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Citing ‘Gross Mismanagement’ and ‘Human Cost,’ U.S. Trustee Seeks to Force Hawthorne’s Bankruptcy to Chapter 7

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Six days before Hawthorne Race Course is scheduled to be sold in a $90-million liquidation as part of a restructuring of between $100 and $500 million in debt, the Office of the United States Trustee has stepped in to tell the judge in charge of the case that the owners of the defunct Chicago-area track are not going to be able to orchestrate a reorganization. The U.S. Trustee wrote that the debtors’ repeated botching of the process has resulted in both financial harm to horsemen and a “human cost” for backstretch residents.

In a Wednesday filing, acting U.S. Trustee Adam Brief wrote that Hawthorne’s owners, the Carey family and their related companies, should be stripped of their status of  “debtors in possession” by either dismissing the Chapter 11 bankruptcy proceedings or converting them to a Chapter 7 designation.

That would mean the Careys no longer have control over sale proceeds from the track or other remaining assets that might get liquidated to pay off creditors under the auspices of an independent trustee.

“The record demonstrates that there are continuing losses, there is no likelihood of rehabilitation, and there continues to be gross mismanagement of the estates, all of which militate in favor of dismissal or conversion,” stated the U.S. Trustee’s motion to dismiss or convert that was filed Aug. 26 in United States Bankruptcy Court for the Northern District of Illinois.

“For example, the Debtors, among other things, have (i) repeatedly ‘borrowed from Peter to pay Paul,’ (ii) spiraled these cases toward administrative insolvency and ceased almost all operations while taking extraordinary steps to protect professional fees at the expense of other creditors; (iii) conducted a largely unsuccessful sale process; (iv) upended the lives of the horsemen, their families and horses, and (v) applied for a racing license at an unknown cost for the 2027 season.”

In Hawthorne’s case, the Careys have remained debtors in possession since they filed for bankruptcy protection six months ago. At that time, no trustee was appointed to the case, which is routine in Chapter 11 bankruptcies that are attempting a reorganization.

But the U.S. Trustee’s office still monitors such federal court cases, and can ask a court to take action if it believes Chapter 11 is no longer viable.

A conversion to Chapter 7, if approved, doesn’t necessarily mean the $90 million sale to a Delaware shell company is in jeopardy, because the judge has already approved that sale.

But a newly assigned Chapter 7 trustee could end up dealing with the remaining assets, claims and disputes, subject to the rights of secured creditors.

On July 29, the Illinois Thoroughbred Horsemen’s Association (ITHA) filed a motion seeking payment of more than $1.3 million in unpaid purse money from Hawthorne.

“Contrary to the Debtors’ promises and rhetoric since the petition date, the sale process has been highly disorganized, ill-conceived, and largely ineffective, as the sale price for the estates’ principal asset is significantly less than Debtors and their professionals estimated,” the filing stated.

“And despite the Debtors’ repeated assurances that there was interest from going-concern bidders and that their assets would be sold on a going-concern basis, no such interest or sale materialized.

“The highest and best offer approved by the Court is millions of dollars shy of the amount required to satisfy liens against the Debtors’ property, and most of the Debtors’ operations have ceased in the absence of a going-concern sale.

“Consequently, hundreds of jobs have been lost, and hundreds of people, children, and horses have been displaced from their homes on the backstretch with little meaningful notice or means to relocate.

“Amid the chaos of these cases, the Debtors’ principals caused the Debtors to apply for a racing license for the 2027 season and may seek to race at a yet-to-be-identified track.

“While contemplating their own future, the Debtors’ principals have largely abandoned the backstretch community and required the ITHA to step into the Debtors’ shoes to fulfill the Debtors’ obligations,” the filing stated.

The U.S. Trustee identified two specific examples of Hawthorne’s “gross mismanagement” that are central to the argument that the bankruptcy should be converted to Chapter 7.

“First, by failing to segregate funds necessary to pay the horsemen their post-petition purse obligations as required by their agreement with ITHA, and second, by failing to properly plan for the relocation of hundreds of individuals and horses within a relatively short amount of time and with little financial means.”

