In 2008, International Equine Acquisitions Holdings (IEAH) and one of its primary investors, James Tagliaferri, attracted national attention as the stable emerged as a major force on the North American racing scene.

IEAH, which that year raced Kentucky Derby (gr. I) and Preakness (gr. I) winner Big Brown   in partnership with Paul Pompa Jr., was the beneficiary of a $25 million investment from Tagliaferri and his company, TAG Virgin Islands, according to published reports at the time. Also, Tagliaferri and IEAH outlined bold plans for bringing in more money to IEAH through money raised through hedge funds.

Now, a group of investors who used Tagliaferri to manage their investments have filed suit against the money manager, alleging that the $20 million of the money invested in IEAH and $40 million on other investments were used to “fund and gain control of companies having little to no earnings, poor prospects, and weak and incompetent management.” The lawsuit does not involve Big Brown and is related to Tagliaferri’s actions in relation to IEAH.

The suit contends that Tagliaferri received kickbacks totaling $1.6 million from IEAH in return for investing his clients’ money in the racing stable at a time when he was also being paid by the plaintiffs.

The suit was filed in U.S. District Court in North Carolina on behalf of Matthew J. Szulik, as the trustee of various family trusts. Szulik is the retired former chairman of the Red Hat computer software distributor.

In the complaint, Szulik contends that the defendants, which also include Tagliaferri’s company, Patricia Cornell, and attorney Barry B. Feiner, “were able to hide their illicit activities by providing fraudulent, inadequate, and incomprehensible documentation to the Szuliks and to the financial institutions which acted as custodians” of the family’s accounts.

In addition to IEAH investments, the suit lists TAG investments in securities in other entities, including Conversion Services, Protein Polymer Securities, and property in a Nevada partnership. In all, the suit contends the total of $60 million in such investments was approximately half the total in the Szuliks’ investment portfolio.

According to the suit, by making such investments the defendants breached their fiduciary duty to their clients and “took advantage of their position of trust and confidence," among other allegations.

“The TAG defendants invested the Szuliks’ money in IEAH corporate bonds, equities, and other assets at a cost of no less than $19,498,000,” the suit states. “These investments were made between September 2007 and December 2008. These investments are highly liquid and, upon information and belief, are essentially worthless.”

The lawsuit lists 14 payments from IEAH to the defendants, totaling $1,630,000 that “were not made for the purported services listed on the invoices but instead were made in exchange for the TAG defendants providing the Szuliks’ money to IEAH.”

In a deposition as part of the suit, IEAH co-president Michael Iavarone said the payments were commissions demanded by Tagliaferri for providing financing to the then-struggling racing stable.

The lawsuit also alleges that the defendants made improper loans, including one for $1 million to IEAH director Andrew Cohen, with the Szuliks’ knowledge. The suit claims TAG was able to exert additional power over IEAH by having two of its associates—Allan Farber and Richard Adelson—appointed to the IEAH board.

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