. Gorajec's statement was also disrespectful to those who choose, and choose is the correct word, to participate in the Indiana program. This is especially true for those Indiana residents that have increased the quality of their breeding stock. Mr. Gorajec's statement was so absent of logic that calling it ‘extremely short-sighted’ is an understatement. However, this statement was a catalyst to set in motion the 'Quality of Racing Program' restrictions and the elimination of what made the Indiana thoroughbred program fairly unique, an owner award.
Mr. Gorajec's influence can be seen in Mr. Diener's statement that, "I still personally feel we need to start directing more and more breed development funds to purse supplements and less to breeder awards, if that's in the best long-term interest of Indiana's Thoroughbred industry. Couple years ago the average purses per race for Thoroughbreds in Indiana was about 12,000. It's doubled, running about a little over 24 and $25,000 a race each time. What's happened to the quality of races? Not much."
We can unequivocally say is that directing more breed development funds away from breeder awards is not in the long-term interest of the Indiana thoroughbred industry. After the passage of the slot legislation, the thoroughbred industry thrived in Indiana. The mission of the Indiana Thoroughbred Breed Development Advisory Committee, which is copied below, was working.
”The mission of the Thoroughbred Development Advisory Committee is to provide incentives and awards to three important elements of the Indiana Thoroughbred industry: the owner, the breeder and the stallion owner. The intent of these incentives and awards is to promote investment of capital into the Indiana economy (via Thoroughbred breeding, racing and related agri-business) and maximize the positive impact to the state’s economy. Winning on the racetrack is rewarded through these incentives.”
With increased revenues and incentives available, breeders from outside of the state brought mares to Indiana in record numbers. Those Indiana residents already participating in the program stepped up as well. One of the best metrics when considering economic activity of the thoroughbred program is registered mares as the manufacturing plant of a foal crop. The foals of 2009, which were bred in 2008, constitutes the first crop in the slot era. According to information provide by IHRC staff at the October 29, 2013 IHRC meeting, 1094 mares were registered in Indiana resulting in a 646 foal crop. Registered mares in the prior year totaled 715 which was increased from 520 in 2007 on the speculation that slot funds to racing would be a reality.
The number of registered mares continued to increase with 1,204 in 2010 to a record 1,239 in 2011. Since that time, the number of registered thoroughbred mares have been in significant decline. As of July 29, 2014, at the conclusion of this year's breeding season, the IHRC is reporting only 611 registered thoroughbred mares. (http://www.in.gov/hrc/files/TB_MARES_2014.pdf. Registered mares have dropped over 50% from the high point in 2011 and to below levels before the slot machines even began producing revenues to horse racing! Also, mares being bred to Indiana-base stallions has fallen dramatically. At the high point in 2010, 1,154 mares were bred to Indiana stallions with the number dropping to 639 in 2013 which is the lowest number since 2006. The program is actually in decline and in decline due to the commission's actions regarding the breed development program at the encouragement of Mr. Gorajec.
Mr. Diener continued, "Now, I have to say a caveat. Indiana horsemen are making money. And they're making good money, particularly racing in restricted races, but there has been little improvement in bloodstock. And I personally, Centaur and Indiana Grand, I hope you are going to consider, if you can, cutting back on race dates yet this year. Otherwise, I suspect the patrons at the track or even the patrons at a simulcast facility are going to be seeing a mediocre racing product as this summer goes along with short fields or cancelled races."
Again, his beliefs regarding the quality of the Indiana-bred thoroughbreds is well off from reality and lacking in any expertise. Chairman Weatherwax, the sheer fact that Mr. Diener assumes that Indiana horsemen "are making good money" was another glaring example of his lack of understanding of horse racing and breeding economics and what is happening to the program. Ask yourself, if the Indiana thoroughbred program is that lucrative, why have registered mares receded to pre-slot era levels? However, his sentiment about cutting back on race dates and a mediocre racing product are spot on, but not for this year or maybe the next two. Given the significant drop off in registered mares, and without a reversal, Indiana's thoroughbred program is in trouble. Today, large crops of Indiana-bred horses have been able to negate the drop off in the North American foal crops. Without changes in the thoroughbred breed development program, Mr. Diener's words will be prophetic.
One aspect of the 'Quality of Racing Program' that has significantly impacted Indiana's thoroughbred development program is the removal of the owner awards, which were paid to a winning owner at an Indiana track outside of the purse structure. This provided a significant incentive to own and to race an Indiana-bred in Indiana by enhancing an owner's rate of return. It was also a unique feature that differentiated Indiana's program from others. What the owner award also did was align a horse owner's interests with that of the breeder; running in Indiana. Indiana-breds winning out-of-state either generate a very small breeder award when compared to a win in Indiana or none at all. Thirty-four of the 81 Indiana-breds winning out-of-state so far this year generated no award to their breeders at all.
With the normal drop off from registered mares to foals, you should expect a foal crop of less than 400, the lowest since 2007, when these foals are ready to race in 2016. There's nothing in the thoroughbred breed development program, which is forced to comply with the 'Quality of Racing Program,' that will reverse this trend. Providing appropriate incentives for more breeding of thoroughbreds in Indiana and a greater incentive for running an Indiana-bred in Indiana is a must. You've inherited a problem, but that can be reversed, assuming you listen to the right people.
As Mr. Diener said to close the June 26th IHRC meeting, "We stand adjourned. Thank you." And, so are we. Thank you.
Friday, October 17, 2014
Sunday, October 12, 2014
'It Happened Again' (Which Should Never Happen) and Other Random Thoughts
There's definitely a lack of respect for horse owners at the Indiana Horse Racing Commission (IHRC). Here's a few examples:
It Happened Again (Which Should Never Happen)
For additional background on this subject, please see the following Blood-Horse article from July 31st: http://www.bloodhorse.com/horse-racing/articles/86487/horse-returned-but-entry-clerk-out-of-a-job
A horse owner who plays the claiming game as well as owner Maggi Moss knows that her horses entered in claiming races get some extra attention from other owners and trainers. This season at Indiana Grand, she has had nine horses claimed from her barn all of which were with trainer Tom Amoss. However, if you check the claim register through October 14th, you'll only see eight horses being claimed. The ninth horse was eight-year old gelding It Happened Again, a graded stakes winner of almost $700,000, who was claimed for a $25,000 tag in an allowance optional claiming race on July 15th. For reasons we'll explain, this claim has been completely removed from the Indiana Grand claim register.
According to Ms. Moss, this race was supposed to be It Happened Again's last race before retirement. She said she just knew it "was time" and figured that a $25,000 tag in Indiana would discourage anyone from making a claim. However, It Happened Again was claimed by trainer Alex Clarkson for owner Larry Carter who won a two way shake. While most owners would be satisfied with a $25,000 exit strategy on an eight-year old gelding, Maggi Moss's goal was to retrain It Happened Again for her own personal riding horse. She loved this horse and made several calls that night to the Indiana Grand racing office to verify the legitimacy of the claim. She also contacted It Happened Again's new owner attempting to buy him back, but to no avail. Mr. Carter's plan was to continue to race It Happened Again in the barn of Tom Albertrani during the Saratoga (NY) meet.
If you check the Equibase race chart, there is no mention of a claim in race 9 on July 15th: http://www.equibase.com/premium/eqbPDFChartPlus.cfm?BORP=P&STYLE=EQB&DAY=D&tid=IND&dt=07/15/2014&ctry=USA&race=9. The original chart, however, did indicate a claim of It Happened Again. Our original version of this chart was a Brisnet chart: http://freepdfhosting.com/6138cfc914.pdf.
During the following week, we received information that the claim of It Happened Again should have been invalidated yet was not. So, we reached out to Ms. Moss who asked us to continue to look into the matter. Generally, IBOP uses public records requests submitted to the IHRC to either confirm or deny the information that we receive. The two claim tickets that we received as a result of our public records request proves that claim never should have happened! Follow this link to view the claim tickets http://freepdfhosting.com/9967a23465.pdf. What should jump out at anyone, even racing officials, is that Alex Clarkson submitted two claims for It Happened Again. This is a clear violation of 71 IAC 6.5-1-4(f) which only allows for owners using the same trainer to claim different horses from a race. What we later found out was that Larry Carter and Susan Hebenton, the two owners attempting to claim It Happened Again, are also husband and wife.
According to two sources within the Indiana Grand racing office, one who had been fired and another who was still employed in a position of authority, the stewards knew that the claim was invalid and told those in the racing office to do nothing about. Given that what we were hearing seemed to be credible, we also started to inform the thoroughbred racing press of the Indiana stewards inaction with this claim. On the morning of July 25th, the stewards were informed (we can't say how) that the thoroughbred media was asking questions about this claim.
On July 25th, at 9:52 AM, shortly after Senior State Steward Stan Bowker was notified that the industry press was interested in the story of the invalid claim of It Happened Again, he emailed IHRC Executive Director Joe Gorajec the following, "Joe-- We have a problem we need to discuss. Stan" with a subject line of "Please Call." A copy of this email was provided to us as part of our public records request. This email can be seen at the following link: http://freepdfhosting.com/6d4bdd2c22.pdf. So, only after the potential of this story going public did the stewards take any action which is an unbelievably cowardly way to go about their responsibilities. Within an hour of this email, 10 days after the claim of It Happened Again, trainer Tom Amoss received the news that there was a problem with the claim and that the stewards would be ordering that the horse be returned.
The stewards, per their own ruling, supposedly had a hearing about the claim on July 25th, informed Joe Gorajec of their proposed ruling on July 26th, and issued their ruling on July 29th which can be seen at: http://freepdfhosting.com/3fd2230258.pdf. Their ruling indicates that in addition to filing multiple claims, Mr. Clarkson also did not complete a license application or pay for an Authorized Agent license. So, there were two issues that should have prevented the claim of It Happened Again, yet nothing was done until pressure of exposure was applied. Of course, the ruling on this matter indicates no fine or suspension to Mr. Clarkson. Any fine and/or suspension should have been issued to the stewards for their inept handling of what should have been an easy call.
While we hope that a situation like this doesn't ever happen again, until stewards are held accountable for their actions, or in this case their inaction, covering up mistakes will continue to be the norm. If you read the Blood-Horse article about this claim, IHRC Executive Director Joe Gorajec was characterized as considering what happened as a "routine matter." That gives plenty of insight into just how little respect he has for horse owners, and that lack of respect filters down to our stewards as well. Luckily, a few people with a conscience were willing to speak out.
On July 26th, It Happened Again was returned to the barn of Tom Amoss at Churchill Downs. His Jockey Club papers were returned to Ms. Moss which were signed by Tom Albertrani as a $25,000 private sale taking place on July 29th:http://freepdfhosting.com/825431953d.pdf.
According to Maggi Moss, It Happened Again is happy, healthy and taking to his new career training as a hunter jumper.
Cobalt Testing Communication Another Lack of Respect
Earlier in the 2014 race meets, the IHRC conducted a study over 23 race days of cobalt levels in 354 horse across the three racing breeds in Indiana. The samples were considered to be "dead samples" which means samples that had already been cleared by the primary lab. IHRC staff's report on cobalt can be found at: http://www.in.gov/hrc/files/Cobalt_Staff_Report_-_final_final_W_Attachments.pdf. Cobalt is a naturally occurring mineral in all animals. The concern with elevated levels of cobalt is performance enhancement with an EPO-like effect by producing more red blood cells. High levels of cobalt can also be toxic to a horse.
Immediately upon the IHRC staff report being issued, IBOP emailed both then-Chairman Bill Diener and Executive Director Joe Gorajec. One of our questions was whether the owners of the horses testing very high will be notified. We never received a response, and neither was our question considered when the IHRC discussed the establishment of a 25 parts per billion threshold for cobalt. You would think that a discussion of potentially toxic levels would have triggered such a though with one the commissioners.
If you look at the definition of 'foreign substance' in the IHRC's authorizing statute and in their rulebook, that term "means all substances except those that exist naturally in an untreated horse at normal physiological concentration." With cobalt existing naturally in a horse, any horse deemed to have a cobalt level above a "normal physiological concentration" is actually violating Indiana's foreign substance rule. If you read the staff report, you'll find that there were 16 horses that tested more than two times the threshold the IHRC established. Six horses tested for levels exceeding six time the threshold of 25 part per billion with one thoroughbred testing at 45 times.
The staff report actually indicates that many race horses competing in Indiana did so with cobalt levels well beyond a "normal physiological concentration" which constituted an "unfair competitive advantage" per the commission staff. Some did so at potentially toxic levels which one commissioner believed was purposefully done to enhance performance. Given this backdrop, IBOP filed a public records requests for the names of those horses testing beyond 25 parts per billion and the dates on which the samples were taken. We also asked for:
"3) Copies of the correspondence notifying the owners of their horse(s) included in the staff report testing beyond 25 parts per billion for cobalt.
4) Copies of the correspondence notifying the trainers of their trainee(s) included in the staff report testing beyond 25 parts per billion for cobalt."
The response we received from IHRC General Counsel Lea Ellingwood was as follows, "The Commission has no documents responsive to Items 3 or 4 of your request below." So, on one hand, the IHRC is concerned with cobalt being performance enhancing and potentially toxic to a horse; however, they are not concerned enough to notify the owners of those horses. In our view, an owner should always be kept apprised of the condition of their horse(s), especially when the IHRC has information that indicates that potentially dangerous levels of cobalt are being administered to their horse.
IHRC Rules for Notification of a Positive Test
The IHRC's lack of respect to a horse's owner is actually written directly into their administrative rules. Using the flat racing rulebook, '71 IAC 8.5-3-3(a)' governs communications of a positive test of a primary sample. While an owner CAN be notified, and should be notified in writing of a positive primary test, what you'll see is that the IHRC has such no requirement.
71 IAC 8.5-3-3 Administrative procedures prior to split sample testing
Authority: IC 4-31-3-9
Affected: IC 4-31-12
Sec. 3. (a) The results of all tests performed by the primary laboratory or laboratories are confidential and shall only be
communicated to the commission, commission staff, stewards, owner, and trainer. Notice of a positive test result may be
communicated verbally to the trainer. The trainer shall be responsible for promptly notifying the owner of a horse of a positive test as reported by the primary laboratory.
The IHRC delegates that responsibility to the trainer and the notification to the trainer doesn't even have to be in writing. In today's racing world, where ARCI penalties apply to both trainers and owners (and the horse) for multiple violations, the IHRC assumes that the trainer's and owner's interests are always the same. In some cases, that is not true. The IHRC also doesn't have an established time frame in which a primary positive test has to be communicated to anyone. Without a specific notification requirement, Indiana has an Executive Director that can, and will, accumulate positive tests purposefully not providing notification which can endanger the horse, their riders, anyone else coming in contact with the horse at the track, and the owner's ability to run their horse. The IHRC's notification rule for a split sample is quite different.
71 IAC 8.5-3-4 Administrative procedures subsequent to split sample testing
Authority: IC 4-31-3-9
Affected: IC 4-31-12
Sec. 4. (a) The split sample laboratory shall send a confidential written report on the result of its tests to the commission staff
which in turn shall send a confidential report to the trainer and owner forthwith.
With a split sample result, the IHRC requires itself to send a written report "to the trainer and owner forthwith." Definitions for 'forthwith' are "immediately" and "without delay." The Indiana HBPA and the Indiana Thoroughbred Owners and Breeders Association should push to have the split sample notification language incorporated into the notification requirements of a positive primary test. No one (Gorajec) should be able to sit back and create a serial medication offender on purpose and endanger horses and people in the process.
IHRC Complaint Policy - A Lack of Respect For the Law
While this may not be common knowledge, the IHRC has a complaint policy which was forced upon them by the Indiana legislature in 2013. Having a complaint policy was a recommendation of the Indiana Inspector General's report from two years earlier that the IHRC failed to act upon. So, the legislature took action with the IC 4-31-3-8(6) and (7) which went into effect on July 1, 2013:
"(6) develop internal procedures for accepting, recording, investigating, and resolving complaints from licensees and the
general public; and
(7) annually post the following information on the commission's Internet web site:
(A) A summary of the disciplinary actions taken by the commission in the preceding calendar year.
(B) A summary of the complaints received and resolved in the preceding calendar year."
You would think that if the law went into effect on July 1, 2013, the IHRC would have established their complaint procedures by that date. Of course, they didn't. So, on October 27, 2013, IBOP sent the following email to IHRC General Counsel Lea Ellingwood with a copy to then-Chairman Bill Diener who, earlier in 2013, had outlined a procedure to us for the purposes of filing a complaint regarding the IHRC's use of Administrative Law Judge who had been arrested multiple times for DUI:
"Lea, from reading the transcript of the September 17th commission meeting, I get the impression that IHRC staff has concluded that all necessary administrative rules changes or promulgation of new administrative rules as required by SB 609 have been completed. If I'm making an assumption, I'll apologize in advance. I do have a question regarding IC 4-31-3-8(6) which states that the IHRC shall "develop internal procedures for accepting, recording, investigating, and resolving complaints from licensees and the general public." While I recognize that "internal procedures" differ from administrative rules, the complaint procedures Chairman Diener outlined in his February 21st email were described as "informal" and more of a suggested course of action at the time.
Obviously, the email below was written prior to SB 609 becoming law which appears to require a more formalized approach. Chairman Diener correctly points out that there are administrative rules that cover certain types of specific complaints, yet perhaps not a broader spectrum of possible complaints, especially from the general public. My question is, has there been a more formal complaint procedure established as required by law? And if so, would you please forward me a copy? The general public should be informed as to how to file a complaint, should that become necessary, and understand the procedure involved once a complaint has been filed."
The IHRC had so much respect for their requirements under Indiana law, they waited until December 10, 2013 to established their complaint procedures. What the IHRC calls it's "Complaint Policy" can be http://www.in.gov/hrc/files/IHRC_Complaint_Policy_-_Approved_12-10-13.pdf. In addition, their "Complaint Form" can be found at the following link: http://www.in.gov/hrc/files/Complaint_Form.pdf. The form actually says to "Use this form to submit a written complaint about any alleged violations of the Commission's enabling statute or administrative rules." The problem with that statement, and the IHRC's complaint policy, is that the IHRC put limits on what someone can consider a complaint with "enabling statute or administrative." There are many other aspects of Indiana law that the IHRC is required to follow. Maybe a complaint should be filed about the IHRC's complaint policy.
Deceiving IHRC's Commissioners
While we've provided a few examples of how little respect the IHRC has for owners and for their responsibilities under the law, here's an example of how little respect the IHRC staff has for the commissioners themselves. With a commission consisting of five individuals with no racing or breeding experience, their lack of knowledge on racing issues is always very evident. Where they should be able to actually supervise is with administrative issues. Assuming they care enough to do so.
Over the years, IBOP has pointed out a number of rulemaking violations and rulemaking malfunctions perpetrated by the IHRC staff. What we're about to describe is plain illegal, but demonstrates just how easily a commissioner who is not in tune with their responsibilities can be fooled.
