Oct. 26 (Bloomberg) -- The operators of a mare-leasing program run by ClassicStar LLC, the bankrupt Kentucky thoroughbred breeder, pleaded guilty to conspiracy to defraud the U.S. by running an illegal tax shelter, the Justice Department said.

David Plummer and two other men ran a mare-lease program that investors used to claim false tax deductions of more than $500 million, resulting in a tax loss to the government of more than $200 million, the agency said today in an e-mailed statement.

Under the defunct leasing program, ClassicStar investors chose thoroughbred mares to be bred with stallions and would then own rights to the resulting foal for their own breeding operations or other purposes. The customers were told they could take millions of dollars in tax deductions for the losses generated by the breeding operations, the government said.

The deductions were illegal because the program used fraudulent loans to finance investors’ participation and the company sought to lease mares it didn’t have, the Justice Department said in the statement. The loans were made through a company controlled by ClassicStar, the government said.

Richard Roberson, an attorney for Plummer, didn’t return a voice-mail message left after regular hours.

ClassicStar filed for Chapter 11 bankruptcy protection in September 2007.

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net.

Last Updated: October 26, 2009 21:19 EDT