05/29/2008 12:00AM

Investors support Iavarone

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Several investors in International Equine Acquisitions Holding Co., the owner of Kentucky Derby and Preakness Stakes winner Big Brown, voiced support on Thursday for International Equine's co-president, Michael Iavarone, in the wake of reports that he had been fined and suspended in 1999 for unauthorized trading when employed as a broker in 1993.

The penalties - a $7,500 fine and a 10-day suspension from trading - were assessed by an industry regulatory agency and were first reported by Bloomberg News on Wednesday. The penalties were based on trades that Iavarone had made on behalf of a client of A. R. Baron and Co., a firm that declared bankruptcy in 1996 after defrauding investors out of $75 million. Iavarone worked at the company for three years, from 1993 until its dissolution.

Ira Gross, who has been an investor in International Equine since 2004, said that he was not aware of the penalties imposed on Iavarone until getting a reporter's phone call on Thursday morning. He said that the information "disturbs me, maybe, a little bit," but that it would not influence his continuing participation in the group.

"We're all entitled to screw up a little in our pasts, and you get to make up for those things," Gross said. "They've been nothing but professionals."

Gross said that he was meeting with International Equine later in the afternoon and planned to invest more in the company. He cited the group's contributions to charities and its project to open an equine hospital near Belmont Park - a for-profit venture.

Andy Cohen, who first invested in International Equine in 2004, also said that the information about Iavarone did not bother him.

"I'm not really concerned about what happened a decade ago," Cohen said. "What concerns me is how they represent themselves right now. And they've represented themselves in a very good way."

Iavarone dismissed concerns about the actions taken against him and said none of the participants in International Equine had raised doubts about their investments.

"It was something that happened a decade ago," Iavarone said on Thursday. "I was 23 years old at the time, and I'm 37 now and out of the securities industry and in the horse racing business. It's not going to have any impact at all."

Iavarone has also had some financial problems with creditors. In 2003, Keeneland sued him for $554,156 for failing to pay for horses bought at auction that year. The sales company routinely files suits against a buyer who fails to pay for horses within 30 days, and most of the suits are settled out of court.

Iavarone said he "paid the debt off" to Keeneland. When asked why the debt wasn't paid immediately, he said, "It doesn't matter. I paid it and that was that." The following year, the IRS obtained a $130,000 lien against Iavarone for failing to pay his 2002 taxes. Again, Iavarone said that the debt was paid.

Although New York requires licensed owners to disclose any fines that are imposed by a government agency, it does not require owners to list fines or penalties issued by a trade association, according to Dan Toomey, a spokesman for the New York State Racing and Wagering Board. The agency that issued the penalties - the National Association of Securities Dealers - is a self-regulatory organization that was folded into the Financial Industry Regulatory Authority in 2007.

International Equine Acquisitions Holding Co., which was formed in 2003, has a long-term business plan to raise an additional $60 million to bring its capitalization to $100 million and then sell shares in the company. Those shares would then be bought and sold based on an assessment of the value of those stakes at the end of each year.

The company's principals have compared the structure of the company with a hedge fund, based partly on the compensation model for its executives. At the end of each year, the group's managers will split 20 percent of its profits and charge a management fee equal to 2 percent of the assets, a compensation formula that is common for hedge funds.

International Equine currently owns 75 horses, according to the company. The horses include the 2007 Breeders' Cup Mile winner, Kip Deville, the Grade 1-winning sprinter Benny the Bull, and the Grade 1-winning mare Wonder Lady Anne L, who was retired at the end of her 2007 campaign to be bred. Last year, the company's purse earnings placed it in the top 10 among owners in the United States.