The owners of Hawthorne Race Course and the official committee representing unsecured creditors are asking a bankruptcy judge to authorize an investigation into Illinois Department of Agriculture Director Jerry Costello II over decisions involving horse racing funds.
A motion filed May 20 in the Chapter 11 cases of Hawthorne Race Course and related entities seeks permission to examine Costello, the Illinois Department of Agriculture, Fairmount Park Casino & Racing, and lobbyist John P. Costello, who is Jerry Costello’s brother.
Questions over allocation of Hawthorne racing funds
According to the filing, Hawthorne traditionally received between 55% and 60% of distributions from the Illinois Thoroughbred Breeders Fund because it staged substantially more races than Fairmount Park. The debtors say that changed after the bankruptcy cases began in February.
“Following the Petition Date, this allocation pattern shifted. Despite no material operational changes, Fairmount Park received disproportionately large allocations while the Debtors’ share was significantly reduced. Approximately $300,000 remains undistributed. The Movants have identified troubling connections.”
According to the motion, “this allocation pattern shifted” and “Fairmount Park received disproportionately large allocations while the Debtors’ share was significantly reduced.”
The filing places Jerry Costello at the center of the dispute. “Jerry Costello serves as Director of the Illinois Department of Agriculture, which administers the Thoroughbred Fund, and chairs the advisory board recommending distributions,” the filing states.
Hawthorne and the creditors’ committee argue the funding changes happened even though there were “no material changes in the relative operations of the two Illinois racetracks.” They also contend that roughly $300,000 remains undistributed and say most of that money should go to Hawthorne based on past practices.
The motion further highlights ties it considers concerning between state officials and Fairmount Park. It notes that John P. Costello was recently retained as a registered Illinois lobbyist for the Illinois HBPA, the horsemen’s association at Fairmount Park. He rejected the accusations in comments to the Chicago Tribune, calling them false and “defamatory.” He told the newspaper the allegations would be addressed in court.
The debtors and committee allege that adverse funding decisions “were made at the direction of Jerry Costello through the IDOA and the Thoroughbred Board, and were influenced by the lobbying efforts of John Costello.”
They also challenge actions taken by the Department of Agriculture after the bankruptcy filing. According to the motion, the agency sought financial records from Hawthorne and later informed the track that it was reducing a Thoroughbred Fund grant by $316,895 and terminating a grant agreement. The filing describes those actions as occurring “without basis and in violation of the automatic stay.”
The request comes as Hawthorne continues through Chapter 11 proceedings in Chicago. Earlier in the case, U.S. Bankruptcy Judge Timothy A. Barnes denied the company’s request for an emergency hearing tied to a motion seeking additional time to file financial disclosures. In a March order, Barnes ruled that the request failed to qualify for emergency treatment and directed the matter to proceed on the court’s normal schedule.
The parties seeking the latest investigation say they need documents and testimony to determine “the extent of the Rule 2004 Parties’ efforts to diminish the funds allocated to the Debtors” and to investigate communications surrounding Thoroughbred Fund distributions. They further state that they “have reason to believe that the Rule 2004 Parties are engaged in coordinated efforts to adversely impact the Debtors’ operations, divert funds to which the Debtors are entitled, and interfere with the ongoing administration of these estates.”
They are seeking authority to issue subpoenas and conduct examinations under Bankruptcy Rule 2004. The allegations were made in court filings and have not been adjudicated by the bankruptcy court.
On May 27, Barnes granted Hawthorne Race Course and the unsecured creditors’ committee permission to pursue discovery related to their allegations. The order allows the parties to issue subpoenas and seek depositions from Jerry Costello, John Costello, and officials connected to Fairmount Park Casino & Racing.
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