01/03/2011 2:33PM

Major investor in IEAH sued by his clients


LEXINGTON, Ky. – James Tagliaferri, an investment manager who provided $20 million in funding to International Equine Acquisitions Holdings, is facing a $60 million lawsuit from angry clients who allege Tagliaferri defrauded them when he invested their money in IEAH and other high-risk ventures.

Matthew Szulik, former chairman of Linux software distributor Red Hat, and his family members filed suit in U.S. District Court in North Carolina on Dec. 23, alleging that Tagliaferri, his company TAG Virgin Islands, and two other individuals used about $60 million of the Szuliks’ money “to fund and gain control of companies having little to no earnings, poor prospects, and weak and incompetent management,” among other unauthorized activities.

The suit also alleges TAG received kickbacks for investing the Szuliks’ money in those companies, including IEAH Stables. Among the kickbacks the Szuliks allege TAG received were about $1.6 million “disguised as undefined and virtually non-existent ‘consulting’ work” for IEAH. In a deposition included with the Szuliks’ complaint, IEAH co-chief Michael Iavarone testified that Tagliaferri, through TAG, provided about $20 million to IEAH from his clients’ investment funds.

“For each time TAG provided financing to IEAH, Tagliaferri demanded a commission of either 5 or 10 percent,” Iavarone said in the deposition. “I did not realize at the time that Tagliaferri was also receiving fees from the people he received this money from, to manage their investments. I estimate that IEAH paid TAG over $1.6 million in exchange for providing funding to IEAH.”

Iavarone said the payments were not consulting fees but commissions for financing.

Iavarone also said that Tagliaferri “threatened on a regular basis” to withdraw investment in IEAH, whose financial position at the time, between 2007 and 2008, Iavarone described as “precarious.”

Tagliaferri, also the managing member of Pegasus Holdings Group Stables, could not be reached for comment, and his attorney Barry B. Feiner, also named in the suit, did not returns calls left at a number listed for his name on several public legal directories. Feiner's attorney, John J. Phelan III, said: "Mr. Feiner denies all wrongdoing and all liability." The Szuliks’ attorney, Daniel Small, declined to comment.

According to the suit, Szulik and his wife began investing with TAG in 1996 on the understanding that the family’s investment were to focus on blue-chip stocks and bonds. The Szuliks allege that in 2006 TAG liquidated the family’s conservative investments in favor of “suspect, high-risk, illiquid securities” including the IEAH racing venture that the Szuliks’ suit said “has had a history of inadequate corporate management, has been repeatedly cited or sued for failing to pay its bills, and has been investigated by the SEC.”

The Szuliks’ suit also alleges that TAG “arranged to have their associates Allan Farber and Richard Adelson appointed as directors of IEAH in order to enable the TAG defendants to assert control over IEAH.”

It also claims TAG made personal loans to individuals from the Szuliks’ account without the family’s knowledge, allegedly including a $1 million loan to IEAH director Andrew Cohen that Cohen paid off by transferring his ownership in Frost Giant to TAG.

IEAH Stable, IEAH’s racing subsidiary, campaigned 2008 Kentucky Derby and Preakness winner Big Brown, now a stallion at Three Chimneys Farm, in partnership. Its stable also has included 2008 juvenile filly champion Stardom Bound, a $5.7 million acquisition at that year’s Fasig-Tipton November sale, and 2009 Wood Memorial winner I Want Revenge. In July 2010, the stable privately purchased undefeated Trickmeister, now 4.