The filing continued: “The Debtors have not explained why they failed to segregate the purse money due to the horsemen, or how the funds that were budgeted to pay the horsemen were spent.

“The Debtors’ own DIP budget included $3,620,000 for ‘Purse Accrual’ so the Debtors were aware of the need to make payment to the horsemen and should have immediately funded the Horsemen’s Purse Account after each race since it had already budgeted the expenditure.

“[And] even assuming Debtors are correct in their true-up, it still does not explain where the additional $600,000 went that should have been segregated for payment to the horsemen….

“The Debtors’ failure to fund the Horsemen’s Purse Account is not the first time the Debtors have been accused of failing to properly segregate funds.

“Both Churchill Downs and Saratoga alleged that the Debtors failed to properly segregate and maintain funds from pari-mutuel wagering prior to the Petition Date, and both have filed adversary proceedings alleging that the funds that the Debtors were required to segregate are not property of the bankruptcy estate.

“In short, the Debtors have demonstrated their inability and/or refusal to properly handle, segregate and track funds that others may claim an interest in, and that conduct from a debtor in possession should not be tolerated.

“The record is clear that the Debtors’ gross mismanagement resulted in harm to the horsemen and to contractual counterparties, both of whom the Debtors relied on for their operations and revenue.

“Rather than protecting those necessary relationships, the Debtors squandered them [and] have attempted to lay the blame for the chaos they created at the doorstep of others and have relied on third parties, specifically the ITHA, to assist with the relocation of the backstretch community,” the filing stated.

Hawthorne executives could not be reached for comment prior to deadline for this story.

The post Citing ‘Gross Mismanagement’ and ‘Human Cost,’ U.S. Trustee Seeks to Force Hawthorne’s Bankruptcy to Chapter 7 appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

6,000 Wins in North America for Hall of Famer Javier Castellano

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Rider Javier Castellano, who was inducted into the Hall of Fame in 2017, secured his 6,000th North American win Wednesday at Saratoga Race Course aboard Starship Lizzy (Central Banker) in Race 8, a New York-bred maiden claimer. The 3-year-old filly is trained by Michelle Nevin and owned by Starship Stables. After some bumping in the stretch, Castellano had to wait out a stewards’ inquiry to find out if he’d reached win 6,000.

“6,000 [wins] and I still have to sweat out my result! Nothing’s easy in this game, for sure,” said Castellano with a laugh. “…I knew it wasn’t my fault, and that’s why I felt comfortable. But you never know, you have to see the ‘official’ first to count 6,000 races.”

Castellano continued: “Thank God I’ve been blessed. Like I always say, thank you Lord, God, Jesus Christ for giving me the amazing skill of being a jockey and participating in the high level in my career with the best jockeys in the world. Especially doing it at Saratoga, the biggest stage in the world… so many great jockeys went through here, and to be my age competing with this generation to keep delivering and winning races and people supporting me is amazing. I’m very grateful and blessed to be around them.”

Castellano, 48, began riding in his native Venezuela before his first mount in the U.S. in 1997 at Calder Race Course. He has since won Eclipse Awards for Outstanding Jockey four times, from 2013 to 2016. He captured the Kentucky Derby in 2023 aboard Mage (Good Magic) and has won all three Classics, as well as 12 Breeders’ Cup races. He was the leading rider at Saratoga in 2013 and 2014, and received the 2019 Mike Venezia Memorial Award and the 2023 George Woolf Memorial Jockey Award. He’s also won the GI Travers Stakes seven times, more than any other jockey. He’ll ride The Puma (Essential Quality) in Saturday’s edition.

“Mentally, it’s really, really tough. It looks easy, 6,000 races, but you’ve got to go through almost 40,000 races to win 6,000,” said Castellano. “Can you imagine how many losses you have to go through to win 6,000? There’s a lot of disappointment, and I thought about it for a moment to quit being a jockey, because you go through those slumps and you don’t think [it will get better]. Thank God I’ve been very lucky and fortunate to be strong, disciplined, dedicated, hard-working, and it paid off.”