In early 2010, the IHRC established a trainer continuing education requirement for flat racing trainers that would go into effect beginning. (71 IAC 5.5-3-1 Eligibility, Subsection h) Due to the lack of trainers actually completing the requirement, the requirement was waived for 2012, then changed again for 2013, then waived again in 2013. In mid-2013, the IHRC got serious about making sure that flat racing trainers had their continuing education completed for 2014. So, at their June 11, 2014 meeting, the IHRC approved a new version of the trainer continuing education requirement. The IHRC was so serious, the new requirement dropped the number of hours required to three from four and created a number of categories of trainers who would be exempt from the requirement.
Since this was an emergency rule (sarcasm included), the IHRC staff filed this emergency with Legislative Services Agency (LSA) over two months later on August 20, 2013. You can see this filing as LSA Document 13-404(E): http://www.in.gov/legislative/iac/irdin.pdf?din=20130821-IR-071130404ERA. Using the emergency rulemaking process, administrative rules are effective upon being filed with LSA.
The next month, the IHRC was considering a revision of '71 IAC 5.5-3-1 Eligibility,' but not the trainer continuing education portion of the rule. The change added a new subsection which was inserted as subsection (g). This now made the trainer continuing education requirement subsection (i). The handout from the meeting package that the commissioners used for this change can be found here: http://freepdfhosting.com/2d1bf08991.pdf. What you'll see is that there is no reference in (i) to 'Beginning in 2014' or the categories of trainer exempt from the requirement from the rule filed on August 20th. The commissioners unanimously approved this change which actually reversed the trainer continuation portion of the rule to what was in effect as of March 8, 2012! Sharp eyes would have caught this error, but no one on the IHRC staff or commissioner did. Under Indiana law, a majority vote by the commissioner at a publicly held meeting is considered to be an approval of the content of the rule as presented to them.
Since this was another emergency rule (sarcasm included again), the IHRC staff filed this version of the trainer continuing education rule over three months later on December 23, 2013. If you want to see how the trainer continuing education rule was submitted to LSA, with line strikes through the exempt trainer categories, you can view 71 IAC 5.5-3-1(i) at this link to LSA's site: http://www.in.gov/legislative/iac/irdin.pdf?din=20140108-IR-071130567ERA.
On December 10, 2013, the IHRC had their last meeting of the year and, thankfully, didn't attempt to change the flat racing trainer continuing education rule. With their first meeting of 2014 scheduled for March 5, 2014, we were a bit surprised to see the IHRC staff file an emergency rule with LSA on February 25, 2014. On the agenda for the March 5th IHRC meeting was once again a waiver of the trainer continuing education requirement. We figured in preparation for that meeting someone noticed that the commissioners approved an incorrect version of the rule back in September, 2013 and tried to cover-up their error. Irrespective of the rationale, administrative rules carry the rule of law in Indiana, and there's no authority to arbitrarily change that "law" without any action by the commission at a publicly held meeting. Here's exactly what the IHRC staff submitted to LSA on February 25, 2014:
http://freepdfhosting.com/1f6133b74a.pdf.
Over the last few years, the abuses and the mistakes within the rulemaking process at the Indiana Horse Racing Commission have been well documented by our organization, but this example is the most egregious to date. Given the number of eyes preparing what you see at a meeting, and taking into consideration that there is an inherent responsibility with each commissioner to understand what is actually being approved, errors like this should never happen. And, when they do happen, correcting them within the boundaries of Indiana law is a must. But, the IHRC staff would rather hide their mistakes hoping no one would notice. We did. The IHRC is one of two agencies in the state that have the ability to create emergency administrative rules that never have to then go through the regular rulemaking process. This instance is another example of the abuse of that power.
The lack of meaningful oversight of the IHRC staff is evident in this scenario. No commissioner that we've seen ever 'inspects what they expect' to happen. All activities of the submission of administrative rules submitted to LSA are public record and easily accessed through the LSA website.
Or Simply Lie To Them
When discussing the timing of an administrative rule by using the emergency rulemaking process at the April 30, 2014 IHRC meeting, Executive Director Joe Gorajec had this to say:
JOE GORAJEC: The rules the Commission adopts are effective when our office files them with the Secretary of State. When we file them with the Secretary of State varies. It's usually within a couple, three days. Sometimes it's the next day. Sometimes it might be a week later, but we get to it pretty quickly. (Official Transcript: Page 32, Line 21 through Page 33, Line 2)
His statement regarding the timing of the submission of rules is laughable. (They also go to the Legislative Services Agency and not the Secretary of State, Mr. Gorajec.) Getting "to it pretty quickly" is hardly ever the norm and easy to prove by going to the LSA site. We've illustrated the trainer continuing education 'changes' being filed over two months and three months after approval by the commission. The longest we've found between an approval of an emergency rule by the IHRC and its filing with LSA to become effective is over 15 months! That rule just happened to regarding protecting the flat racing breed's purse account which was only filed after it was discovered that $800,000 was missing from the purse accounts at Indiana Downs.
The shortest timeframe we know of was hours between administrative rules being approved on the morning of April 5, 2013 then filed later that afternoon to be effective. In that case, IBOP had pointed out that the IHRC had allowed the standardbred anti-ulcer medication rules to expire at the end of 2012 without reestablishing a new rule. This became our Administrative Rule of the Month for April, 2013: http://ibopindy.blogspot.com/2013/04/administrative-rule-of-month-71-iac-8-1.html. At that same meeting, IBOP petitioned for a new business item to modify the thoroughbred out-of-state breeder award that was not updated to reflect the one-track, one-breed changes in 2013: http://ibopindy.blogspot.com/2013/04/thoroughbred-out-of-state-breeders.html.
The only other set of approved administrative rules that were filed within a week was for the new threshold medication rules. The IHRC approval these rules on April 30, 2014 and they were filed on May 7, 2014. http://www.in.gov/legislative/iac/20140514-IR-071140143ERA.xml.html
All other approved administrative rules we took a look at were filed with LSA weeks after there approval. Left to their own devices, the IHRC staff gets to filing rules whenever they "get to it." Any engaged commissioner would have easily seen through Mr. Gorajec's comments on the timely filing of approved rules, but too bad we don't have any that are engaged in their responsibilities.
It Happened Again (Which Should Never Happen)
For additional background on this subject, please see the following Blood-Horse article from July 31st: http://www.bloodhorse.com/horse-racing/articles/86487/horse-returned-but-entry-clerk-out-of-a-job
A horse owner who plays the claiming game as well as owner Maggi Moss knows that her horses entered in claiming races get some extra attention from other owners and trainers. This season at Indiana Grand, she has had nine horses claimed from her barn all of which were with trainer Tom Amoss. However, if you check the claim register through October 14th, you'll only see eight horses being claimed. The ninth horse was eight-year old gelding It Happened Again, a graded stakes winner of almost $700,000, who was claimed for a $25,000 tag in an allowance optional claiming race on July 15th. For reasons we'll explain, this claim has been completely removed from the Indiana Grand claim register.
According to Ms. Moss, this race was supposed to be It Happened Again's last race before retirement. She said she just knew it "was time" and figured that a $25,000 tag in Indiana would discourage anyone from making a claim. However, It Happened Again was claimed by trainer Alex Clarkson for owner Larry Carter who won a two way shake. While most owners would be satisfied with a $25,000 exit strategy on an eight-year old gelding, Maggi Moss's goal was to retrain It Happened Again for her own personal riding horse. She loved this horse and made several calls that night to the Indiana Grand racing office to verify the legitimacy of the claim. She also contacted It Happened Again's new owner attempting to buy him back, but to no avail. Mr. Carter's plan was to continue to race It Happened Again in the barn of Tom Albertrani during the Saratoga (NY) meet.
If you check the Equibase race chart, there is no mention of a claim in race 9 on July 15th: http://www.equibase.com/premium/eqbPDFChartPlus.cfm?BORP=P&STYLE=EQB&DAY=D&tid=IND&dt=07/15/2014&ctry=USA&race=9. The original chart, however, did indicate a claim of It Happened Again. Our original version of this chart was a Brisnet chart: http://freepdfhosting.com/6138cfc914.pdf.
During the following week, we received information that the claim of It Happened Again should have been invalidated yet was not. So, we reached out to Ms. Moss who asked us to continue to look into the matter. Generally, IBOP uses public records requests submitted to the IHRC to either confirm or deny the information that we receive. The two claim tickets that we received as a result of our public records request proves that claim never should have happened! Follow this link to view the claim tickets http://freepdfhosting.com/9967a23465.pdf. What should jump out at anyone, even racing officials, is that Alex Clarkson submitted two claims for It Happened Again. This is a clear violation of 71 IAC 6.5-1-4(f) which only allows for owners using the same trainer to claim different horses from a race. What we later found out was that Larry Carter and Susan Hebenton, the two owners attempting to claim It Happened Again, are also husband and wife.
According to two sources within the Indiana Grand racing office, one who had been fired and another who was still employed in a position of authority, the stewards knew that the claim was invalid and told those in the racing office to do nothing about. Given that what we were hearing seemed to be credible, we also started to inform the thoroughbred racing press of the Indiana stewards inaction with this claim. On the morning of July 25th, the stewards were informed (we can't say how) that the thoroughbred media was asking questions about this claim.
On July 25th, at 9:52 AM, shortly after Senior State Steward Stan Bowker was notified that the industry press was interested in the story of the invalid claim of It Happened Again, he emailed IHRC Executive Director Joe Gorajec the following, "Joe-- We have a problem we need to discuss. Stan" with a subject line of "Please Call." A copy of this email was provided to us as part of our public records request. This email can be seen at the following link: http://freepdfhosting.com/6d4bdd2c22.pdf. So, only after the potential of this story going public did the stewards take any action which is an unbelievably cowardly way to go about their responsibilities. Within an hour of this email, 10 days after the claim of It Happened Again, trainer Tom Amoss received the news that there was a problem with the claim and that the stewards would be ordering that the horse be returned.
The stewards, per their own ruling, supposedly had a hearing about the claim on July 25th, informed Joe Gorajec of their proposed ruling on July 26th, and issued their ruling on July 29th which can be seen at: http://freepdfhosting.com/3fd2230258.pdf. Their ruling indicates that in addition to filing multiple claims, Mr. Clarkson also did not complete a license application or pay for an Authorized Agent license. So, there were two issues that should have prevented the claim of It Happened Again, yet nothing was done until pressure of exposure was applied. Of course, the ruling on this matter indicates no fine or suspension to Mr. Clarkson. Any fine and/or suspension should have been issued to the stewards for their inept handling of what should have been an easy call.
While we hope that a situation like this doesn't ever happen again, until stewards are held accountable for their actions, or in this case their inaction, covering up mistakes will continue to be the norm. If you read the Blood-Horse article about this claim, IHRC Executive Director Joe Gorajec was characterized as considering what happened as a "routine matter." That gives plenty of insight into just how little respect he has for horse owners, and that lack of respect filters down to our stewards as well. Luckily, a few people with a conscience were willing to speak out.
On July 26th, It Happened Again was returned to the barn of Tom Amoss at Churchill Downs. His Jockey Club papers were returned to Ms. Moss which were signed by Tom Albertrani as a $25,000 private sale taking place on July 29th:http://freepdfhosting.com/825431953d.pdf.
According to Maggi Moss, It Happened Again is happy, healthy and taking to his new career training as a hunter jumper.
Cobalt Testing Communication Another Lack of Respect
Earlier in the 2014 race meets, the IHRC conducted a study over 23 race days of cobalt levels in 354 horse across the three racing breeds in Indiana. The samples were considered to be "dead samples" which means samples that had already been cleared by the primary lab. IHRC staff's report on cobalt can be found at: http://www.in.gov/hrc/files/Cobalt_Staff_Report_-_final_final_W_Attachments.pdf. Cobalt is a naturally occurring mineral in all animals. The concern with elevated levels of cobalt is performance enhancement with an EPO-like effect by producing more red blood cells. High levels of cobalt can also be toxic to a horse.
Immediately upon the IHRC staff report being issued, IBOP emailed both then-Chairman Bill Diener and Executive Director Joe Gorajec. One of our questions was whether the owners of the horses testing very high will be notified. We never received a response, and neither was our question considered when the IHRC discussed the establishment of a 25 parts per billion threshold for cobalt. You would think that a discussion of potentially toxic levels would have triggered such a though with one the commissioners.
If you look at the definition of 'foreign substance' in the IHRC's authorizing statute and in their rulebook, that term "means all substances except those that exist naturally in an untreated horse at normal physiological concentration." With cobalt existing naturally in a horse, any horse deemed to have a cobalt level above a "normal physiological concentration" is actually violating Indiana's foreign substance rule. If you read the staff report, you'll find that there were 16 horses that tested more than two times the threshold the IHRC established. Six horses tested for levels exceeding six time the threshold of 25 part per billion with one thoroughbred testing at 45 times.
The staff report actually indicates that many race horses competing in Indiana did so with cobalt levels well beyond a "normal physiological concentration" which constituted an "unfair competitive advantage" per the commission staff. Some did so at potentially toxic levels which one commissioner believed was purposefully done to enhance performance. Given this backdrop, IBOP filed a public records requests for the names of those horses testing beyond 25 parts per billion and the dates on which the samples were taken. We also asked for:
"3) Copies of the correspondence notifying the owners of their horse(s) included in the staff report testing beyond 25 parts per billion for cobalt.
4) Copies of the correspondence notifying the trainers of their trainee(s) included in the staff report testing beyond 25 parts per billion for cobalt."
The response we received from IHRC General Counsel Lea Ellingwood was as follows, "The Commission has no documents responsive to Items 3 or 4 of your request below." So, on one hand, the IHRC is concerned with cobalt being performance enhancing and potentially toxic to a horse; however, they are not concerned enough to notify the owners of those horses. In our view, an owner should always be kept apprised of the condition of their horse(s), especially when the IHRC has information that indicates that potentially dangerous levels of cobalt are being administered to their horse.
IHRC Rules for Notification of a Positive Test
The IHRC's lack of respect to a horse's owner is actually written directly into their administrative rules. Using the flat racing rulebook, '71 IAC 8.5-3-3(a)' governs communications of a positive test of a primary sample. While an owner CAN be notified, and should be notified in writing of a positive primary test, what you'll see is that the IHRC has such no requirement.
71 IAC 8.5-3-3 Administrative procedures prior to split sample testing
Authority: IC 4-31-3-9
Affected: IC 4-31-12
Sec. 3. (a) The results of all tests performed by the primary laboratory or laboratories are confidential and shall only be
communicated to the commission, commission staff, stewards, owner, and trainer. Notice of a positive test result may be
communicated verbally to the trainer. The trainer shall be responsible for promptly notifying the owner of a horse of a positive test as reported by the primary laboratory.
The IHRC delegates that responsibility to the trainer and the notification to the trainer doesn't even have to be in writing. In today's racing world, where ARCI penalties apply to both trainers and owners (and the horse) for multiple violations, the IHRC assumes that the trainer's and owner's interests are always the same. In some cases, that is not true. The IHRC also doesn't have an established time frame in which a primary positive test has to be communicated to anyone. Without a specific notification requirement, Indiana has an Executive Director that can, and will, accumulate positive tests purposefully not providing notification which can endanger the horse, their riders, anyone else coming in contact with the horse at the track, and the owner's ability to run their horse. The IHRC's notification rule for a split sample is quite different.
71 IAC 8.5-3-4 Administrative procedures subsequent to split sample testing
Authority: IC 4-31-3-9
Affected: IC 4-31-12
Sec. 4. (a) The split sample laboratory shall send a confidential written report on the result of its tests to the commission staff
which in turn shall send a confidential report to the trainer and owner forthwith.
With a split sample result, the IHRC requires itself to send a written report "to the trainer and owner forthwith." Definitions for 'forthwith' are "immediately" and "without delay." The Indiana HBPA and the Indiana Thoroughbred Owners and Breeders Association should push to have the split sample notification language incorporated into the notification requirements of a positive primary test. No one (Gorajec) should be able to sit back and create a serial medication offender on purpose and endanger horses and people in the process.
IHRC Complaint Policy - A Lack of Respect For the Law
While this may not be common knowledge, the IHRC has a complaint policy which was forced upon them by the Indiana legislature in 2013. Having a complaint policy was a recommendation of the Indiana Inspector General's report from two years earlier that the IHRC failed to act upon. So, the legislature took action with the IC 4-31-3-8(6) and (7) which went into effect on July 1, 2013:
"(6) develop internal procedures for accepting, recording, investigating, and resolving complaints from licensees and the
general public; and
(7) annually post the following information on the commission's Internet web site:
(A) A summary of the disciplinary actions taken by the commission in the preceding calendar year.
(B) A summary of the complaints received and resolved in the preceding calendar year."
You would think that if the law went into effect on July 1, 2013, the IHRC would have established their complaint procedures by that date. Of course, they didn't. So, on October 27, 2013, IBOP sent the following email to IHRC General Counsel Lea Ellingwood with a copy to then-Chairman Bill Diener who, earlier in 2013, had outlined a procedure to us for the purposes of filing a complaint regarding the IHRC's use of Administrative Law Judge who had been arrested multiple times for DUI:
"Lea, from reading the transcript of the September 17th commission meeting, I get the impression that IHRC staff has concluded that all necessary administrative rules changes or promulgation of new administrative rules as required by SB 609 have been completed. If I'm making an assumption, I'll apologize in advance. I do have a question regarding IC 4-31-3-8(6) which states that the IHRC shall "develop internal procedures for accepting, recording, investigating, and resolving complaints from licensees and the general public." While I recognize that "internal procedures" differ from administrative rules, the complaint procedures Chairman Diener outlined in his February 21st email were described as "informal" and more of a suggested course of action at the time.
Obviously, the email below was written prior to SB 609 becoming law which appears to require a more formalized approach. Chairman Diener correctly points out that there are administrative rules that cover certain types of specific complaints, yet perhaps not a broader spectrum of possible complaints, especially from the general public. My question is, has there been a more formal complaint procedure established as required by law? And if so, would you please forward me a copy? The general public should be informed as to how to file a complaint, should that become necessary, and understand the procedure involved once a complaint has been filed."
The IHRC had so much respect for their requirements under Indiana law, they waited until December 10, 2013 to established their complaint procedures. What the IHRC calls it's "Complaint Policy" can be http://www.in.gov/hrc/files/IHRC_Complaint_Policy_-_Approved_12-10-13.pdf. In addition, their "Complaint Form" can be found at the following link: http://www.in.gov/hrc/files/Complaint_Form.pdf. The form actually says to "Use this form to submit a written complaint about any alleged violations of the Commission's enabling statute or administrative rules." The problem with that statement, and the IHRC's complaint policy, is that the IHRC put limits on what someone can consider a complaint with "enabling statute or administrative." There are many other aspects of Indiana law that the IHRC is required to follow. Maybe a complaint should be filed about the IHRC's complaint policy.
Deceiving IHRC's Commissioners
While we've provided a few examples of how little respect the IHRC has for owners and for their responsibilities under the law, here's an example of how little respect the IHRC staff has for the commissioners themselves. With a commission consisting of five individuals with no racing or breeding experience, their lack of knowledge on racing issues is always very evident. Where they should be able to actually supervise is with administrative issues. Assuming they care enough to do so.
