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Big Brown's Owner's Boiler Room Past

What is it about horse racing that seems to attract such wonderful role models for our children? The part owners of Curlin, the best horse in training anywhere in the world right now, are currently standing trial in federal court in Kentucky for plundering Kentucky's $200 million fen-phen settlement, effectively stealing millions from their own clients in the process. Now comes stories that the owner of Big Brown, Michael Iavarone, was suspended by securities regulators in the 1990s for his part in several boiler room operations.

Not only was Iavarone suspended from the securities by the regulators and fined but he also ran into some trouble with Keeneland, the horse industry's leading auction house. It seems that Mr. Iavarone had a little trouble paying his bills after buying some horses back in 2003 and 2004, so much so that Keeneland obtained a judgement for $554,156 and the IRS put a lien against him for $130,000. Iavarone says that he has subsequently paid those debts and that his investors in IEAH, the owner of Big Brown knew about those debts.

Those investors may have known about the problems with Keeneland and the IRS, but in the preliminary prospectus reviewed by Newsday in connection with the $100 million hedge fund he hopes to raise for thoroughbred racing and breeding, there was no mention of his past issues with securities regulators. Iavarone told Newsday it will be added to the final document. Whether it would have been had the issue not been raised by Newsday is a question that we can never answer. However, its absence from the preliminary prospectus may well reflect Iavarone's intentions and there is no question about the necessity of such disclosure from a securities law perspective. If I were an investor being asked to commit a minimum of $500,000 I would sure like to know that the person I was entrusting it to had once upon a time been a boiler room salesman.

Full post as published by Sports Biz on May 30, 2008 (boomark / email).