The post 6,000 Wins in North America for Hall of Famer Javier Castellano appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

Citing ‘Gross Mismanagement’ and ‘Human Cost,’ U.S. Trustee Seeks to Force Hawthorne’s Bankruptcy to Chapter 7

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Six days before Hawthorne Race Course is scheduled to be sold in a $90-million liquidation as part of a restructuring of between $100 and $500 million in debt, the Office of the United States Trustee has stepped in to tell the judge in charge of the case that the owners of the defunct Chicago-area track are not going to be able to orchestrate a reorganization. The U.S. Trustee wrote that the debtors’ repeated botching of the process has resulted in both financial harm to horsemen and a “human cost” for backstretch residents.

In a Wednesday filing, acting U.S. Trustee Adam Brief wrote that Hawthorne’s owners, the Carey family and their related companies, should be stripped of their status of  “debtors in possession” by either dismissing the Chapter 11 bankruptcy proceedings or converting them to a Chapter 7 designation.

That would mean the Careys no longer have control over sale proceeds from the track or other remaining assets that might get liquidated to pay off creditors under the auspices of an independent trustee.

“The record demonstrates that there are continuing losses, there is no likelihood of rehabilitation, and there continues to be gross mismanagement of the estates, all of which militate in favor of dismissal or conversion,” stated the U.S. Trustee’s motion to dismiss or convert that was filed Aug. 26 in United States Bankruptcy Court for the Northern District of Illinois.

“For example, the Debtors, among other things, have (i) repeatedly ‘borrowed from Peter to pay Paul,’ (ii) spiraled these cases toward administrative insolvency and ceased almost all operations while taking extraordinary steps to protect professional fees at the expense of other creditors; (iii) conducted a largely unsuccessful sale process; (iv) upended the lives of the horsemen, their families and horses, and (v) applied for a racing license at an unknown cost for the 2027 season.”

In Hawthorne’s case, the Careys have remained debtors in possession since they filed for bankruptcy protection six months ago. At that time, no trustee was appointed to the case, which is routine in Chapter 11 bankruptcies that are attempting a reorganization.

But the U.S. Trustee’s office still monitors such federal court cases, and can ask a court to take action if it believes Chapter 11 is no longer viable.

A conversion to Chapter 7, if approved, doesn’t necessarily mean the $90 million sale to a Delaware shell company is in jeopardy, because the judge has already approved that sale.

But a newly assigned Chapter 7 trustee could end up dealing with the remaining assets, claims and disputes, subject to the rights of secured creditors.

On July 29, the Illinois Thoroughbred Horsemen’s Association (ITHA) filed a motion seeking payment of more than $1.3 million in unpaid purse money from Hawthorne.

“Contrary to the Debtors’ promises and rhetoric since the petition date, the sale process has been highly disorganized, ill-conceived, and largely ineffective, as the sale price for the estates’ principal asset is significantly less than Debtors and their professionals estimated,” the filing stated.

“And despite the Debtors’ repeated assurances that there was interest from going-concern bidders and that their assets would be sold on a going-concern basis, no such interest or sale materialized.

“The highest and best offer approved by the Court is millions of dollars shy of the amount required to satisfy liens against the Debtors’ property, and most of the Debtors’ operations have ceased in the absence of a going-concern sale.

“Consequently, hundreds of jobs have been lost, and hundreds of people, children, and horses have been displaced from their homes on the backstretch with little meaningful notice or means to relocate.

“Amid the chaos of these cases, the Debtors’ principals caused the Debtors to apply for a racing license for the 2027 season and may seek to race at a yet-to-be-identified track.

“While contemplating their own future, the Debtors’ principals have largely abandoned the backstretch community and required the ITHA to step into the Debtors’ shoes to fulfill the Debtors’ obligations,” the filing stated.

The U.S. Trustee identified two specific examples of Hawthorne’s “gross mismanagement” that are central to the argument that the bankruptcy should be converted to Chapter 7.

“First, by failing to segregate funds necessary to pay the horsemen their post-petition purse obligations as required by their agreement with ITHA, and second, by failing to properly plan for the relocation of hundreds of individuals and horses within a relatively short amount of time and with little financial means.”