Over the years, IBOP has pointed out a number of rulemaking violations and rulemaking malfunctions perpetrated by the IHRC staff. What we're about to describe is plain illegal, but demonstrates just how easily a commissioner who is not in tune with their responsibilities can be fooled.
In early 2010, the IHRC established a trainer continuing education requirement for flat racing trainers that would go into effect beginning. (71 IAC 5.5-3-1 Eligibility, Subsection h) Due to the lack of trainers actually completing the requirement, the requirement was waived for 2012, then changed again for 2013, then waived again in 2013. In mid-2013, the IHRC got serious about making sure that flat racing trainers had their continuing education completed for 2014. So, at their June 11, 2014 meeting, the IHRC approved a new version of the trainer continuing education requirement. The IHRC was so serious, the new requirement dropped the number of hours required to three from four and created a number of categories of trainers who would be exempt from the requirement.
Since this was an emergency rule (sarcasm included), the IHRC staff filed this emergency with Legislative Services Agency (LSA) over two months later on August 20, 2013. You can see this filing as LSA Document 13-404(E): http://www.in.gov/legislative/iac/irdin.pdf?din=20130821-IR-071130404ERA. Using the emergency rulemaking process, administrative rules are effective upon being filed with LSA.
The next month, the IHRC was considering a revision of '71 IAC 5.5-3-1 Eligibility,' but not the trainer continuing education portion of the rule. The change added a new subsection which was inserted as subsection (g). This now made the trainer continuing education requirement subsection (i). The handout from the meeting package that the commissioners used for this change can be found here: http://freepdfhosting.com/2d1bf08991.pdf. What you'll see is that there is no reference in (i) to 'Beginning in 2014' or the categories of trainer exempt from the requirement from the rule filed on August 20th. The commissioners unanimously approved this change which actually reversed the trainer continuation portion of the rule to what was in effect as of March 8, 2012! Sharp eyes would have caught this error, but no one on the IHRC staff or commissioner did. Under Indiana law, a majority vote by the commissioner at a publicly held meeting is considered to be an approval of the content of the rule as presented to them.
Since this was another emergency rule (sarcasm included again), the IHRC staff filed this version of the trainer continuing education rule over three months later on December 23, 2013. If you want to see how the trainer continuing education rule was submitted to LSA, with line strikes through the exempt trainer categories, you can view 71 IAC 5.5-3-1(i) at this link to LSA's site: http://www.in.gov/legislative/iac/irdin.pdf?din=20140108-IR-071130567ERA.
On December 10, 2013, the IHRC had their last meeting of the year and, thankfully, didn't attempt to change the flat racing trainer continuing education rule. With their first meeting of 2014 scheduled for March 5, 2014, we were a bit surprised to see the IHRC staff file an emergency rule with LSA on February 25, 2014. On the agenda for the March 5th IHRC meeting was once again a waiver of the trainer continuing education requirement. We figured in preparation for that meeting someone noticed that the commissioners approved an incorrect version of the rule back in September, 2013 and tried to cover-up their error. Irrespective of the rationale, administrative rules carry the rule of law in Indiana, and there's no authority to arbitrarily change that "law" without any action by the commission at a publicly held meeting. Here's exactly what the IHRC staff submitted to LSA on February 25, 2014:
http://freepdfhosting.com/1f6133b74a.pdf.
Over the last few years, the abuses and the mistakes within the rulemaking process at the Indiana Horse Racing Commission have been well documented by our organization, but this example is the most egregious to date. Given the number of eyes preparing what you see at a meeting, and taking into consideration that there is an inherent responsibility with each commissioner to understand what is actually being approved, errors like this should never happen. And, when they do happen, correcting them within the boundaries of Indiana law is a must. But, the IHRC staff would rather hide their mistakes hoping no one would notice. We did. The IHRC is one of two agencies in the state that have the ability to create emergency administrative rules that never have to then go through the regular rulemaking process. This instance is another example of the abuse of that power.
The lack of meaningful oversight of the IHRC staff is evident in this scenario. No commissioner that we've seen ever 'inspects what they expect' to happen. All activities of the submission of administrative rules submitted to LSA are public record and easily accessed through the LSA website.
Or Simply Lie To Them
When discussing the timing of an administrative rule by using the emergency rulemaking process at the April 30, 2014 IHRC meeting, Executive Director Joe Gorajec had this to say:
JOE GORAJEC: The rules the Commission adopts are effective when our office files them with the Secretary of State. When we file them with the Secretary of State varies. It's usually within a couple, three days. Sometimes it's the next day. Sometimes it might be a week later, but we get to it pretty quickly. (Official Transcript: Page 32, Line 21 through Page 33, Line 2)
His statement regarding the timing of the submission of rules is laughable. (They also go to the Legislative Services Agency and not the Secretary of State, Mr. Gorajec.) Getting "to it pretty quickly" is hardly ever the norm and easy to prove by going to the LSA site. We've illustrated the trainer continuing education 'changes' being filed over two months and three months after approval by the commission. The longest we've found between an approval of an emergency rule by the IHRC and its filing with LSA to become effective is over 15 months! That rule just happened to regarding protecting the flat racing breed's purse account which was only filed after it was discovered that $800,000 was missing from the purse accounts at Indiana Downs.
The shortest timeframe we know of was hours between administrative rules being approved on the morning of April 5, 2013 then filed later that afternoon to be effective. In that case, IBOP had pointed out that the IHRC had allowed the standardbred anti-ulcer medication rules to expire at the end of 2012 without reestablishing a new rule. This became our Administrative Rule of the Month for April, 2013: http://ibopindy.blogspot.com/2013/04/administrative-rule-of-month-71-iac-8-1.html. At that same meeting, IBOP petitioned for a new business item to modify the thoroughbred out-of-state breeder award that was not updated to reflect the one-track, one-breed changes in 2013: http://ibopindy.blogspot.com/2013/04/thoroughbred-out-of-state-breeders.html.
The only other set of approved administrative rules that were filed within a week was for the new threshold medication rules. The IHRC approval these rules on April 30, 2014 and they were filed on May 7, 2014. http://www.in.gov/legislative/iac/20140514-IR-071140143ERA.xml.html
All other approved administrative rules we took a look at were filed with LSA weeks after there approval. Left to their own devices, the IHRC staff gets to filing rules whenever they "get to it." Any engaged commissioner would have easily seen through Mr. Gorajec's comments on the timely filing of approved rules, but too bad we don't have any that are engaged in their responsibilities.
Saturday, October 11, 2014
IHRC's Reevaluation of Indiana HBPA 2014 Registration Application - Part 2
On June 26, 2014, the Indiana Horse Racing Commission (IHRC) held a hearing on the renewal application of the Indiana Horsemen's Benevolent and Protective Association (INHBPA) to receive slot funding as a registered horsemen's association. This hearing was originally scheduled to take place on October 29, 2013, but what the IHRC described as a "complaint" filed by INHBPA board member Kim Hobson regarding the handling of benevolence funds led to a six month investigation into those practices.
For more background on this subject, including IBOP's findings and commentary prior to the hearing, please read the Part 1 as a prerequisite to this article: http://www.ibopindy.blogspot.com/2014/06/ihrcs-reevaluation-of-indiana-hbpa-2014.html.
After Ms. Hobson addressed the commission (Official Transcript: Pages 86 through 93) regarding the reasons for her complaint and her experiences in dealing with cronyism in benevolence-related eligibility and benefit receipt, dealing with denials for requests for information required by HBPA By-Laws and dealing with threats against her, here's what former Chairman Bill Diener had to say, "Miss Hobson, I personally wanted to thank you for filing the complaint because I concur with our executive director but for your filing this complaint, there would have been no change to the HBPA."
Here's what IHRC Executive Director Joe Gorajec had said earlier (Official Transcript: Page 76, Line 14 Through Page 77, Line 25)
"JOE GORAJEC: First off, I would like to piggyback on the question that Commissioner Pillow asked of Mike Brown with regard to the impact of the complaint on the process of improving the organization. And I have maybe a little bit different take. I think the complaint in and of itself was a very positive development in that had the Commission not received the complaint, then, quite frankly, we would probably have a continuation of practices that, quite frankly, shouldn't have been continued. So from that standpoint I think the complaint was very positive.
And I think Miss Hobson, even though when you read the report, it is not, it's written in such a way that does not confirm some of the allegations or some of the things that she tried to lead us to, quite frankly, didn't pan out. I think overall these improvements wouldn't have been made absent the complaint.
Having said that, in a perfect world the complaints would be unnecessary because the HBPA would have been more open and transparent in the past. Some of the things that we looked at, the time frame for the investigation was from 2009 to 2013. So we were looking at things three and four years old. And, quite frankly, that shouldn't be.
If things are going on that shouldn't be going on three, four years ago, they should have been brought up, handled and addressed three or four years ago. More importantly, they should have been brought up, handled and addressed not by the Commission but by the HBPA and the Board of Directors.
And I think when you look at the reevaluation,I think the most important thing to look at is what the reevaluation caused, which is all of the improvements and corrective action steps."
In a perfect world, Mr. Gorajec is correct in that complaints to the commission should not be unnecessary. In a perfect world, the IHRC staff would have done their jobs to supervise the INHBPA's benevolence funds over the last five years to understand there was no openness or no transparency with an appointed benevolence board having more authority than the elected INHBPA board. If things were "going on that shouldn't be going on," the IHRC staff should have known through their oversight. Clearly, Mr. Gorajec throws that responsibility to the INHBPA and its board members, yet ignores that Indiana law requires the IHRC to provide oversight to benevolence funds. In short, these issues were "brought up" by the INHBPA, but only by a single member seeking reforms. Did other board members simply not care enough? Or, was their family members receiving benefits, which violated the commission-required conflict of interest policy, an influence on their view of their own responsibilities?
As a result of Ms. Hobson's complaint, the INHBPA was required to take many corrective actions, especially regarding eligibility for a horseman to receive benevolence funds. Mr. Gorajec said this about the INHBPA's eligibility requirements, "First off, there were concerns that were well founded about eligibility requirements. HBPA had eligibility requirements. They were not enforcing all of their requirements. One thing to be said is that they were not enforcing all their requirements apparently uniformly." (Official Transcript: Page 78, Lines 7 through 12) Not uniformly enforcing eligibility requirements is saying that there was selective application of who got benevolence funds and who did not which still begs the question, on what basis were people declined for benevolence funds?
One of the most significant corrective action steps was the termination of the INHBPA Benevolence Trust and its board in favor of the elected INHBPA board. The fact that the INHBPA was using a non-elected board to oversee benevolence funds was evident in every INHBPA application for slot funds since 2008. Yet, this somehow came as a surprise to the IHRC staff during their investigation.
What was also in every INHBPA registration application since 2008 was the eligibility requirements for a horsemen to receive benevolence. Given that the INHBPA was not following their own commission-approved eligibility requirements, means that each application submitted to the IHRC for review was a lie. In effect, the INHBPA provided false documentation to the IHRC each year which is a violation of the IHRC's rules on horsemen's associations applications. Also, each year, senior leaders of the INHBPA would testify under oath at the IHRC's hearing on the application as to its legitimacy. Again, violations of the IHRC's rules and of Indiana statute. Yet, no sanctions were levied (just yet) on anyone. Below is the entire discussion regarding sanctions:
"CHAIRMAN DIENER: Questions for Joe? I have a hypothetical question. Your recommendation is, was that this application of HBPA be denied unless a revised application was submitted that addressed many of your concerns. You did not propose whether or not there should be any sanctions. Do you consider sanctions warranted in this case or not?
JOE GORAJEC: No. Based on our findings, no."
(Official Transcript: Page 80, Line 22 through Page 81, Line 4)
Since the IHRC's commissioners were acting as an Administrative Law Judge regarding the INHBPA's application at this June hearing, their sole agenda was to sit in judgment of the application, not sanctions. In our view, approving the application with the considerable corrective action steps was the right move. There are many on the backsides of the tracks that truly need assistance from these funds. However, sanctioning a licensee has to be a separate event from the hearing or an additional ruling based upon the IHRC's Due Process and Disciplinary Procedures and Indiana statute. While Mr. Gorajec wasn't going to sanction anyone for his own lack of oversight with these funds, with a new Chairman of the IHRC, that jury is actually still out. Under Indiana law the commissioners themselves or the commissioners collectively can recommend sanctions. The hearing on the INHBPA's 2015 application, which will take place before the end of the year, may just be very interesting.
For the full transcript to the IHRC meeting on June 26, 2014, follow this link: http://www.in.gov/hrc/files/IHRC_June_26_2014_meeting_full.pdf
. The relevant pages to the hearing on the INHBPA's registration application are pages 42 through 108.
For more background on this subject, including IBOP's findings and commentary prior to the hearing, please read the Part 1 as a prerequisite to this article: http://www.ibopindy.blogspot.com/2014/06/ihrcs-reevaluation-of-indiana-hbpa-2014.html.
After Ms. Hobson addressed the commission (Official Transcript: Pages 86 through 93) regarding the reasons for her complaint and her experiences in dealing with cronyism in benevolence-related eligibility and benefit receipt, dealing with denials for requests for information required by HBPA By-Laws and dealing with threats against her, here's what former Chairman Bill Diener had to say, "Miss Hobson, I personally wanted to thank you for filing the complaint because I concur with our executive director but for your filing this complaint, there would have been no change to the HBPA."
Here's what IHRC Executive Director Joe Gorajec had said earlier (Official Transcript: Page 76, Line 14 Through Page 77, Line 25)
"JOE GORAJEC: First off, I would like to piggyback on the question that Commissioner Pillow asked of Mike Brown with regard to the impact of the complaint on the process of improving the organization. And I have maybe a little bit different take. I think the complaint in and of itself was a very positive development in that had the Commission not received the complaint, then, quite frankly, we would probably have a continuation of practices that, quite frankly, shouldn't have been continued. So from that standpoint I think the complaint was very positive.
And I think Miss Hobson, even though when you read the report, it is not, it's written in such a way that does not confirm some of the allegations or some of the things that she tried to lead us to, quite frankly, didn't pan out. I think overall these improvements wouldn't have been made absent the complaint.
Having said that, in a perfect world the complaints would be unnecessary because the HBPA would have been more open and transparent in the past. Some of the things that we looked at, the time frame for the investigation was from 2009 to 2013. So we were looking at things three and four years old. And, quite frankly, that shouldn't be.
If things are going on that shouldn't be going on three, four years ago, they should have been brought up, handled and addressed three or four years ago. More importantly, they should have been brought up, handled and addressed not by the Commission but by the HBPA and the Board of Directors.
And I think when you look at the reevaluation,I think the most important thing to look at is what the reevaluation caused, which is all of the improvements and corrective action steps."
In a perfect world, Mr. Gorajec is correct in that complaints to the commission should not be unnecessary. In a perfect world, the IHRC staff would have done their jobs to supervise the INHBPA's benevolence funds over the last five years to understand there was no openness or no transparency with an appointed benevolence board having more authority than the elected INHBPA board. If things were "going on that shouldn't be going on," the IHRC staff should have known through their oversight. Clearly, Mr. Gorajec throws that responsibility to the INHBPA and its board members, yet ignores that Indiana law requires the IHRC to provide oversight to benevolence funds. In short, these issues were "brought up" by the INHBPA, but only by a single member seeking reforms. Did other board members simply not care enough? Or, was their family members receiving benefits, which violated the commission-required conflict of interest policy, an influence on their view of their own responsibilities?
As a result of Ms. Hobson's complaint, the INHBPA was required to take many corrective actions, especially regarding eligibility for a horseman to receive benevolence funds. Mr. Gorajec said this about the INHBPA's eligibility requirements, "First off, there were concerns that were well founded about eligibility requirements. HBPA had eligibility requirements. They were not enforcing all of their requirements. One thing to be said is that they were not enforcing all their requirements apparently uniformly." (Official Transcript: Page 78, Lines 7 through 12) Not uniformly enforcing eligibility requirements is saying that there was selective application of who got benevolence funds and who did not which still begs the question, on what basis were people declined for benevolence funds?
One of the most significant corrective action steps was the termination of the INHBPA Benevolence Trust and its board in favor of the elected INHBPA board. The fact that the INHBPA was using a non-elected board to oversee benevolence funds was evident in every INHBPA application for slot funds since 2008. Yet, this somehow came as a surprise to the IHRC staff during their investigation.
What was also in every INHBPA registration application since 2008 was the eligibility requirements for a horsemen to receive benevolence. Given that the INHBPA was not following their own commission-approved eligibility requirements, means that each application submitted to the IHRC for review was a lie. In effect, the INHBPA provided false documentation to the IHRC each year which is a violation of the IHRC's rules on horsemen's associations applications. Also, each year, senior leaders of the INHBPA would testify under oath at the IHRC's hearing on the application as to its legitimacy. Again, violations of the IHRC's rules and of Indiana statute. Yet, no sanctions were levied (just yet) on anyone. Below is the entire discussion regarding sanctions:
"CHAIRMAN DIENER: Questions for Joe? I have a hypothetical question. Your recommendation is, was that this application of HBPA be denied unless a revised application was submitted that addressed many of your concerns. You did not propose whether or not there should be any sanctions. Do you consider sanctions warranted in this case or not?
JOE GORAJEC: No. Based on our findings, no."
(Official Transcript: Page 80, Line 22 through Page 81, Line 4)
Since the IHRC's commissioners were acting as an Administrative Law Judge regarding the INHBPA's application at this June hearing, their sole agenda was to sit in judgment of the application, not sanctions. In our view, approving the application with the considerable corrective action steps was the right move. There are many on the backsides of the tracks that truly need assistance from these funds. However, sanctioning a licensee has to be a separate event from the hearing or an additional ruling based upon the IHRC's Due Process and Disciplinary Procedures and Indiana statute. While Mr. Gorajec wasn't going to sanction anyone for his own lack of oversight with these funds, with a new Chairman of the IHRC, that jury is actually still out. Under Indiana law the commissioners themselves or the commissioners collectively can recommend sanctions. The hearing on the INHBPA's 2015 application, which will take place before the end of the year, may just be very interesting.
For the full transcript to the IHRC meeting on June 26, 2014, follow this link: http://www.in.gov/hrc/files/IHRC_June_26_2014_meeting_full.pdf
. The relevant pages to the hearing on the INHBPA's registration application are pages 42 through 108.
Monday, October 6, 2014
Invalidating Indiana's Multiple Medication Violations Penalties
If you read the May 1, 2014 press release from the Indiana Horse Racing Commission, you'll find the following statement, "At its April 30, 2014 public meeting, the Indiana Horse Racing Commission (“IHRC”) unanimously voted (5-0) to approve the Association of Racing Commissioners (“RCI”) national uniform medication rules and multiple medication violation penalties." We see this statement as absolutely false especially when considering the multiple medication violation (MMV) "national uniform" rule. The actual "national uniform" rule REQUIRES that additional penalties be levied against multiple medication offenders based upon a points system. The new Indiana rule, instead of using the word "shall" as in the national model rule, uses the term "may" which creates an entirely new meaning to the rule by making the MMV penalties an option in Indiana. Overall, this change to "may" means that the IHRC can now (and will) selectively enforce this rule based upon who is involved.
