Horseracing's Winner, Really a Loser

A big black cloud is beginning to form over Triple Crown contender Big Brown.

The owner of the colt that won the Kentucky Derby and the Preakness isn't quite living up to the reputation he's created for himself.

Michael Iavarone, whose firm International Equine Acquisitions Holdings (I.E.A.H.) is the majority owner of the Derby winner, is raising money to launch a $100 million hedge fund to invest in racehorses. On the face of it, it seems like a perfect fit: Iavarone's bio says he was a "high-profile investment banker on Wall Street" before becoming a racing aficionado.

And he certainly must know people in the right places, as evidenced by the fact that Iavarone rang the opening bell yesterday morning at the New York Stock Exchange.

But a report by Bloomberg yesterday just might make his tailwind feel more like a 100-mile per hour headwind.

Iavarone, Bloomberg's David Evans reports, hasn't been fully honest with prospective investors. That high profile investment banking career? Turns out he traded penny stocks for seven years, for four little known brokerages, including Lloyd Wade Securities, Maidstone Financial, Joseph Dillon, and A. R. Baron, where Iavarone worked when the firm pleaded guilty to corruption charges in 1997.

It doesn't end there. Iavarone himself was fined, censured, and suspended from trading by regulators in 1999 for making unauthorized trades in his clients' accounts.

That's certainly information that prospective investors in his hedge fund might want to know. But unfortunately, it doesn't end there, either.

An Atlantic City hotel sued Iavarone for failing to make good on a $20,000 check that bounced. He eventually settled up, and blamed an imposter for the bounced check.

After switching careers to horseracing, Iavarone was later sued for failing to pay more than $500,000 for five horses bought at auction in 2003.

In 2004, the Internal Revenue Service issued a $130,000 lien against him for failing to pay his 2002 taxes.

After years of professional turmoil, it seems Iavarone has finally hit the jackpot with his $2.5 million investment in Big Brown. Just a few days before the Preakness earlier this month, he sold the colt's breeding rights for $60 million.

And what does the other Big Brown think about the checkered past of the racehorse's owner? UPS agreed to sponsor the horse for all three races.

"We're not actually sponsoring the horse, we have a sponsorship with the jockey," said UPS spokesman Norman Black after hearing the news about Iavarone. After admitting that Iavarone's firm indeed sought the relationship with UPS and receives the bulk of the money from the sponsorship, Black added: "We have no continuing relationship with I.E.A.H."

by Megan Barnett

Photograph by Jamie Squire/Getty Images