The filing continued: “The Debtors have not explained why they failed to segregate the purse money due to the horsemen, or how the funds that were budgeted to pay the horsemen were spent.

“The Debtors’ own DIP budget included $3,620,000 for ‘Purse Accrual’ so the Debtors were aware of the need to make payment to the horsemen and should have immediately funded the Horsemen’s Purse Account after each race since it had already budgeted the expenditure.

“[And] even assuming Debtors are correct in their true-up, it still does not explain where the additional $600,000 went that should have been segregated for payment to the horsemen….

“The Debtors’ failure to fund the Horsemen’s Purse Account is not the first time the Debtors have been accused of failing to properly segregate funds.

“Both Churchill Downs and Saratoga alleged that the Debtors failed to properly segregate and maintain funds from pari-mutuel wagering prior to the Petition Date, and both have filed adversary proceedings alleging that the funds that the Debtors were required to segregate are not property of the bankruptcy estate.

“In short, the Debtors have demonstrated their inability and/or refusal to properly handle, segregate and track funds that others may claim an interest in, and that conduct from a debtor in possession should not be tolerated.

“The record is clear that the Debtors’ gross mismanagement resulted in harm to the horsemen and to contractual counterparties, both of whom the Debtors relied on for their operations and revenue.

“Rather than protecting those necessary relationships, the Debtors squandered them [and] have attempted to lay the blame for the chaos they created at the doorstep of others and have relied on third parties, specifically the ITHA, to assist with the relocation of the backstretch community,” the filing stated.

Hawthorne executives could not be reached for comment prior to deadline for this story.

The post Citing ‘Gross Mismanagement’ and ‘Human Cost,’ U.S. Trustee Seeks to Force Hawthorne’s Bankruptcy to Chapter 7 appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

6,000 Wins in North America for Hall of Famer Javier Castellano

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Rider Javier Castellano, who was inducted into the Hall of Fame in 2017, secured his 6,000th North American win Wednesday at Saratoga Race Course aboard Starship Lizzy (Central Banker) in Race 8, a New York-bred maiden claimer. The 3-year-old filly is trained by Michelle Nevin and owned by Starship Stables. After some bumping in the stretch, Castellano had to wait out a stewards’ inquiry to find out if he’d reached win 6,000.

“6,000 [wins] and I still have to sweat out my result! Nothing’s easy in this game, for sure,” said Castellano with a laugh. “…I knew it wasn’t my fault, and that’s why I felt comfortable. But you never know, you have to see the ‘official’ first to count 6,000 races.”

Castellano continued: “Thank God I’ve been blessed. Like I always say, thank you Lord, God, Jesus Christ for giving me the amazing skill of being a jockey and participating in the high level in my career with the best jockeys in the world. Especially doing it at Saratoga, the biggest stage in the world… so many great jockeys went through here, and to be my age competing with this generation to keep delivering and winning races and people supporting me is amazing. I’m very grateful and blessed to be around them.”

Castellano, 48, began riding in his native Venezuela before his first mount in the U.S. in 1997 at Calder Race Course. He has since won Eclipse Awards for Outstanding Jockey four times, from 2013 to 2016. He captured the Kentucky Derby in 2023 aboard Mage (Good Magic) and has won all three Classics, as well as 12 Breeders’ Cup races. He was the leading rider at Saratoga in 2013 and 2014, and received the 2019 Mike Venezia Memorial Award and the 2023 George Woolf Memorial Jockey Award. He’s also won the GI Travers Stakes seven times, more than any other jockey. He’ll ride The Puma (Essential Quality) in Saturday’s edition.

“Mentally, it’s really, really tough. It looks easy, 6,000 races, but you’ve got to go through almost 40,000 races to win 6,000,” said Castellano. “Can you imagine how many losses you have to go through to win 6,000? There’s a lot of disappointment, and I thought about it for a moment to quit being a jockey, because you go through those slumps and you don’t think [it will get better]. Thank God I’ve been very lucky and fortunate to be strong, disciplined, dedicated, hard-working, and it paid off.”

The post 6,000 Wins in North America for Hall of Famer Javier Castellano appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.