Here's how IHRC Executive Director Joe Gorajec attempted to explain Indiana's deviation from what was supposed to be a national standard after Commissioner Steve Schaefer asked the IHRC Staff for their explanation:
JOE GORAJEC: I'll take first crack at it, and then Lea can follow up. It is that one of the things that we were concerned about is, you know, we all know what "shall" means. And we all know what "may" means. And we always look, and we are obligated to look when we have a positive test with regard to mitigating circumstances or exacerbating circumstances.
This is a rule that's really not going to be utilized very often just because the nature of how it's written. There can be very few people that fall, whose repetitive nature in violations fall under the rule. Having said that, when we call a positive test, it might be a positive test for a relatively benign drug that calls for a relatively small penalty. But based upon other points, that person might have might trigger a significant suspension. And that's okay.
But the fact of the matter is we need to look at the facts surrounding the positive test. And we might determine that there is, there is a positive on a drug that the way the drug got in the horse's system, the trainer is completely innocent, so to speak, but will have to call a positive regardless just because the horse raced with that drug in its system.
If we have a "shall," then we've got to do what we've got to do. If we have a "may," then we can consider it. We did that in deference to the horsemen. Like I said, this isn't going to come up often, but the rule calls for some significant sanctions when the points trigger the penalty. You know, we just want to make sure it's deserved. If it is, then we'll do it. And if it's not, we'll have a way to reconsider it.
COMMISSIONER SCHENKEL: Thank you. (Official Transcript, IHRC Meeting, April 30,2014: Page 367, Line 6 through Page 38, Line 16)
In short, while Mr. Gorajec suggests that the "may" was inserted "in deference to the horsemen," our view is that, like many aspects of Indiana horse racing, who is involved will determine the penalty, not the specifics of any medication.
Just two weeks after the approval of the MMV penalty rules, a second version of the MMV rule was distributed for industry comment. In our view, this second version, which was subsequently approved, moves Indiana's MMV rule even further from the national standard. In her email to industry stakeholders, IHRC Equine Medical Director Angela Demaree said, "Please feel free to contact me with any questions." So, we did by simply asking, "Why are the changes to the Multiple Medication Violation rules necessary?" We never received a response. Our public input on the second version was as follows:
"Dr. Demaree, while IBOP has a fundamental disagreement with MMV points only being an option in Indiana and open to selective application, we do have a concern with these proposed rules. As written, and based upon the language used to incorporate outside materials into 71 IAC 8-1-.7.1 and 71 IAC 8.5-1-7.1, we believe that these administrative rules could be easily invalidated should an MMV penalty ever be issued. Upon request, we'll be glad to expand on this concern at the next commission meeting."
As expected, we were never asked to expand on our view of how the technical flaws in the IHRC's administrative rules could be used to invalidate the MMV penalties. We offered, they declined. Given that the IHRC can now selectively enforce this rule as they see fit, and considering that the Executive Director has a tendency to allow medication violations to accumulate before notifying a trainer or owner, this article shares with everyone the arguments that could be used to invalidate the multiple medication violation penalties rule. What we are going to describe is exactly what we would have shared with the IHRC upon their request. While IBOP is not a trainer organization, we do realize that what impacts a trainer can have a pronounced impact on an owner and his or her horses ability to run.
Disclaimer: Our view on this subject is not intended to provide any legal advice. Always seek you own independent legal counsel.
The flaw in the IHRC's MMV administrative rules is an attempt to incorporate an Association of Racing Commissioners International (ARCI) document into the IHRC's rulebooks via the Indiana Administrative Code. As seen below in the flat racing rulebook, the IHRC attempts to incorporate penalty levels for medications, "as provided in the most recent version of the Uniform Classification Guidelines of Foreign Substances and Recommended Penalties and Model Rule as revised by the ARCI in August 1996 and any other subsequent revision effective after said date, which are incorporated by reference herein..." You can also see the phrase "may be assigned points" versus the actual ARCI Model Rule that states, "shall be assigned points" in the last line we've copied.
71 IAC 8.5-1-7.1 Multiple medication violations
Authority: IC 4-31-3-9
Affected: IC 4-31-12
Sec. 7.1. (a) A trainer who receives a penalty for a medication violation based upon a horse testing positive for a Class 1-5 medication with Penalty Class A-D, as provided in the most recent version of the Uniform Classification Guidelines of Foreign Substances and Recommended Penalties and Model Rule as revised by the ARCI in August 1996 and any other subsequent revision effective after said date, which are incorporated by reference herein, may be assigned points based upon the medication's ARCI Penalty Guidelines as follows:
(The balance of the administrative rule was not copied in for the sake of brevity.)
An agency's ability to incorporate outside materials by reference into administrative rules is governed by Indiana statute in IC 4-22-2-21. More specifically, IC 4-22-2-21(a)(2) allows for a "standard adopted by.........a nationally recognized organization or association." The ARCI's medication penalty classes would qualify as such a standard. Therefore, there is no question that the IHRC has the ability to incorporate the ARCI's medication penalty classes into their administrative rules. However, there are other aspects of Indiana law that the IHRC must follow to legally do so, yet fails to do so. More specifically, they fail on meeting the requirements of IC 4-22-2-21(b) and IC 4-22-2-21(d) which can be seen below:
IC 4-22-2-21
Incorporation by reference
Sec. 21. (a) If incorporation of the text in full would be cumbersome, expensive, or otherwise inexpedient, an agency may
incorporate by reference into a rule part or all of any of the following matters:
(1) A federal or state statute, rule, or regulation.
(2) A code, manual, or other standard adopted by an agent of the United States, a state, or a nationally recognized organization or association.
(3) A manual of the department of local government finance adopted in a rule described in IC 6-1.1-31-9.
(b) Each matter incorporated by reference under subsection (a) must be fully and exactly described.
(c) An agency may refer to a matter that is directly or indirectly referred to in a primary matter by fully and exactly describing the primary matter.
(d) Whenever an agency submits a rule to the attorney general, the governor, or the publisher under this chapter, the agency shall also submit a copy of the full text of each matter incorporated by reference under subsection (a) into the rule, other than the following:
(1) An Indiana statute or rule.
(2) A form or instructions for a form numbered by the commission on public records under IC 5-15-5.1-6.
(3) The source of a statement that is quoted or paraphrased in full in the rule.
(4) Any matter that has been previously filed with the:
(A) secretary of state before July 1, 2006; or
(B) publisher after June 30, 2006.
(5) Any matter referred to in subsection (c) as a matter that is directly or indirectly referred to in a primary matter.
(e) An agency may comply with subsection (d) by submitting a paper or an electronic copy of the full text of the matter incorporated by reference.
As added by P.L.31-1985, SEC.10. Amended by P.L.34-1993, SEC.2; P.L.6-1997, SEC.4; P.L.90-2002, SEC.9; P.L.28-2004, SEC.43;
P.L.123-2006, SEC.4.
IC 4-22-2-21(b) requires that, "Each matter incorporated by reference under subsection (a) must be fully and exactly described." Here's where the attempted incorporation by reference by the IHRC fails. First, "as provided in the most recent version of the Uniform Classification Guidelines of Foreign Substances and Recommended Penalties and Model Rule as revised by the ARCI in August 1996 and any other subsequent revision effective after said date, which are incorporated by reference herein" requires a horsemen to know what the "most recent version" actually is. Indiana law, and therefore, IHRC administrative rules don't work that way.
If you do an internet search of "Uniform Classification Guidelines of Foreign Substances and Recommended Penalties and Model Rule," you can find a number of different versions of this document. There's no direction anywhere in the IHRC's MMV rules as to which version is the most recent. We have copies of nine different versions and the ARCI's own revision schedule indicates there have been 10 different versions since December of 2010. To be "fully and exactly described," a specific version of this document from a specific date must be mentioned in the IHRC administrative rules.
The phrase "as revised" is also a failure as Indiana law doesn't allow for any action by an outside organization, which in this case is the ARCI, to impact the Indiana Administrative Code by those actions. No outside organization can change the policy of an Indiana agency like the IHRC. In other words, the ARCI does not set any policy in Indiana, the Indiana Horse Racing Commission does. Indiana law allows the IHRC to consider ARCI Model Rules, but does not allow for any future changes in those ARCI Model Rules to automatically modify the IHRC's administrative rules.
Where the IHRC really fails in their versions of MMV penalties is with IC 4-22-2-21(d), "Whenever an agency submits a rule to the attorney general, the governor, or the publisher under this chapter, the agency shall also submit a copy of the full text of each matter incorporated by reference under subsection (a) into the rule...." With the IHRC's use of emergency rulemaking, their approved rules go straight to the "publisher" which is Legislative Service Agency (LSA). With any administrative rule, the IHRC is required to "submit a copy of the full text of each matter incorporated by reference..." So, this aspect of Indiana law requires the IHRC to submit a specific and dated version of the ARCI's document. However, in the history of the IHRC, they have never once submitted the full text of any materials they are attempting to incorporate in their rules. (Yes, there are other IHRC administrative rules that can be invalidated for the same reasons, including the new cobalt threshold.) With incorporations by reference that actually follow Indiana law, LSA includes a footnote to the administrative rule that "fully and exactly" describes what materials are being incorporated down to a specific date and version number. That is the only way in which a person could truly understand what outside material are being incorporated into an administrative rule.
In actuality, under Indiana law, neither of the Multiple Medication Violations are currently in effect, yet both were filed as such with LSA on July 3, 2014: http://www.in.gov/legislative/iac/20140709-IR-071140251ERA.xml.pdf . IC 4-22-2-36, which is copied below, governs the effective date of administrative rules without exceptions.
IC 4-22-2-36
Effective date of rules
Sec. 36. A rule that has been accepted for filing under section 35 of this chapter takes effect on the latest of the following dates:
(1) The effective date of the statute delegating authority to the agency to adopt the rule.
(2) The date that is thirty (30) days from the date and time that the rule was accepted for filing under section 35 of this chapter.
(3) The effective date stated by the agency in the rule.
(4) The date of compliance with every requirement established by law as a prerequisite to the adoption or effectiveness of the
rule.
As added by P.L.31-1985, SEC.25.
More specifically, IC 4-22-2-36 establishes that administrative rules take effect on the "latest" of four specific requirements. One of those requirements is IC 4-22-2-36(4) "the date of compliance with every requirement established by law...." While the IHRC has attempted to incorporate ARCI materials, they have failed to fully describe those materials and they have failed to provide a specific copy of those materials to LSA as required by Indiana law. Therefore, the Multiple Medication Violations administrative rules have not met the requirements to be effective and are technically not in effect under Indiana law. No one should be able to be penalized under MMV rules that are currently in the IHRC's rulebooks. That, in our view, puts everyone on the same basis rather than being the ones who "shall" get a penalty in Indiana.
In addition, Indiana law allows for claiming that an administrative rule is invalid under "IC 4-22-2-45 Invalidity of rule; assertion; limitation" for failure "based on rulemaking procedures that were followed or should have been followed..." Therefore, based upon rulemaking procedures that should have been followed, IBOP is now claiming 71 IAC 8-1-.7.1 and 71 IAC 8.5-1-7.1 to be invalid under Indiana law due to the IHRC's failure to follow the requirements of IC 4-22-2-21.
Here's how IHRC Executive Director Joe Gorajec attempted to explain Indiana's deviation from what was supposed to be a national standard after Commissioner Steve Schaefer asked the IHRC Staff for their explanation:
JOE GORAJEC: I'll take first crack at it, and then Lea can follow up. It is that one of the things that we were concerned about is, you know, we all know what "shall" means. And we all know what "may" means. And we always look, and we are obligated to look when we have a positive test with regard to mitigating circumstances or exacerbating circumstances.
This is a rule that's really not going to be utilized very often just because the nature of how it's written. There can be very few people that fall, whose repetitive nature in violations fall under the rule. Having said that, when we call a positive test, it might be a positive test for a relatively benign drug that calls for a relatively small penalty. But based upon other points, that person might have might trigger a significant suspension. And that's okay.
But the fact of the matter is we need to look at the facts surrounding the positive test. And we might determine that there is, there is a positive on a drug that the way the drug got in the horse's system, the trainer is completely innocent, so to speak, but will have to call a positive regardless just because the horse raced with that drug in its system.
If we have a "shall," then we've got to do what we've got to do. If we have a "may," then we can consider it. We did that in deference to the horsemen. Like I said, this isn't going to come up often, but the rule calls for some significant sanctions when the points trigger the penalty. You know, we just want to make sure it's deserved. If it is, then we'll do it. And if it's not, we'll have a way to reconsider it.
COMMISSIONER SCHENKEL: Thank you. (Official Transcript, IHRC Meeting, April 30,2014: Page 367, Line 6 through Page 38, Line 16)
In short, while Mr. Gorajec suggests that the "may" was inserted "in deference to the horsemen," our view is that, like many aspects of Indiana horse racing, who is involved will determine the penalty, not the specifics of any medication.
Just two weeks after the approval of the MMV penalty rules, a second version of the MMV rule was distributed for industry comment. In our view, this second version, which was subsequently approved, moves Indiana's MMV rule even further from the national standard. In her email to industry stakeholders, IHRC Equine Medical Director Angela Demaree said, "Please feel free to contact me with any questions." So, we did by simply asking, "Why are the changes to the Multiple Medication Violation rules necessary?" We never received a response. Our public input on the second version was as follows:
"Dr. Demaree, while IBOP has a fundamental disagreement with MMV points only being an option in Indiana and open to selective application, we do have a concern with these proposed rules. As written, and based upon the language used to incorporate outside materials into 71 IAC 8-1-.7.1 and 71 IAC 8.5-1-7.1, we believe that these administrative rules could be easily invalidated should an MMV penalty ever be issued. Upon request, we'll be glad to expand on this concern at the next commission meeting."
As expected, we were never asked to expand on our view of how the technical flaws in the IHRC's administrative rules could be used to invalidate the MMV penalties. We offered, they declined. Given that the IHRC can now selectively enforce this rule as they see fit, and considering that the Executive Director has a tendency to allow medication violations to accumulate before notifying a trainer or owner, this article shares with everyone the arguments that could be used to invalidate the multiple medication violation penalties rule. What we are going to describe is exactly what we would have shared with the IHRC upon their request. While IBOP is not a trainer organization, we do realize that what impacts a trainer can have a pronounced impact on an owner and his or her horses ability to run.
Disclaimer: Our view on this subject is not intended to provide any legal advice. Always seek you own independent legal counsel.
The flaw in the IHRC's MMV administrative rules is an attempt to incorporate an Association of Racing Commissioners International (ARCI) document into the IHRC's rulebooks via the Indiana Administrative Code. As seen below in the flat racing rulebook, the IHRC attempts to incorporate penalty levels for medications, "as provided in the most recent version of the Uniform Classification Guidelines of Foreign Substances and Recommended Penalties and Model Rule as revised by the ARCI in August 1996 and any other subsequent revision effective after said date, which are incorporated by reference herein..." You can also see the phrase "may be assigned points" versus the actual ARCI Model Rule that states, "shall be assigned points" in the last line we've copied.
71 IAC 8.5-1-7.1 Multiple medication violations
Authority: IC 4-31-3-9
Affected: IC 4-31-12
Sec. 7.1. (a) A trainer who receives a penalty for a medication violation based upon a horse testing positive for a Class 1-5 medication with Penalty Class A-D, as provided in the most recent version of the Uniform Classification Guidelines of Foreign Substances and Recommended Penalties and Model Rule as revised by the ARCI in August 1996 and any other subsequent revision effective after said date, which are incorporated by reference herein, may be assigned points based upon the medication's ARCI Penalty Guidelines as follows:
(The balance of the administrative rule was not copied in for the sake of brevity.)
An agency's ability to incorporate outside materials by reference into administrative rules is governed by Indiana statute in IC 4-22-2-21. More specifically, IC 4-22-2-21(a)(2) allows for a "standard adopted by.........a nationally recognized organization or association." The ARCI's medication penalty classes would qualify as such a standard. Therefore, there is no question that the IHRC has the ability to incorporate the ARCI's medication penalty classes into their administrative rules. However, there are other aspects of Indiana law that the IHRC must follow to legally do so, yet fails to do so. More specifically, they fail on meeting the requirements of IC 4-22-2-21(b) and IC 4-22-2-21(d) which can be seen below:
IC 4-22-2-21
Incorporation by reference
Sec. 21. (a) If incorporation of the text in full would be cumbersome, expensive, or otherwise inexpedient, an agency may
incorporate by reference into a rule part or all of any of the following matters:
(1) A federal or state statute, rule, or regulation.
(2) A code, manual, or other standard adopted by an agent of the United States, a state, or a nationally recognized organization or association.
(3) A manual of the department of local government finance adopted in a rule described in IC 6-1.1-31-9.
(b) Each matter incorporated by reference under subsection (a) must be fully and exactly described.
(c) An agency may refer to a matter that is directly or indirectly referred to in a primary matter by fully and exactly describing the primary matter.
(d) Whenever an agency submits a rule to the attorney general, the governor, or the publisher under this chapter, the agency shall also submit a copy of the full text of each matter incorporated by reference under subsection (a) into the rule, other than the following:
(1) An Indiana statute or rule.
(2) A form or instructions for a form numbered by the commission on public records under IC 5-15-5.1-6.
(3) The source of a statement that is quoted or paraphrased in full in the rule.
(4) Any matter that has been previously filed with the:
(A) secretary of state before July 1, 2006; or
(B) publisher after June 30, 2006.
(5) Any matter referred to in subsection (c) as a matter that is directly or indirectly referred to in a primary matter.
(e) An agency may comply with subsection (d) by submitting a paper or an electronic copy of the full text of the matter incorporated by reference.
As added by P.L.31-1985, SEC.10. Amended by P.L.34-1993, SEC.2; P.L.6-1997, SEC.4; P.L.90-2002, SEC.9; P.L.28-2004, SEC.43;
P.L.123-2006, SEC.4.
IC 4-22-2-21(b) requires that, "Each matter incorporated by reference under subsection (a) must be fully and exactly described." Here's where the attempted incorporation by reference by the IHRC fails. First, "as provided in the most recent version of the Uniform Classification Guidelines of Foreign Substances and Recommended Penalties and Model Rule as revised by the ARCI in August 1996 and any other subsequent revision effective after said date, which are incorporated by reference herein" requires a horsemen to know what the "most recent version" actually is. Indiana law, and therefore, IHRC administrative rules don't work that way.
If you do an internet search of "Uniform Classification Guidelines of Foreign Substances and Recommended Penalties and Model Rule," you can find a number of different versions of this document. There's no direction anywhere in the IHRC's MMV rules as to which version is the most recent. We have copies of nine different versions and the ARCI's own revision schedule indicates there have been 10 different versions since December of 2010. To be "fully and exactly described," a specific version of this document from a specific date must be mentioned in the IHRC administrative rules.
The phrase "as revised" is also a failure as Indiana law doesn't allow for any action by an outside organization, which in this case is the ARCI, to impact the Indiana Administrative Code by those actions. No outside organization can change the policy of an Indiana agency like the IHRC. In other words, the ARCI does not set any policy in Indiana, the Indiana Horse Racing Commission does. Indiana law allows the IHRC to consider ARCI Model Rules, but does not allow for any future changes in those ARCI Model Rules to automatically modify the IHRC's administrative rules.
