Aaaahh, News of the World, not exactly known for its "truth" in reporting. This story has been done to death on the Betfair forum. News of the World manages to leave out some facts. The horse in question has a habit of pulling up in front. It is still the winner of only 1 race after 19 attempts. The market had it as a 2 horse race, the finish emphasised this. Neither the winner or the 2nd horse blew a great deal, or was backed for any amounts out of the ordinary.
Having not seen the race I cannot comment on what actually happened, but would take News of the World stories with a grain (mountain) of salt. It is of course being blamed on the exchanges, "without them (Betfair & the like) racing would not be crooked in any way". Apparently people who laid the 2nd horse are receiving 'please explain' letters. Can't wait for mine, no hang on I laid the winner as well. Still, it will be interesting to see what comes of it.