Where the IHRC really fails in their versions of MMV penalties is with IC 4-22-2-21(d), "Whenever an agency submits a rule to the attorney general, the governor, or the publisher under this chapter, the agency shall also submit a copy of the full text of each matter incorporated by reference under subsection (a) into the rule...." With the IHRC's use of emergency rulemaking, their approved rules go straight to the "publisher" which is Legislative Service Agency (LSA). With any administrative rule, the IHRC is required to "submit a copy of the full text of each matter incorporated by reference..." So, this aspect of Indiana law requires the IHRC to submit a specific and dated version of the ARCI's document. However, in the history of the IHRC, they have never once submitted the full text of any materials they are attempting to incorporate in their rules. (Yes, there are other IHRC administrative rules that can be invalidated for the same reasons, including the new cobalt threshold.) With incorporations by reference that actually follow Indiana law, LSA includes a footnote to the administrative rule that "fully and exactly" describes what materials are being incorporated down to a specific date and version number. That is the only way in which a person could truly understand what outside material are being incorporated into an administrative rule.
In actuality, under Indiana law, neither of the Multiple Medication Violations are currently in effect, yet both were filed as such with LSA on July 3, 2014: http://www.in.gov/legislative/iac/20140709-IR-071140251ERA.xml.pdf . IC 4-22-2-36, which is copied below, governs the effective date of administrative rules without exceptions.
IC 4-22-2-36
Effective date of rules
Sec. 36. A rule that has been accepted for filing under section 35 of this chapter takes effect on the latest of the following dates:
(1) The effective date of the statute delegating authority to the agency to adopt the rule.
(2) The date that is thirty (30) days from the date and time that the rule was accepted for filing under section 35 of this chapter.
(3) The effective date stated by the agency in the rule.
(4) The date of compliance with every requirement established by law as a prerequisite to the adoption or effectiveness of the
rule.
As added by P.L.31-1985, SEC.25.
More specifically, IC 4-22-2-36 establishes that administrative rules take effect on the "latest" of four specific requirements. One of those requirements is IC 4-22-2-36(4) "the date of compliance with every requirement established by law...." While the IHRC has attempted to incorporate ARCI materials, they have failed to fully describe those materials and they have failed to provide a specific copy of those materials to LSA as required by Indiana law. Therefore, the Multiple Medication Violations administrative rules have not met the requirements to be effective and are technically not in effect under Indiana law. No one should be able to be penalized under MMV rules that are currently in the IHRC's rulebooks. That, in our view, puts everyone on the same basis rather than being the ones who "shall" get a penalty in Indiana.
In addition, Indiana law allows for claiming that an administrative rule is invalid under "IC 4-22-2-45 Invalidity of rule; assertion; limitation" for failure "based on rulemaking procedures that were followed or should have been followed..." Therefore, based upon rulemaking procedures that should have been followed, IBOP is now claiming 71 IAC 8-1-.7.1 and 71 IAC 8.5-1-7.1 to be invalid under Indiana law due to the IHRC's failure to follow the requirements of IC 4-22-2-21.
Wednesday, June 25, 2014
IHRC's Reevaluation of Indiana HBPA 2014 Registration Application - Part 1
At their June 26, 2014 meeting, the Indiana Horse Racing Commission (IHRC) will conduct a hearing on the registration application for the Indiana Horsemen's Benevolent and Protective Association (INHBPA) to receive slot funds as a registered horsemen's association for 2014. The hearing on the INHBPA registration was originally scheduled for October 26, 2013; however, this hearing was postponed pending an investigation into alleged misuses of funds in the benevolence programs as raised by INHBPA board member Kim Hobson who was elected to the INHBPA board in the fall of 2012.
Indiana Breeder & Owner Protection, Inc. (IBOP), through the use of public records and available public information, has attempted over the last 20 months to either verify or deny certain claims that have been made by horsemen regarding expenditures of benevolence funds at the INHBPA even prior to Ms. Hobson's complaint. IBOP's goal was to separate fact from fiction with available public records. Ms. Hobson's claims of misuse of funds, as an INHBPA board member, greatly accelerated our process considering the IHRC conducted their own six-month investigation. Overall, its IBOP's belief that benevolence funds for backside workers (medical care, dental care, etc. and other support services including childcare) are greatly needed to enhance their lives, and should not be prevented from getting to those in need on the backside. However, after the conclusion of the IHRC's investigation, we see many questions that still remained unanswered that need to be answered by the IHRC. This article will raise some of those issues, but first a little background on the subject.
Background
The legislation that authorized slot machines at Indiana's two horse racing tracks was initially passed in the spring of 2007 with the first revenues to horse racing beginning in mid-2008. While the bulk of slot revenues to horse racing are allocated for purse contributions and for breed development funding, horsemen's associations were eligible to receive three separate revenue streams authorized by HB 1835: 1) "equine promotion or welfare" 2) "backside benevolence," and 3) for necessary operations of a horsemen's association. This initial legislation also required that, "A horsemen's association shall expend the amounts distributed to the horsemen's association under subsection (b)(1) (equine promotion or welfare) through (b)(2) (backside benevolence) for a purpose promoting the equine industry or equine welfare or for a benevolent purpose that the horsemen's association determines is in the best interests of horse racing in Indiana for the breed represented by the horsemen's association."
The slot legislation gave oversight of the allocation to horse racing to the Indiana Horse Racing Commission (IHRC) with what we are going to call the 'best interests of horse racing' standard. More specifically, the standard created by the legislature was and is as follows, "Money distributed under this section may not be expended unless the expenditure is for a purpose authorized in this section and is either for a purpose promoting the equine industry or equine welfare or is for a benevolent purpose that is in the best interests of horse racing in Indiana or the necessary expenditures for the operations of the horsemen's association required to implement and fulfill the purposes of this section. The Indiana horse racing commission may review any expenditure of money distributed under this section to ensure that the requirements of this section are satisfied. The Indiana horse racing commission shall adopt rules concerning the review and oversight of money distributed under this section and shall adopt rules concerning the enforcement of this section."
Based upon the last sentence above, the slot legislation also gave the IHRC the ability to create administrative rules, which carry the rule of law in Indiana, to further their oversight. The slot legislation required that horsemen's associations, "register with the Indiana horse racing commission" and "annually file a report with the Indiana horse racing commission concerning the use of the money." In mid-2008, the IHRC established a number of administrative rules regarding the registration application process including '71 IAC 13-1-3 Information to be submitted with a registration.' This administrative rule which was modified in 2012 when what is now subsection (5) was added and in 2013 when subsection (3) was added now reads as follows:
71 IAC 13-1-3 Information to be submitted with a registration
Authority: IC 4-31-3-9; IC 4-35-7-12
Affected: IC 4-31; IC 4-35
Sec. 3. In addition to the information described in section 2(b) of this rule, the registration of a horsemen's association to
receive monies allocated pursuant to IC 4-35-7-12 shall include, but not be limited to, the following information:
(1) A proposed budget for the calendar year (or, in the case of a registration under section 1(c) of this rule, the calendar years) to which the registration applies that separately identifies general categories for the expenditure of funds anticipated to be paid by the permit holders to the horsemen's association for:
(A) equine promotion or welfare pursuant to IC 4-35-7-12(b)(1);
(B) backside benevolence pursuant to IC 4-35-7-12(b)(2); and
(C) the purposes provided for in IC 4-35-7-12(f) in the amount provided for by IC 4-35-7-12(d)(1)(A)(ii) and IC 4-35-7-12(d)(1)(A)(iii), IC 4-35-7-12(d)(2)(C)(ii), or IC 4-35-7-12(d)(3)(A)(ii).
(2) A specific description of the accounting, auditing, internal control, and reporting procedures that will be maintained by the horsemen's association with respect to the three (3) separate accounts required by section 8(a)(7) of this rule during the calendar year for which payments will be made, as well as the name and contact information of the individuals responsible for each function.
(3) A certification by the board of directors of the horsemen's association that the expenditures from funds paid by the permit
holders for (1)(A) and (1)(B), above [subdivision (1)(A) and (1)(B)], are in the best interests of horse racing in Indiana for
the breed represented by the horsemen's association.
(4) A conflict of interest policy approved by the commission that has been executed by all of the officers, directors, and employees of the horsemen's association.
(5) Certification by an officer of the horsemen's association that no monies distributed pursuant to IC 4-35-7-12 have been used in either the current year or will be used from the budget year for either:
(A) a contribution to a candidate or committee; or
(B) lobbying, as defined in IC 2-7-1-9.
(6) Any other information requested by the commission or its executive director.
(Indiana Horse Racing Commission; 71 IAC 13-1-3; emergency rule filed Jul 11, 2008, 2:13 p.m.: 20080723-IR-071080595ERA; emergency rule filed Sep 10, 2012, 2:01 p.m.: 20120912-IR-071120525ERA; emergency rule filed Apr 4, 2013, 1:05 p.m.:20130410-IR-071130134ERA)
Within this administrative rule, there are two specific subsections that will be mentioned and scrutinized as part of this article. Subsection (4) requires each "of the officers, directors, and employees" to sign a commission-approved Conflict of Interest Policy which has been in this administrative rule since 2008. More on that part of the rule later. The other subsection that requires a little background is subsection (3) which was added in the spring of 2013 at the specific request of Chairman William Diener. Effectively, subsection (3) requires that each board member attest by a signed affidavit that equine promotion or welfare funds and that backside benevolence funds were being spent "in the best interests of horse racing." The fact that Chairman Diener initiated this aspect of the INHBPA's compliance cannot be understated. Here's exactly what he said at the February 22, 2013 IHRC meeting:
CHAIRMAN DIENER: "This commission is not in the business of micromanaging horsemen's associations and how they operate, but we felt that or I felt -- I'm the proponent of this rule. I felt that it was important that the Board of Directors of the association, when they submit their applications, certify that their proposed budgets meet the same statutory standard. I view this proposed rule as simply a housekeeping matter, but it also deals with the integrity of monies associated, particularly state directed monies associated with pari-mutuel wagering. That's the basis for my recommendation that the Commission consider this proposed emergency rule. And I will open this up for any questions, discussions, what have you, from my fellow Commissioners." (Official Transcript, IHRC Meeting February 22, 2013, Page 51, Line 12 through Page 52, Line 4)
Two other commissioners (Schaeffer and Schenkel) agreed that it was a good idea and the emergency rule passed unanimously. Given the approval, each board member of a prospective horsemen's association would be required to sign an affidavit to be included with the 2014 registration application submitted to the IHRC for review. The INHBPA submitted their registration application without Ms. Hobson's signed affidavit. In preparation for the hearing on the 2014 INHBPA application slated for October 29, 2013, the IHRC Executive Director Joe Gorajec issued his report on the INHBPA registration application on October 18, 2013, which can be found at the follow link: http://freepdfhosting.com/d20df21eea.pdf. What you'll see is that Mr. Gorajec's opinion was that the registration application contained "no substantive deficiencies" and didn't mention that Ms. Hobson did not sign the required statement that the INHBPA was spending the slot funds in accordance with the 'best interest' standard. The absence of her statement is a deficiency in the INHBPA is especially curious given Chairman Diener's insistence of the importance of having such a requirement. On the surface, it appears as if Mr. Gorajec was willing to overlook this fact.
Subsequent to Mr. Gorajec's report on the INHBPA application, on October 25, 2013, Ms. Hobson sent a letter to Chairman Diener which was her explanation as to why she could not sign the affidavit that the slot funds were being spent within a 'best interest' standard. On June 24, 2014, the IHRC released this letter and some supporting documents as part of the agenda for their June 26th hearing on the application. Ms. Hobson's letter can be found on pages 9 through 14 at the following link on the IHRC website: http://www.in.gov/hrc/files/IHRC_Packet_6-26-14_Agenda_Item_5.pdf. Essentially, Ms. Hobson's belief is that she would be committing perjury by signing such an affidavit. While she makes some specific claims on the misuse of benevolence funds, as a point of continuing to delve into the background on this subject, she points out that she cannot sign the affidavit because "the benevolence board acts as an organization separate from (IN)HBPA."
A copy of the document Ms. Hobson refused to sign can be found at the following link: http://freepdfhosting.com/ad791fb60d.pdf. Given Ms. Hobson's allegations, Chairman Diener made the decision that the October 29, 2013 hearing on the HBPA application would be postponed pending an investigation.
In fact, the slot revenues for backside benevolence do not flow to the INHBPA, they flow to the Indiana Horsemen's Benevolent and Protection Association Benefit Trust (Benefit Trust) which is a completely separate organization from the INHBPA. The INHBPA is set up as a non-profit 501(c)(6) organization with the Benefit Trust being a non-profit 501(c)(4) organization with a completely separate board from the INHBPA. While the INHBPA board is an elected board, the Benefit Trust board is an appointed board whose members are appointed by the INHBPA President. A few of those appointed to the Benefit Trust board serve in a dual capacity also on the INHBPA board. In their 2013 registration application, which covers the activities INHBPA activities from January 1, 2011 to June 30, 2012, the INHBPA indicates that, "The officers of the Trust are Randy Klopp, President, and F. Steve Stults, Benevolence Director." Also, in this registration application, the INHBPA incorporated by reference the "amended by-laws of the Trust" from their "2009 Application for Registration."
In a public records request to the IHRC, IBOP asked specifically for these amended by-laws of the Benefit Trust. This document can be found at: http://freepdfhosting.com/00ca50d4ec.pdf. What we found was rather astonishing. The Benefit Trust was originally established in 1996, and according to the fulfillment of our public records request, and has not been amended since. Why this is astonishing is that "The fund is to be funded exclusively from the purses awarded at the Track." At the time, the "track" was only Hoosier Park. Assuming that what the IHRC provided us is complete, the Benefit Trust by-laws were never amended to receive any revenues from Indiana Downs (now Indiana Grand) or to even receive one penny of slot funds! Yet, since late 2008, the IHRC has authorized millions of slot funds to flow into this trust which is not under control of the elected HBPA Board.
The IHRC's Re-Evaluation of the INHBPA Registration Application
After a six month investigation, Executive Director Gorajec released his reevaluation of the 2014 registration application for the INHBPA. But, before we get to any portion of this report, we want to provide a little more context to Mr. Gorajec's past thinking regarding prior INHBPA registration applications. This, of course, is prior to Ms. Hobson's complaint. Here's his summary from the last two completed hearings on INHBPA registration applications:
From the 2012 hearing on the INHBPA's 2013 Registration Application:
MR. GORAJEC: "The only thing I'll add is that Mike Brown (INHBPA Executive Director) said something about that he believes that the Association has been good stewards of the money, and I really think they have. I think they've done an outstanding job. I think the benevolence program is really a great program. There's so much in there. I think from listening to Steve (Former INHBPA Benevolence Director F. Steven Stults) talk and some others, if it's not a model for other states, it really should be. So I think they've done an excellent job." (Official Transcript, IHRC Meeting October 12, 2012, Page 81, Line 81 through Page 82, Line 7)
From the 2011 hearing on the INHBPA's 2012 Registration Application:
MR. GORAJEC: "Madam Chairman, fellow Commissioners, the application from the Indiana HBPA, I think it's extremely well done. I think they do an excellent job. I think that the programs that they put in place, if they're not a model for other thoroughbred tracks in other states, they probably should be. I think they've done an outstanding job, and I think they should be commended for that." (Official Transcript, IHRC Meeting November 1, 2011, Page 145, Lines 13 through 20)
Mr. Gorajec's reevaluation of his own report on the INHBPA registration application for 2014 can be found at: http://www.in.gov/hrc/files/HBPA_REEVALUATION.pdf.
IHRC Requirements Regarding Complaints
On July 1, 2013, a law passed by the Indiana Legislature went into effect that required the IHRC to "develop internal procedures for accepting, recording, investigating, and resolving complaints from licensees and the general public;" and post those results on the IHRC's website. What came as a surprise to many Indiana legislators was that the IHRC had no such policy regarding complaints. If Mr. Gorajec's reevaluation of the INHBPA application is the resolution of Ms. Hobson's complaint, then each and every one of our Indiana legislators needs to understand just what Mr. Gorajec believes to be in the best interests of horse racing in Indiana by reading it. Of course, IBOP will make certain that this happens.
In our view, Mr. Gorajec's report demonstrates the IHRC's inability, or perhaps even a lack of interest, to supervise the slot funds, let alone micromanage, in an effective manner. The report attempts to rationalize behavior that should never have happened, glosses over issues, and attempts to manufacture excuses. Mr. Gorajec actually recommends the denial of the INHBPA registration application; however, provides the INHBPA with the opportunity to file a supplement to the original application to correct the "deficiencies identified." The real deficiency is that if the corrective action steps outlined are necessary for the INHBPA to be approved to receive slot funds in 2014, these deficiencies were already in existence and in need of correction in 2013, 2012, 2011, 2010, 2009 as well. Mr. Gorajec's report is also deficient in explaining (glossing over) a number of issues. We feel his reevaluation should be denied by the commissioners on June 26th and the investigation should be turned over to the Indiana Inspector General's office. Mr. Gorajec's reevaluation report is essentially a report of the IHRC staff's own ability, or lack there of, to truly know what was being done with the slot funds allocated to the Benefit Trust.
More On The Benefit Trust
Mr. Gorajec's reevaluation points out the majority of the slot funds goes to the Benefit Trust. In 2013, that amount was $633,686.22 plus historically, the IHRC has allowed additional transfers each year from the INHBPA's administrative account to the Benefit Trust. All these funds are under the control of an appointed board, and not under the supervision of the board the horsemen elected to represent them. The composition of this board is rather interesting as the Benefit Trust board has historically been populated with individuals that couldn't get elected to the INHBPA board, couldn't get reelected to a position on the INHBPA board, or were not even eligible to run for an INHBPA board position. At the end of 2012, Jerry Carden was listed as the President of the Benefit Trust. Mr. Carden ran for an HBPA board position in the fall of 2012. Out of the 10 individuals running for a board position as an owner, Mr. Carden finished in the bottom three. Terry Meek lost his reelection bid to the HBPA board in 2012 by a wide margin, yet Mr. Meek continued as an appointed director for the Benefit Trust. The draft results of the 2012 INHBPA election results can be found at the following link: http://freepdfhosting.com/08a68e63b4.pdf.
In our view, one of the failures, and this failure began with the IHRC's first approval in 2008, is that the IHRC has allowed the majority of slot funds to by-pass those elected to the INHBPA board. Certain individuals on the Benefit Trust board were never required to complete the Conflict of Interest Policy required of each elected INHBPA board member or the required affidavit that the slot funds through the Benefit Trust were being spent according to the 'best interests' standard. When Chairman Diener pushed for the addition of this affidavit, he did not include the requirement for members of the Benefit Trust board which is a significant oversight on his part. One of Mr. Gorajec's corrective action step recommendations is that each member of the Benefit Trust now be required to provide their signatures to a Conflict of Interest Policy and 'best interests' affidavit. This is tantamount to closing the barn door after the horse has already bolted. The Benefit Trust was treated by the IHRC as a registered horsemen's association eligible to received slot funds for backside benevolence, yet the Benefit Trust as a separate organization from the INHBPA was never required to comply with all of the IHRC's requirements to do so.
Mr. Gorajec's reevaluation states, "The Trust, however, must also be held accountable to the IHBPA Board. The Trust was
established as a separate entity for tax purposes." While the INHBPA has been lauded over the years for its structure of their benevolence program, which includes having the Benefit Trust set up as a 501(c)(4) non-profit organization, the INHBPA is also structured as a non-profit, but as a 501(c)(6) organization. This brings into question whether or not the Benefit Trust was even necessary given that the INHBPA was already a not-for-profit business association. In support of that thought, Mr. Gorajec's belief was that the structure of the benevolence program at the IHBPA should be a national standard, yet this structure was not even the standard for all of horse racing in Indiana. Both the Indiana Standardbred Association and the Quarter Horse Racing Association of Indiana receive similar slot revenues for their backside benevolence programs. However, neither has set up a 501(c)(4) organization to receive and to administer their backside benevolence funds. Their backside benevolence funds simply flow through their non-profit 501(c)(6) organizations under the control of their elected boards. We neither have seen nor heard of these organizations having issues with their non-profit status.
The fact that slot funds flow to a 501(c)(4) organization actually creates, in the eyes of the Internal Revenue Service (IRS), a higher set of standards for use of the funds as they relate to anyone with substantial influence within the organization or their family members. What Mr. Gorajec's reevaluation actually points out, in our opinion, is a number of violations by the Benefit Trust for what's called excess benefit transactions with what Mr. Gorajec describes as "insiders." The excess benefit transactions are those that provide more benefit to an insider and their family members beyond their contributions to the actual organization. A good primer on this subject can be read at: http://www.nonprofitlawreport.com/guide/excess-benefit/.
In fact, we are not the first to raise the issue of the Benefit Trust possibly violating IRS guidelines. Here's what former Director of Benevolence F. Steven Stults said at the IHRC hearing on the INHBPA's 2013 registration application while responding to a question as to why the Benefit Trust terminated their scholarship program after 2012:
MR. STULTS: "It was found by our auditors that scholarship monies were being received by the families, children, grandchildren, of some of our current and past officers and that, in fact, is a violation. We looked at the total program, thought it would be best to at least at this time terminate that program until we found out if we can do it and how we can do it right. Our auditors picked up and reported to us that that might be violation. We didn't receive any notification from IRS we have violated, but we don't want to step into that arena." (Official Transcript, IHRC Meeting October 12, 2012, Page 80, Line 12 through 23)
Mr. Stults admitted to the Benefit Trust's violation of IRS regulations that, in fact, is clear. Mr. Gorajec now reveals that $10,000 of the approximate $30,000 of scholarships awarded in 2010 through 2012 went to "four relatives of IHBPA Directors, Trustees, or employees." (Footnote 5, Page 4) The subject of scholarships recipients and who authorized the issuance of the scholarship checks is one issue that needs some sunlight that we'll cover a little later in the article. Based upon information we received from the IHRC via a public records, there are some significant unanswered questions regarding this scholarship program that the IHRC should be answering.
Required 'Prohibited Conflict of Interest Policy'
As mentioned in 71 IAC 13-1-3(3), a required part of a horsemen's association registration application must include, " A conflict of interest policy approved by the commission that has been executed by all of the officers, directors, and employees of the horsemen's association." The INHBPA registration application outlines the years in which the INHBPA board members signed the commission- approved statement, some dating back to 2008. Mr. Gorajec's reevaluation points out that:
"A pertinent part of this policy in Article III beneath a heading titled “Prohibited Conflicts of Interest” reads as follows:
2. The direction, payment or other transfer of Horsemen’s Association funds(either directly or indirectly) for the use (personal or otherwise) of any relative of an officer, director of (sic) employee of that Horsemen’s Association." (Page 6)
That's a pretty straight forward, plain English statement that defines just what the IHRC considers to be in the best interests of horse racing. Given the scope of these funds and the potential moral hazards involved, the commission prohibited relatives of key people within the INHBPA from receiving benevolence funds either directly or indirectly through the receipt of services. Mr. Gorajec rationalizes that this very plain statement doesn't mean what it says by saying in a footnote, also on page 6 of his reevaluation, "Pursuant to this section, no relative of any board member would be eligible to receive any benevolence money. However, Paragraph 1 of the Prohibited Conflicts of Interest policy provides that a board member is eligible for any benevolence available to any other member. The spirit of this exception likely applies to the family members of board members and the Conflict of Interest policy should be amended to so reflect."
Now, that's how you rationalize your own incompetence and the lack of supervision of the benevolence funds paid to the Benefit Trust. Again, the members of the board of the Benefit Trust never submitted a signed Conflicts of Interest Policy when acting as members of that board, and only if they served a dual role as being a board member of the INHBPA. Mr. Gorajec further proves that the IHRC lacked control over the benevolence funds by recommending as a corrective action step that, "Each Benevolence Trust trustee shall file a conflict of interest form and registration certification." (Page 9)
Mr. Gorajec, in his reevaluation, characterizes Ms. Hobson complaint in the following manner, "The complaint made some specific allegations of questionable expenditures but also included several vague, second-hand allegations that proved to be unfounded, untrue, or lacked sufficient information necessary for investigation." (Page 2) We see this statement as very misleading. Much of Ms. Hobson's complaint revolves around benefits being received by relatives of Randy Klopp and Lisa Stephens, who the INHBPA considered to be the administrative assistant for both the INHBPA and the Benefit Trust until her promotion to Benevolence Trust Administrator on January 1, 2013 after the resignation of F. Steven Stults as the Benevolence Director. According to the records received from the IHRC, Mr. Klopp signed the commission approved Conflict of Interest Policy in 2008. Even though Ms. Stephens has been employed by the Benefit Trust and the INHBPA for years, she never signed a Conflict of Interest Policy until June 18, 2014, after IBOP filed a public records request for her signed copy.
Below are the issues that we see in the context of Mr. Klopp and Ms. Stephens and the relationship with their positions with the Benefit Trust.
INHBPA Scholarship Program
The following link will take you to the documentation, which is specific to the INHBPA Scholarship Program, we received from the IHRC through a public records request for the 2013 INHBPA registration which covers the INHBPA activities from January 1, 2011 through June 30, 2012. We are providing this link to demonstrate the claims made in the following section of this article: http://freepdfhosting.com/04381a4613.pdf.
In the filing of the registration application for 2013, the 'Accounting, Audit, Internal Control, and Reporting Procedures for the Benefit Trusts, under Trust Officers and Staff, indicates that Steve Stults is the Benevolence Director and Lisa Stephens as the Administrative Assistant for the Benefit Trust. Lisa Stephens was identified in Mr. Gorajec's report as being an "Insider." (Also, identified as an "Insider" was Randy Klopp as the President of Benefit Trust.) In this procedures statement, under Cash Disbursements, the following appears, "Vendor setup and maintenance is the QuickBooks accounting system is performed by the Benevolence Director (Stults). Hash Accountant is restricted from vendor setup and maintenance in the QuickBooks account system." The 'Hash Accountant' is one of the accountants from the CPA firm used by the INHBPA. So, only Mr. Stults could add vendors (payees) to the books of the Benefit Trust, yet in the procedures for adding vendors into QuickBooks in the INHBPA's administrative account and the equine promotion or welfare account, a senior partner at Hash CPA Group, LLC was required to add vendors. This strange inconsistency in procedure is not explained in the INHBPA registration application. In addition, the procedures for the Benefit Trust state that, "All benevolence requests are processed by the Administrative Assistant (Stephens) for approval by the Benevolence Director (Stults) following the Trust's benevolence guidelines."
In our public records request, we noticed the August 18, 2011 approved minutes for the INHBPA board meeting. One of the agenda items was "Scholarship Requests." This is verbatim from those approved minutes, "Three requests have been received. Randy Klopp made a motion to approve requests for the Lauer family, West family and Huber family. Joe Davis 2nd. Motion carried." The Lauer family is Mike & Penny Lauer, both INHBPA board members with Penny Lauer having served on the Benefit Trust board in the year in which a $2,500 scholarship was awarded to her daughter(Check #'s 3410 issued on September 13, 2011 & #3437 issued on September 20, 2011). The Huber family is that of Dale Huber who served as a director on the Benefit Trust both the years his daughter received a scholarship (Check #3411 issued on September 13, 2011 and a subsequent check in 2012). Both of those transactions were reported to the IRS on the Benefit Trust 2011 tax return under 'Grants or Assistance to Benefiting Interested Persons.'
What we found interesting is that while the meeting minutes indicated three scholarship requests, two additional $2,500 scholarships were awarded to Debra Hawkins, sister of Lisa Stephens, and Megan Larimore, daughter of Lisa Stephens, to attend the Alabama School of Sleep Medicine and Technology. These $2,500 checks were issued as #3380 and #3381 on September 6, 2011. Neither of these transaction were reported to the IRS as benefitting interested persons as seen with the Lauer and Huber scholarships. Also, all 2011 scholarship checks, except for one for the benefit of Rebecca Heniser to attend Nova Southeastern University, appear to have been written to the individuals directly or to a family member rather than the educational institution as required under the Benefit Trust requirements.
In a follow up records request to the IHRC, IBOP received the scholarship applications for both Debra Hawkins and Megan Larimore. Ms. Hawkins, whose scholarship application was dated September 4, 2011, indicates that her intended career is to be a polysomnographic technologist by attending the Alabama School of Sleep Medicine and Technology. When addressing Ms. Hawkins eligibility for benevolence funds, Mr. Gorajec's report states, "Ms. Hawkins also was (and still is) employed full time at the Grant County Sheriff’s Department." Yet, there is no mention of this scholarship in the reevaluation. Just two days after this scholarship application was signed, a check was released to Ms. Hawkins. Ms. Larimore's scholarship application, which was dated September 1, 2011, indicates her intended career as a sleep technician. Mr. Gorajec's reevaluation has no mention of this scholarship whatsoever.
Both Ms. Hawkins' and Ms. Larimore's scholarship applications have the initials 'FSS' hand-written in the lower right-hand corner which would seem to indicate the approval of F. Steven Stults the Benevolence Director. Both applications also have 'pd. 9-6-11 RAR' which would seem to indicate a notation from Hash account Ryan Roberts. From our initial public records request, we were provided with information that the INHBPA next board meeting after August 18th was held on December 15, 2011, which raises the question, who approved the two scholarships for Ms. Hawkins and Ms. Larimore? In our second public records request regarding scholarships we asked for "A copy of the meeting minutes provided to the IHRC by the Indiana HBPA and/or Indiana HBPA Benefit Trust at which both Debra Hawkins and Megan Larimore were approved for the above-mentioned scholarships." The response from IHRC General Counsel Lea Ellingwood was, "If you provide a date of the meeting at which the scholarships were awarded, we will be happy to check our records to see if we have those minutes and will provide them to you." Perhaps an explanation will be offered at the IHRC's hearing on June 26th, but we find that possibility to be unlikely. What should also be disclosed is whether or not any of the scholarships were actually used to truly pay for educational expenses as checks appear to have been written directly to Ms. Hawkins and Ms. Larimore.
Information from our second public records request regarding the INHBPA's Scholarship Program, which includes the requirements for qualification and the two applications mentioned above, can be found at the following link: http://freepdfhosting.com/51b6bb1192.pdf. What you will see is that one of the requirements is a "Copy of acceptance letter (or, if continuing education, a letter or verification) from the pre-college, vocational school, college or university where you will attend." The information we received from the IHRC did not included any type of acceptance letter or verification in support of Ms. Hawkins' or Ms. Larimore's application as required, at the time, by the Benefit Trust.
Benevolence Trust Eligibility Requirements
For years, the INHBPA has submitted to the IHRC as part of their registration applications to receive slot funds what were supposed to be the eligibility requirements for an individual to receive benevolence benefits. Yet, for years, they have been doing quite the opposite of what they have suggested they were applying as eligibility requirements. This has been known anecdotally for years by horsemen, and is now confirmed by the IHRC's investigation. Mr. Gorajec attempts to once again rationalize the failures of the IHRC staff to supervise these funds by stating, "The fact that the IHBPA is not enforcing its eligibility requirements does not necessarily mean that its actions are contrary to the best interest of racing." (Footnote 4, Page 3) Even if that were true, which we don't believe it to be, wouldn't providing false information in their registration application regarding supposed eligibility requirements be beyond the scope of the 'best interests' of horse racing? We'll see how each individual commissioner reacts to Mr. Gorajec's skewed logic at the hearing on June 26th.
In his reevaluation, Mr. Gorajec includes the 2011 Indiana HBPA Benefit Trust Benevolence Benefits Guidelines as 'Attachment A' which are pages 11-12 of the report. The reevaluation points out, via recommended corrective actions, that hardly a single eligibility requirement submitted to the IHRC was actually being followed. So, whether it was a requirement to be "employed full-time by an eligible trainer" AND perform "substantial work in the Indiana thoroughbred racing industry," or whether it was the income limitations or that fact that all insurance benefits had to be exhausted, the Benefit Trust seemed to only be using the fact the someone had an IHRC license as their only qualification. And, IHRC licenses are very easy to get if someone is willing to sign the application as your employer.
In the reevaluation, and responding to Ms. Hobson's complaint, Mr. Gorajec indicates on page 3 that "at least six" of Mr. Klopp's relatives (was it six or was there more?) worked for him and received a total of $55,280.89 in benevolence funds in 2010 through 2012. The description of this amount was that Mr. Klopp's family members "were very active participants in the benevolence program." Since Mr. Klopp was the INHBPA President from 2005 through 2012, and slot revenues for benevolence were only first released in late 2008 for the first time, the statement that "Most of Mr. Klopp's relatives had no previous IHRC licensing prior to 2009" seems quite coincidental. This is especially true when information we received from a public records request indicated that most of Mr. Klopp's relatives didn't seek IHRC licensing in 2013 after his term as President of the INHBPA expired in 2012.
The reevaluation also states, "Mr. Klopp employed several non-relatives, many of whom were full-time employees." So, what does several actually mean? Merriam Webster defines several as "more than two, but not very many." IBOP filed a public records request for all 2012 license applications signed by Mr. Klopp as the employer. What we found was that the total was way beyond 'several' which we reported to IHRC Director of Security Terry Richwine on January 30, 2014. Part of the INHBPA's supposed eligibility requirements to receive benevolence benefits is either a signed trainer affidavit or to be on the trainers "badge list," which having a badge list is also a commission requirement per their administrative rules. Here's an excerpt from an email from IBOP Vice-President Jim Hartman to Mr. Richwine:
"Subsequent to my October, 2012, conversation with Mr. Brown outlined in my statement, I filed a series of public records requests to determine if any IHRC records could shed some light on this allegation. One of those requests was for "Copies of the submission(s) to the commission of the name, occupation, and license number as required by 71 IAC 5.5-3-3(a)(4), including any changes, submitted by Randy Klopp during and/or for calendar years 2012, 2011, and 2010." 71 IAC 5.5-3-3(a)(4) makes a trainer responsible for "Providing a list to the commission of the trainer's employees on association grounds and any other are under the jurisdiction of the commission.........The commission shall be notified by the trainer, in writing, within twenty-four (24) hours of any change." Generically called a 'badge list,' the fulfillment of the public records request included the file attached labeled with the term used by the IHRC 'Trainer's Stable Roster.'
(Please Note: The above mentioned file can be seen at: http://freepdfhosting.com/9ee86b73a0.pdf .
The 'Trainer's Stable Roster' even reminds the licensed trainer of his or her responsibilities in maintaining "with the commission" an up-to-date roster as required by 71 IAC 5.5-3-3(a)(4). In 2012, what Mr. Klopp submitted to the IRHC as his roster for the entire year was the first two pages of the attached file that included four grooms and an assistant trainer. Even after pointing this out to Ms. Ellingwood that she had supplied me with a 2012 groom's license application for Mimi Gilbert which was signed by Mr. Klopp as her employer, I was assured that there were no other records at the IHRC responsive to my records request. Based upon Ms. Gilbert's application alone, which was signed on August 25, 2012, it appeared as if Mr. Klopp was not required to comply or did not comply with the requirements of 71 IAC 5.5-3-3(a)(4). After all, the commission could not provide a stable roster beyond early April, 2012.
The satisfaction of another public records request for all license applications signed by Mr. Klopp as the employer in 2012 sheds even more light on what should have been Mr. Klopp's stable roster submitted to the commission. The five individuals Mr. Klopp did submit on his stable roster, which was dated April 3, 2012, were subsequently licensed between April 4th and April 9th. What was never reported to the commission as part of Mr. Klopp's stable roster was another 18 grooms licenses that he signed off as employer during 2012. A total of 22 grooms is an inordinate number by any measurement. After the initial four reported, none of the following 18 'employees' were reported to the commission. Some appear as legitimate backside workers, like Akeem Brown (4/5/2012) who had worked for Mr. Klopp in 2011 and 2010 as well as exercise riders Victor de Leon (4/4/2012) and David Borunda (4/25/2012). Others, not so much.
Also, licensed as a groom was Mr. Klopp's 67 year-old mother and subject of the anonymous tip we received as have received benevolence funds, Karen Abner (4/13/2012). How many 67 year old mothers do you see working as a groom on the backside of a race track? Mr. Klopp signed for a grooms license for, the lack of a better term, his step-nephew, Tyler Abner who is also the subject of the anonymous tip we received misidentified as a "nephew." Mr. Klopp signed Tyler Abner's grooms license on 4/3/2012 which is the same day that Mr. Klopp signed and submitted his stable roster to the IHRC, yet Tyler Abner was absent from that roster. Tyler Abner also admits to being employed with the US Air Force from February, 2012 to September, 2012. In addition, Mr. Klopp signed as the employer for his step-brother, Donnie Abner (4/13/2012) who admits to being the owner of a carpet cleaning and water restoration business since 2000.
Others who were licensed as grooms under Mr. Klopp's employ were: Shannon Wyatt (step-sister 4/24/2012); what appear to be Mr. Klopp's relations on his mother's side Jerry Halveland (5/12/2012), Gary Halveland (5/12/2012), Halveland is Karen Abner's maiden name, and Melinda Hauri (4/24/20120 also with a maiden name of Halveland. I've been told, but cannot verify, that Daryn Klau (7/28/2012) is a nephew as well.
Outside of what appears to be family relations, Mr. Klopp signed as employer for the groom's licenses for the Cooper family, Darel & Luanna both on 5/18/2012, then their son, David on 5/19/2012. On April 30, 2012, he even signed as employer for the groom's license for Lindsay Larimore who is the daughter of Lisa Stephens who, at the time, was the HBPA secretary and now oversees the HBPA Benevolence Trust. All totaled by May 20, 2012, Mr. Klopp employed an astonishing 19 grooms!" (End of Email Excerpt)
Our apologies to anyone we may have incorrectly mischaracterized as a family member of Mr. Klopp or their relationship within his extended family, but the number might be more than six family relationships, and the total number of groom's licenses were well beyond "several." What we also found through this public records request was that after May 20th, Mr. Klopp signed as employer for three other grooms, one of which included a groom's license for Mimi Gilbert on August 25, 2012. While this is a story for another day, part of the submission from Ms. Hobson to the IHRC was a recording purportedly to be Mimi Gilbert explaining why there was a certain need for urgency with her groom's license as it related to benevolence benefits. Our guess is that this recording will not be raised voluntarily by the IHRC staff at any time during the June 26, 2014 hearing. This recording is not mentioned in Mr. Gorajec's reevaluation.
There were a few other interesting facts pulled from the 2012 groom licenses that Mr. Klopp signed. The IHRC Multi-Purpose License Application requires, at least for some people, a prospective licensee is required to "Give the following information relative to your current employer," which are the date employed, the name of employer, and his or her address. There were a number of license applications that had no employer information included whatsoever, including the license application for his mother and his step-brother. Perhaps the IHRC should explain these incomplete applications as well.
What we would hope Mr. Gorajec would have put in his report was the total amount of benevolence received by Mr. Klopp's 22 grooms, yet his focus was only on the "at least six" family members. The horse racing industry has a right to know just how much of the backside benevolence funds from the Benefit Trust went to all of Mr. Klopp's employees. We would also hope that Mr. Gorajec would explain why Mr. Klopp wasn't required to comply with his stable roster requirements in 71 IAC71 IAC 5.5-3-3(a)(4) to maintain his license. Yet, we are not naïve enough to believe that Mr. Gorajec will admit that the IHRC didn't do their job in requiring him to do so. With that said, the IHRC should never be in a position to investigate their own actions or inactions. Such an investigation should fall to the Indiana Inspector General's Office which is designed specifically to investigate the actions or inactions of the State's administrative agencies. We see more inaction than action on both the history of supervising the benevolence funds and the Benefit Trust and with the subsequent reevaluation by Mr. Gorajec.
Part 2 of this article will be posted after the conclusion of the IHRC hearing on the INHBPA's application on June 26, 2014, but let this one sink in for a while.
Indiana Breeder & Owner Protection, Inc. (IBOP), through the use of public records and available public information, has attempted over the last 20 months to either verify or deny certain claims that have been made by horsemen regarding expenditures of benevolence funds at the INHBPA even prior to Ms. Hobson's complaint. IBOP's goal was to separate fact from fiction with available public records. Ms. Hobson's claims of misuse of funds, as an INHBPA board member, greatly accelerated our process considering the IHRC conducted their own six-month investigation. Overall, its IBOP's belief that benevolence funds for backside workers (medical care, dental care, etc. and other support services including childcare) are greatly needed to enhance their lives, and should not be prevented from getting to those in need on the backside. However, after the conclusion of the IHRC's investigation, we see many questions that still remained unanswered that need to be answered by the IHRC. This article will raise some of those issues, but first a little background on the subject.
Background
The legislation that authorized slot machines at Indiana's two horse racing tracks was initially passed in the spring of 2007 with the first revenues to horse racing beginning in mid-2008. While the bulk of slot revenues to horse racing are allocated for purse contributions and for breed development funding, horsemen's associations were eligible to receive three separate revenue streams authorized by HB 1835: 1) "equine promotion or welfare" 2) "backside benevolence," and 3) for necessary operations of a horsemen's association. This initial legislation also required that, "A horsemen's association shall expend the amounts distributed to the horsemen's association under subsection (b)(1) (equine promotion or welfare) through (b)(2) (backside benevolence) for a purpose promoting the equine industry or equine welfare or for a benevolent purpose that the horsemen's association determines is in the best interests of horse racing in Indiana for the breed represented by the horsemen's association."
The slot legislation gave oversight of the allocation to horse racing to the Indiana Horse Racing Commission (IHRC) with what we are going to call the 'best interests of horse racing' standard. More specifically, the standard created by the legislature was and is as follows, "Money distributed under this section may not be expended unless the expenditure is for a purpose authorized in this section and is either for a purpose promoting the equine industry or equine welfare or is for a benevolent purpose that is in the best interests of horse racing in Indiana or the necessary expenditures for the operations of the horsemen's association required to implement and fulfill the purposes of this section. The Indiana horse racing commission may review any expenditure of money distributed under this section to ensure that the requirements of this section are satisfied. The Indiana horse racing commission shall adopt rules concerning the review and oversight of money distributed under this section and shall adopt rules concerning the enforcement of this section."
Based upon the last sentence above, the slot legislation also gave the IHRC the ability to create administrative rules, which carry the rule of law in Indiana, to further their oversight. The slot legislation required that horsemen's associations, "register with the Indiana horse racing commission" and "annually file a report with the Indiana horse racing commission concerning the use of the money." In mid-2008, the IHRC established a number of administrative rules regarding the registration application process including '71 IAC 13-1-3 Information to be submitted with a registration.' This administrative rule which was modified in 2012 when what is now subsection (5) was added and in 2013 when subsection (3) was added now reads as follows:
71 IAC 13-1-3 Information to be submitted with a registration
Authority: IC 4-31-3-9; IC 4-35-7-12
Affected: IC 4-31; IC 4-35
Sec. 3. In addition to the information described in section 2(b) of this rule, the registration of a horsemen's association to
receive monies allocated pursuant to IC 4-35-7-12 shall include, but not be limited to, the following information:
(1) A proposed budget for the calendar year (or, in the case of a registration under section 1(c) of this rule, the calendar years) to which the registration applies that separately identifies general categories for the expenditure of funds anticipated to be paid by the permit holders to the horsemen's association for:
(A) equine promotion or welfare pursuant to IC 4-35-7-12(b)(1);
(B) backside benevolence pursuant to IC 4-35-7-12(b)(2); and
(C) the purposes provided for in IC 4-35-7-12(f) in the amount provided for by IC 4-35-7-12(d)(1)(A)(ii) and IC 4-35-7-12(d)(1)(A)(iii), IC 4-35-7-12(d)(2)(C)(ii), or IC 4-35-7-12(d)(3)(A)(ii).
(2) A specific description of the accounting, auditing, internal control, and reporting procedures that will be maintained by the horsemen's association with respect to the three (3) separate accounts required by section 8(a)(7) of this rule during the calendar year for which payments will be made, as well as the name and contact information of the individuals responsible for each function.
(3) A certification by the board of directors of the horsemen's association that the expenditures from funds paid by the permit
holders for (1)(A) and (1)(B), above [subdivision (1)(A) and (1)(B)], are in the best interests of horse racing in Indiana for
the breed represented by the horsemen's association.
(4) A conflict of interest policy approved by the commission that has been executed by all of the officers, directors, and employees of the horsemen's association.
(5) Certification by an officer of the horsemen's association that no monies distributed pursuant to IC 4-35-7-12 have been used in either the current year or will be used from the budget year for either:
(A) a contribution to a candidate or committee; or
(B) lobbying, as defined in IC 2-7-1-9.
(6) Any other information requested by the commission or its executive director.
(Indiana Horse Racing Commission; 71 IAC 13-1-3; emergency rule filed Jul 11, 2008, 2:13 p.m.: 20080723-IR-071080595ERA; emergency rule filed Sep 10, 2012, 2:01 p.m.: 20120912-IR-071120525ERA; emergency rule filed Apr 4, 2013, 1:05 p.m.:20130410-IR-071130134ERA)
Within this administrative rule, there are two specific subsections that will be mentioned and scrutinized as part of this article. Subsection (4) requires each "of the officers, directors, and employees" to sign a commission-approved Conflict of Interest Policy which has been in this administrative rule since 2008. More on that part of the rule later. The other subsection that requires a little background is subsection (3) which was added in the spring of 2013 at the specific request of Chairman William Diener. Effectively, subsection (3) requires that each board member attest by a signed affidavit that equine promotion or welfare funds and that backside benevolence funds were being spent "in the best interests of horse racing." The fact that Chairman Diener initiated this aspect of the INHBPA's compliance cannot be understated. Here's exactly what he said at the February 22, 2013 IHRC meeting:
CHAIRMAN DIENER: "This commission is not in the business of micromanaging horsemen's associations and how they operate, but we felt that or I felt -- I'm the proponent of this rule. I felt that it was important that the Board of Directors of the association, when they submit their applications, certify that their proposed budgets meet the same statutory standard. I view this proposed rule as simply a housekeeping matter, but it also deals with the integrity of monies associated, particularly state directed monies associated with pari-mutuel wagering. That's the basis for my recommendation that the Commission consider this proposed emergency rule. And I will open this up for any questions, discussions, what have you, from my fellow Commissioners." (Official Transcript, IHRC Meeting February 22, 2013, Page 51, Line 12 through Page 52, Line 4)
Two other commissioners (Schaeffer and Schenkel) agreed that it was a good idea and the emergency rule passed unanimously. Given the approval, each board member of a prospective horsemen's association would be required to sign an affidavit to be included with the 2014 registration application submitted to the IHRC for review. The INHBPA submitted their registration application without Ms. Hobson's signed affidavit. In preparation for the hearing on the 2014 INHBPA application slated for October 29, 2013, the IHRC Executive Director Joe Gorajec issued his report on the INHBPA registration application on October 18, 2013, which can be found at the follow link: http://freepdfhosting.com/d20df21eea.pdf. What you'll see is that Mr. Gorajec's opinion was that the registration application contained "no substantive deficiencies" and didn't mention that Ms. Hobson did not sign the required statement that the INHBPA was spending the slot funds in accordance with the 'best interest' standard. The absence of her statement is a deficiency in the INHBPA is especially curious given Chairman Diener's insistence of the importance of having such a requirement. On the surface, it appears as if Mr. Gorajec was willing to overlook this fact.
Subsequent to Mr. Gorajec's report on the INHBPA application, on October 25, 2013, Ms. Hobson sent a letter to Chairman Diener which was her explanation as to why she could not sign the affidavit that the slot funds were being spent within a 'best interest' standard. On June 24, 2014, the IHRC released this letter and some supporting documents as part of the agenda for their June 26th hearing on the application. Ms. Hobson's letter can be found on pages 9 through 14 at the following link on the IHRC website: http://www.in.gov/hrc/files/IHRC_Packet_6-26-14_Agenda_Item_5.pdf. Essentially, Ms. Hobson's belief is that she would be committing perjury by signing such an affidavit. While she makes some specific claims on the misuse of benevolence funds, as a point of continuing to delve into the background on this subject, she points out that she cannot sign the affidavit because "the benevolence board acts as an organization separate from (IN)HBPA."
A copy of the document Ms. Hobson refused to sign can be found at the following link: http://freepdfhosting.com/ad791fb60d.pdf. Given Ms. Hobson's allegations, Chairman Diener made the decision that the October 29, 2013 hearing on the HBPA application would be postponed pending an investigation.
In fact, the slot revenues for backside benevolence do not flow to the INHBPA, they flow to the Indiana Horsemen's Benevolent and Protection Association Benefit Trust (Benefit Trust) which is a completely separate organization from the INHBPA. The INHBPA is set up as a non-profit 501(c)(6) organization with the Benefit Trust being a non-profit 501(c)(4) organization with a completely separate board from the INHBPA. While the INHBPA board is an elected board, the Benefit Trust board is an appointed board whose members are appointed by the INHBPA President. A few of those appointed to the Benefit Trust board serve in a dual capacity also on the INHBPA board. In their 2013 registration application, which covers the activities INHBPA activities from January 1, 2011 to June 30, 2012, the INHBPA indicates that, "The officers of the Trust are Randy Klopp, President, and F. Steve Stults, Benevolence Director." Also, in this registration application, the INHBPA incorporated by reference the "amended by-laws of the Trust" from their "2009 Application for Registration."
In a public records request to the IHRC, IBOP asked specifically for these amended by-laws of the Benefit Trust. This document can be found at: http://freepdfhosting.com/00ca50d4ec.pdf. What we found was rather astonishing. The Benefit Trust was originally established in 1996, and according to the fulfillment of our public records request, and has not been amended since. Why this is astonishing is that "The fund is to be funded exclusively from the purses awarded at the Track." At the time, the "track" was only Hoosier Park. Assuming that what the IHRC provided us is complete, the Benefit Trust by-laws were never amended to receive any revenues from Indiana Downs (now Indiana Grand) or to even receive one penny of slot funds! Yet, since late 2008, the IHRC has authorized millions of slot funds to flow into this trust which is not under control of the elected HBPA Board.
The IHRC's Re-Evaluation of the INHBPA Registration Application
After a six month investigation, Executive Director Gorajec released his reevaluation of the 2014 registration application for the INHBPA. But, before we get to any portion of this report, we want to provide a little more context to Mr. Gorajec's past thinking regarding prior INHBPA registration applications. This, of course, is prior to Ms. Hobson's complaint. Here's his summary from the last two completed hearings on INHBPA registration applications:
From the 2012 hearing on the INHBPA's 2013 Registration Application:
MR. GORAJEC: "The only thing I'll add is that Mike Brown (INHBPA Executive Director) said something about that he believes that the Association has been good stewards of the money, and I really think they have. I think they've done an outstanding job. I think the benevolence program is really a great program. There's so much in there. I think from listening to Steve (Former INHBPA Benevolence Director F. Steven Stults) talk and some others, if it's not a model for other states, it really should be. So I think they've done an excellent job." (Official Transcript, IHRC Meeting October 12, 2012, Page 81, Line 81 through Page 82, Line 7)
From the 2011 hearing on the INHBPA's 2012 Registration Application:
MR. GORAJEC: "Madam Chairman, fellow Commissioners, the application from the Indiana HBPA, I think it's extremely well done. I think they do an excellent job. I think that the programs that they put in place, if they're not a model for other thoroughbred tracks in other states, they probably should be. I think they've done an outstanding job, and I think they should be commended for that." (Official Transcript, IHRC Meeting November 1, 2011, Page 145, Lines 13 through 20)
Mr. Gorajec's reevaluation of his own report on the INHBPA registration application for 2014 can be found at: http://www.in.gov/hrc/files/HBPA_REEVALUATION.pdf.
IHRC Requirements Regarding Complaints
On July 1, 2013, a law passed by the Indiana Legislature went into effect that required the IHRC to "develop internal procedures for accepting, recording, investigating, and resolving complaints from licensees and the general public;" and post those results on the IHRC's website. What came as a surprise to many Indiana legislators was that the IHRC had no such policy regarding complaints. If Mr. Gorajec's reevaluation of the INHBPA application is the resolution of Ms. Hobson's complaint, then each and every one of our Indiana legislators needs to understand just what Mr. Gorajec believes to be in the best interests of horse racing in Indiana by reading it. Of course, IBOP will make certain that this happens.
In our view, Mr. Gorajec's report demonstrates the IHRC's inability, or perhaps even a lack of interest, to supervise the slot funds, let alone micromanage, in an effective manner. The report attempts to rationalize behavior that should never have happened, glosses over issues, and attempts to manufacture excuses. Mr. Gorajec actually recommends the denial of the INHBPA registration application; however, provides the INHBPA with the opportunity to file a supplement to the original application to correct the "deficiencies identified." The real deficiency is that if the corrective action steps outlined are necessary for the INHBPA to be approved to receive slot funds in 2014, these deficiencies were already in existence and in need of correction in 2013, 2012, 2011, 2010, 2009 as well. Mr. Gorajec's report is also deficient in explaining (glossing over) a number of issues. We feel his reevaluation should be denied by the commissioners on June 26th and the investigation should be turned over to the Indiana Inspector General's office. Mr. Gorajec's reevaluation report is essentially a report of the IHRC staff's own ability, or lack there of, to truly know what was being done with the slot funds allocated to the Benefit Trust.
More On The Benefit Trust
Mr. Gorajec's reevaluation points out the majority of the slot funds goes to the Benefit Trust. In 2013, that amount was $633,686.22 plus historically, the IHRC has allowed additional transfers each year from the INHBPA's administrative account to the Benefit Trust. All these funds are under the control of an appointed board, and not under the supervision of the board the horsemen elected to represent them. The composition of this board is rather interesting as the Benefit Trust board has historically been populated with individuals that couldn't get elected to the INHBPA board, couldn't get reelected to a position on the INHBPA board, or were not even eligible to run for an INHBPA board position. At the end of 2012, Jerry Carden was listed as the President of the Benefit Trust. Mr. Carden ran for an HBPA board position in the fall of 2012. Out of the 10 individuals running for a board position as an owner, Mr. Carden finished in the bottom three. Terry Meek lost his reelection bid to the HBPA board in 2012 by a wide margin, yet Mr. Meek continued as an appointed director for the Benefit Trust. The draft results of the 2012 INHBPA election results can be found at the following link: http://freepdfhosting.com/08a68e63b4.pdf.
In our view, one of the failures, and this failure began with the IHRC's first approval in 2008, is that the IHRC has allowed the majority of slot funds to by-pass those elected to the INHBPA board. Certain individuals on the Benefit Trust board were never required to complete the Conflict of Interest Policy required of each elected INHBPA board member or the required affidavit that the slot funds through the Benefit Trust were being spent according to the 'best interests' standard. When Chairman Diener pushed for the addition of this affidavit, he did not include the requirement for members of the Benefit Trust board which is a significant oversight on his part. One of Mr. Gorajec's corrective action step recommendations is that each member of the Benefit Trust now be required to provide their signatures to a Conflict of Interest Policy and 'best interests' affidavit. This is tantamount to closing the barn door after the horse has already bolted. The Benefit Trust was treated by the IHRC as a registered horsemen's association eligible to received slot funds for backside benevolence, yet the Benefit Trust as a separate organization from the INHBPA was never required to comply with all of the IHRC's requirements to do so.
Mr. Gorajec's reevaluation states, "The Trust, however, must also be held accountable to the IHBPA Board. The Trust was
established as a separate entity for tax purposes." While the INHBPA has been lauded over the years for its structure of their benevolence program, which includes having the Benefit Trust set up as a 501(c)(4) non-profit organization, the INHBPA is also structured as a non-profit, but as a 501(c)(6) organization. This brings into question whether or not the Benefit Trust was even necessary given that the INHBPA was already a not-for-profit business association. In support of that thought, Mr. Gorajec's belief was that the structure of the benevolence program at the IHBPA should be a national standard, yet this structure was not even the standard for all of horse racing in Indiana. Both the Indiana Standardbred Association and the Quarter Horse Racing Association of Indiana receive similar slot revenues for their backside benevolence programs. However, neither has set up a 501(c)(4) organization to receive and to administer their backside benevolence funds. Their backside benevolence funds simply flow through their non-profit 501(c)(6) organizations under the control of their elected boards. We neither have seen nor heard of these organizations having issues with their non-profit status.
The fact that slot funds flow to a 501(c)(4) organization actually creates, in the eyes of the Internal Revenue Service (IRS), a higher set of standards for use of the funds as they relate to anyone with substantial influence within the organization or their family members. What Mr. Gorajec's reevaluation actually points out, in our opinion, is a number of violations by the Benefit Trust for what's called excess benefit transactions with what Mr. Gorajec describes as "insiders." The excess benefit transactions are those that provide more benefit to an insider and their family members beyond their contributions to the actual organization. A good primer on this subject can be read at: http://www.nonprofitlawreport.com/guide/excess-benefit/.
In fact, we are not the first to raise the issue of the Benefit Trust possibly violating IRS guidelines. Here's what former Director of Benevolence F. Steven Stults said at the IHRC hearing on the INHBPA's 2013 registration application while responding to a question as to why the Benefit Trust terminated their scholarship program after 2012:
MR. STULTS: "It was found by our auditors that scholarship monies were being received by the families, children, grandchildren, of some of our current and past officers and that, in fact, is a violation. We looked at the total program, thought it would be best to at least at this time terminate that program until we found out if we can do it and how we can do it right. Our auditors picked up and reported to us that that might be violation. We didn't receive any notification from IRS we have violated, but we don't want to step into that arena." (Official Transcript, IHRC Meeting October 12, 2012, Page 80, Line 12 through 23)
Mr. Stults admitted to the Benefit Trust's violation of IRS regulations that, in fact, is clear. Mr. Gorajec now reveals that $10,000 of the approximate $30,000 of scholarships awarded in 2010 through 2012 went to "four relatives of IHBPA Directors, Trustees, or employees." (Footnote 5, Page 4) The subject of scholarships recipients and who authorized the issuance of the scholarship checks is one issue that needs some sunlight that we'll cover a little later in the article. Based upon information we received from the IHRC via a public records, there are some significant unanswered questions regarding this scholarship program that the IHRC should be answering.
Required 'Prohibited Conflict of Interest Policy'
As mentioned in 71 IAC 13-1-3(3), a required part of a horsemen's association registration application must include, " A conflict of interest policy approved by the commission that has been executed by all of the officers, directors, and employees of the horsemen's association." The INHBPA registration application outlines the years in which the INHBPA board members signed the commission- approved statement, some dating back to 2008. Mr. Gorajec's reevaluation points out that:
"A pertinent part of this policy in Article III beneath a heading titled “Prohibited Conflicts of Interest” reads as follows:
2. The direction, payment or other transfer of Horsemen’s Association funds(either directly or indirectly) for the use (personal or otherwise) of any relative of an officer, director of (sic) employee of that Horsemen’s Association." (Page 6)
That's a pretty straight forward, plain English statement that defines just what the IHRC considers to be in the best interests of horse racing. Given the scope of these funds and the potential moral hazards involved, the commission prohibited relatives of key people within the INHBPA from receiving benevolence funds either directly or indirectly through the receipt of services. Mr. Gorajec rationalizes that this very plain statement doesn't mean what it says by saying in a footnote, also on page 6 of his reevaluation, "Pursuant to this section, no relative of any board member would be eligible to receive any benevolence money. However, Paragraph 1 of the Prohibited Conflicts of Interest policy provides that a board member is eligible for any benevolence available to any other member. The spirit of this exception likely applies to the family members of board members and the Conflict of Interest policy should be amended to so reflect."
Now, that's how you rationalize your own incompetence and the lack of supervision of the benevolence funds paid to the Benefit Trust. Again, the members of the board of the Benefit Trust never submitted a signed Conflicts of Interest Policy when acting as members of that board, and only if they served a dual role as being a board member of the INHBPA. Mr. Gorajec further proves that the IHRC lacked control over the benevolence funds by recommending as a corrective action step that, "Each Benevolence Trust trustee shall file a conflict of interest form and registration certification." (Page 9)
Mr. Gorajec, in his reevaluation, characterizes Ms. Hobson complaint in the following manner, "The complaint made some specific allegations of questionable expenditures but also included several vague, second-hand allegations that proved to be unfounded, untrue, or lacked sufficient information necessary for investigation." (Page 2) We see this statement as very misleading. Much of Ms. Hobson's complaint revolves around benefits being received by relatives of Randy Klopp and Lisa Stephens, who the INHBPA considered to be the administrative assistant for both the INHBPA and the Benefit Trust until her promotion to Benevolence Trust Administrator on January 1, 2013 after the resignation of F. Steven Stults as the Benevolence Director. According to the records received from the IHRC, Mr. Klopp signed the commission approved Conflict of Interest Policy in 2008. Even though Ms. Stephens has been employed by the Benefit Trust and the INHBPA for years, she never signed a Conflict of Interest Policy until June 18, 2014, after IBOP filed a public records request for her signed copy.
Below are the issues that we see in the context of Mr. Klopp and Ms. Stephens and the relationship with their positions with the Benefit Trust.
INHBPA Scholarship Program
The following link will take you to the documentation, which is specific to the INHBPA Scholarship Program, we received from the IHRC through a public records request for the 2013 INHBPA registration which covers the INHBPA activities from January 1, 2011 through June 30, 2012. We are providing this link to demonstrate the claims made in the following section of this article: http://freepdfhosting.com/04381a4613.pdf.
In the filing of the registration application for 2013, the 'Accounting, Audit, Internal Control, and Reporting Procedures for the Benefit Trusts, under Trust Officers and Staff, indicates that Steve Stults is the Benevolence Director and Lisa Stephens as the Administrative Assistant for the Benefit Trust. Lisa Stephens was identified in Mr. Gorajec's report as being an "Insider." (Also, identified as an "Insider" was Randy Klopp as the President of Benefit Trust.) In this procedures statement, under Cash Disbursements, the following appears, "Vendor setup and maintenance is the QuickBooks accounting system is performed by the Benevolence Director (Stults). Hash Accountant is restricted from vendor setup and maintenance in the QuickBooks account system." The 'Hash Accountant' is one of the accountants from the CPA firm used by the INHBPA. So, only Mr. Stults could add vendors (payees) to the books of the Benefit Trust, yet in the procedures for adding vendors into QuickBooks in the INHBPA's administrative account and the equine promotion or welfare account, a senior partner at Hash CPA Group, LLC was required to add vendors. This strange inconsistency in procedure is not explained in the INHBPA registration application. In addition, the procedures for the Benefit Trust state that, "All benevolence requests are processed by the Administrative Assistant (Stephens) for approval by the Benevolence Director (Stults) following the Trust's benevolence guidelines."
In our public records request, we noticed the August 18, 2011 approved minutes for the INHBPA board meeting. One of the agenda items was "Scholarship Requests." This is verbatim from those approved minutes, "Three requests have been received. Randy Klopp made a motion to approve requests for the Lauer family, West family and Huber family. Joe Davis 2nd. Motion carried." The Lauer family is Mike & Penny Lauer, both INHBPA board members with Penny Lauer having served on the Benefit Trust board in the year in which a $2,500 scholarship was awarded to her daughter(Check #'s 3410 issued on September 13, 2011 & #3437 issued on September 20, 2011). The Huber family is that of Dale Huber who served as a director on the Benefit Trust both the years his daughter received a scholarship (Check #3411 issued on September 13, 2011 and a subsequent check in 2012). Both of those transactions were reported to the IRS on the Benefit Trust 2011 tax return under 'Grants or Assistance to Benefiting Interested Persons.'
What we found interesting is that while the meeting minutes indicated three scholarship requests, two additional $2,500 scholarships were awarded to Debra Hawkins, sister of Lisa Stephens, and Megan Larimore, daughter of Lisa Stephens, to attend the Alabama School of Sleep Medicine and Technology. These $2,500 checks were issued as #3380 and #3381 on September 6, 2011. Neither of these transaction were reported to the IRS as benefitting interested persons as seen with the Lauer and Huber scholarships. Also, all 2011 scholarship checks, except for one for the benefit of Rebecca Heniser to attend Nova Southeastern University, appear to have been written to the individuals directly or to a family member rather than the educational institution as required under the Benefit Trust requirements.
In a follow up records request to the IHRC, IBOP received the scholarship applications for both Debra Hawkins and Megan Larimore. Ms. Hawkins, whose scholarship application was dated September 4, 2011, indicates that her intended career is to be a polysomnographic technologist by attending the Alabama School of Sleep Medicine and Technology. When addressing Ms. Hawkins eligibility for benevolence funds, Mr. Gorajec's report states, "Ms. Hawkins also was (and still is) employed full time at the Grant County Sheriff’s Department." Yet, there is no mention of this scholarship in the reevaluation. Just two days after this scholarship application was signed, a check was released to Ms. Hawkins. Ms. Larimore's scholarship application, which was dated September 1, 2011, indicates her intended career as a sleep technician. Mr. Gorajec's reevaluation has no mention of this scholarship whatsoever.
Both Ms. Hawkins' and Ms. Larimore's scholarship applications have the initials 'FSS' hand-written in the lower right-hand corner which would seem to indicate the approval of F. Steven Stults the Benevolence Director. Both applications also have 'pd. 9-6-11 RAR' which would seem to indicate a notation from Hash account Ryan Roberts. From our initial public records request, we were provided with information that the INHBPA next board meeting after August 18th was held on December 15, 2011, which raises the question, who approved the two scholarships for Ms. Hawkins and Ms. Larimore? In our second public records request regarding scholarships we asked for "A copy of the meeting minutes provided to the IHRC by the Indiana HBPA and/or Indiana HBPA Benefit Trust at which both Debra Hawkins and Megan Larimore were approved for the above-mentioned scholarships." The response from IHRC General Counsel Lea Ellingwood was, "If you provide a date of the meeting at which the scholarships were awarded, we will be happy to check our records to see if we have those minutes and will provide them to you." Perhaps an explanation will be offered at the IHRC's hearing on June 26th, but we find that possibility to be unlikely. What should also be disclosed is whether or not any of the scholarships were actually used to truly pay for educational expenses as checks appear to have been written directly to Ms. Hawkins and Ms. Larimore.
Information from our second public records request regarding the INHBPA's Scholarship Program, which includes the requirements for qualification and the two applications mentioned above, can be found at the following link: http://freepdfhosting.com/51b6bb1192.pdf. What you will see is that one of the requirements is a "Copy of acceptance letter (or, if continuing education, a letter or verification) from the pre-college, vocational school, college or university where you will attend." The information we received from the IHRC did not included any type of acceptance letter or verification in support of Ms. Hawkins' or Ms. Larimore's application as required, at the time, by the Benefit Trust.
Benevolence Trust Eligibility Requirements
For years, the INHBPA has submitted to the IHRC as part of their registration applications to receive slot funds what were supposed to be the eligibility requirements for an individual to receive benevolence benefits. Yet, for years, they have been doing quite the opposite of what they have suggested they were applying as eligibility requirements. This has been known anecdotally for years by horsemen, and is now confirmed by the IHRC's investigation. Mr. Gorajec attempts to once again rationalize the failures of the IHRC staff to supervise these funds by stating, "The fact that the IHBPA is not enforcing its eligibility requirements does not necessarily mean that its actions are contrary to the best interest of racing." (Footnote 4, Page 3) Even if that were true, which we don't believe it to be, wouldn't providing false information in their registration application regarding supposed eligibility requirements be beyond the scope of the 'best interests' of horse racing? We'll see how each individual commissioner reacts to Mr. Gorajec's skewed logic at the hearing on June 26th.
In his reevaluation, Mr. Gorajec includes the 2011 Indiana HBPA Benefit Trust Benevolence Benefits Guidelines as 'Attachment A' which are pages 11-12 of the report. The reevaluation points out, via recommended corrective actions, that hardly a single eligibility requirement submitted to the IHRC was actually being followed. So, whether it was a requirement to be "employed full-time by an eligible trainer" AND perform "substantial work in the Indiana thoroughbred racing industry," or whether it was the income limitations or that fact that all insurance benefits had to be exhausted, the Benefit Trust seemed to only be using the fact the someone had an IHRC license as their only qualification. And, IHRC licenses are very easy to get if someone is willing to sign the application as your employer.
In the reevaluation, and responding to Ms. Hobson's complaint, Mr. Gorajec indicates on page 3 that "at least six" of Mr. Klopp's relatives (was it six or was there more?) worked for him and received a total of $55,280.89 in benevolence funds in 2010 through 2012. The description of this amount was that Mr. Klopp's family members "were very active participants in the benevolence program." Since Mr. Klopp was the INHBPA President from 2005 through 2012, and slot revenues for benevolence were only first released in late 2008 for the first time, the statement that "Most of Mr. Klopp's relatives had no previous IHRC licensing prior to 2009" seems quite coincidental. This is especially true when information we received from a public records request indicated that most of Mr. Klopp's relatives didn't seek IHRC licensing in 2013 after his term as President of the INHBPA expired in 2012.
The reevaluation also states, "Mr. Klopp employed several non-relatives, many of whom were full-time employees." So, what does several actually mean? Merriam Webster defines several as "more than two, but not very many." IBOP filed a public records request for all 2012 license applications signed by Mr. Klopp as the employer. What we found was that the total was way beyond 'several' which we reported to IHRC Director of Security Terry Richwine on January 30, 2014. Part of the INHBPA's supposed eligibility requirements to receive benevolence benefits is either a signed trainer affidavit or to be on the trainers "badge list," which having a badge list is also a commission requirement per their administrative rules. Here's an excerpt from an email from IBOP Vice-President Jim Hartman to Mr. Richwine:
"Subsequent to my October, 2012, conversation with Mr. Brown outlined in my statement, I filed a series of public records requests to determine if any IHRC records could shed some light on this allegation. One of those requests was for "Copies of the submission(s) to the commission of the name, occupation, and license number as required by 71 IAC 5.5-3-3(a)(4), including any changes, submitted by Randy Klopp during and/or for calendar years 2012, 2011, and 2010." 71 IAC 5.5-3-3(a)(4) makes a trainer responsible for "Providing a list to the commission of the trainer's employees on association grounds and any other are under the jurisdiction of the commission.........The commission shall be notified by the trainer, in writing, within twenty-four (24) hours of any change." Generically called a 'badge list,' the fulfillment of the public records request included the file attached labeled with the term used by the IHRC 'Trainer's Stable Roster.'
(Please Note: The above mentioned file can be seen at: http://freepdfhosting.com/9ee86b73a0.pdf .
The 'Trainer's Stable Roster' even reminds the licensed trainer of his or her responsibilities in maintaining "with the commission" an up-to-date roster as required by 71 IAC 5.5-3-3(a)(4). In 2012, what Mr. Klopp submitted to the IRHC as his roster for the entire year was the first two pages of the attached file that included four grooms and an assistant trainer. Even after pointing this out to Ms. Ellingwood that she had supplied me with a 2012 groom's license application for Mimi Gilbert which was signed by Mr. Klopp as her employer, I was assured that there were no other records at the IHRC responsive to my records request. Based upon Ms. Gilbert's application alone, which was signed on August 25, 2012, it appeared as if Mr. Klopp was not required to comply or did not comply with the requirements of 71 IAC 5.5-3-3(a)(4). After all, the commission could not provide a stable roster beyond early April, 2012.
The satisfaction of another public records request for all license applications signed by Mr. Klopp as the employer in 2012 sheds even more light on what should have been Mr. Klopp's stable roster submitted to the commission. The five individuals Mr. Klopp did submit on his stable roster, which was dated April 3, 2012, were subsequently licensed between April 4th and April 9th. What was never reported to the commission as part of Mr. Klopp's stable roster was another 18 grooms licenses that he signed off as employer during 2012. A total of 22 grooms is an inordinate number by any measurement. After the initial four reported, none of the following 18 'employees' were reported to the commission. Some appear as legitimate backside workers, like Akeem Brown (4/5/2012) who had worked for Mr. Klopp in 2011 and 2010 as well as exercise riders Victor de Leon (4/4/2012) and David Borunda (4/25/2012). Others, not so much.
Also, licensed as a groom was Mr. Klopp's 67 year-old mother and subject of the anonymous tip we received as have received benevolence funds, Karen Abner (4/13/2012). How many 67 year old mothers do you see working as a groom on the backside of a race track? Mr. Klopp signed for a grooms license for, the lack of a better term, his step-nephew, Tyler Abner who is also the subject of the anonymous tip we received misidentified as a "nephew." Mr. Klopp signed Tyler Abner's grooms license on 4/3/2012 which is the same day that Mr. Klopp signed and submitted his stable roster to the IHRC, yet Tyler Abner was absent from that roster. Tyler Abner also admits to being employed with the US Air Force from February, 2012 to September, 2012. In addition, Mr. Klopp signed as the employer for his step-brother, Donnie Abner (4/13/2012) who admits to being the owner of a carpet cleaning and water restoration business since 2000.
Others who were licensed as grooms under Mr. Klopp's employ were: Shannon Wyatt (step-sister 4/24/2012); what appear to be Mr. Klopp's relations on his mother's side Jerry Halveland (5/12/2012), Gary Halveland (5/12/2012), Halveland is Karen Abner's maiden name, and Melinda Hauri (4/24/20120 also with a maiden name of Halveland. I've been told, but cannot verify, that Daryn Klau (7/28/2012) is a nephew as well.
Outside of what appears to be family relations, Mr. Klopp signed as employer for the groom's licenses for the Cooper family, Darel & Luanna both on 5/18/2012, then their son, David on 5/19/2012. On April 30, 2012, he even signed as employer for the groom's license for Lindsay Larimore who is the daughter of Lisa Stephens who, at the time, was the HBPA secretary and now oversees the HBPA Benevolence Trust. All totaled by May 20, 2012, Mr. Klopp employed an astonishing 19 grooms!" (End of Email Excerpt)
Our apologies to anyone we may have incorrectly mischaracterized as a family member of Mr. Klopp or their relationship within his extended family, but the number might be more than six family relationships, and the total number of groom's licenses were well beyond "several." What we also found through this public records request was that after May 20th, Mr. Klopp signed as employer for three other grooms, one of which included a groom's license for Mimi Gilbert on August 25, 2012. While this is a story for another day, part of the submission from Ms. Hobson to the IHRC was a recording purportedly to be Mimi Gilbert explaining why there was a certain need for urgency with her groom's license as it related to benevolence benefits. Our guess is that this recording will not be raised voluntarily by the IHRC staff at any time during the June 26, 2014 hearing. This recording is not mentioned in Mr. Gorajec's reevaluation.
There were a few other interesting facts pulled from the 2012 groom licenses that Mr. Klopp signed. The IHRC Multi-Purpose License Application requires, at least for some people, a prospective licensee is required to "Give the following information relative to your current employer," which are the date employed, the name of employer, and his or her address. There were a number of license applications that had no employer information included whatsoever, including the license application for his mother and his step-brother. Perhaps the IHRC should explain these incomplete applications as well.
What we would hope Mr. Gorajec would have put in his report was the total amount of benevolence received by Mr. Klopp's 22 grooms, yet his focus was only on the "at least six" family members. The horse racing industry has a right to know just how much of the backside benevolence funds from the Benefit Trust went to all of Mr. Klopp's employees. We would also hope that Mr. Gorajec would explain why Mr. Klopp wasn't required to comply with his stable roster requirements in 71 IAC71 IAC 5.5-3-3(a)(4) to maintain his license. Yet, we are not naïve enough to believe that Mr. Gorajec will admit that the IHRC didn't do their job in requiring him to do so. With that said, the IHRC should never be in a position to investigate their own actions or inactions. Such an investigation should fall to the Indiana Inspector General's Office which is designed specifically to investigate the actions or inactions of the State's administrative agencies. We see more inaction than action on both the history of supervising the benevolence funds and the Benefit Trust and with the subsequent reevaluation by Mr. Gorajec.
Part 2 of this article will be posted after the conclusion of the IHRC hearing on the INHBPA's application on June 26, 2014, but let this one sink in for a while.
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