May 30 (Bloomberg) -- Michael Iavarone's Wednesday began so well. He rang the opening bell at the New York Stock Exchange, just like the Wall Street titan he claimed to be. The co-leader of the group owning 75 percent of Big Brown was the beaming face of horseracing.

By the NYSE closing bell, Iavarone's story and standing were in shambles. My colleague David Evans had disclosed Iavarone wasn't the former ``high-profile investment banker'' of his bio but a onetime stockbroker at four now-defunct ``bucket shops.'' In 1999, he was disciplined for unauthorized trading at one of them.

``Big Brown'' has taken on a whole new meaning. It describes the stable-sized dung piles littering Iavarone's past. He's also had judgments against him for a federal tax lien and for casino debt.

Say this for the co-chief executive officer of International Equine Acquisitions Holdings Inc. He's even more brazen than you might expect of a man with his past. He went from hustling penny stocks to pitching high-rollers on his firm's proposed $100 million horse-ownership hedge fund.

On the strength of Big Brown's returns -- $60 million-plus for the sale of breeding rights, according to Iavarone, on a $2.5 million investment -- IEAH could maybe have raised that kind of money. Now, Iavarone may be lucky to raise bus fare to the firm's office in Garden City, New York.

Triple Crown

There was a feel-good sparkle attached to Big Brown as the colt tries to become the first Triple Crown winner in 30 years. Now, even if he does, consider the Belmont Stakes winner's circle on June 7: Big Brown and a lead owner whom everyone knows worked the boiler rooms before the stables. Just how feel-good is that?

Since the Kentucky Derby death of Eight Belles, critics have decried the sport's standards for horse safety. Well, here's another serious regulatory issue: the standards for owners. The man who misrepresented himself to the horseracing world does represent something that's wrong with the horseracing world.

Other major American sports carefully screen admission to their ownership ranks. Dan Snyder owns the Washington Redskins today because the National Football League nixed a previous bidder, real-estate mogul Howard Milstein, after considering his litigious history and his contentious part-ownership of hockey's New York Islanders.

Write the Check

In horseracing, if you can write the check, you're in. Heck, even if you're taken to court and forced to write the check, you're in. Iavarone had barely entered the game in 2003 when he purchased five horses at a Keeneland auction, then stiffed the Lexington, Kentucky, concern. Iavarone finally paid up --$554,146 -- by court order in 2004. By then, he was on his way to being an industry player, even with his inauspicious debut and suspicious past.

We think of horse owners at this level as bluebloods with names like Ogden Mills Phipps (who happens to be chairman of the Jockey Club thoroughbred registry). Not all are, of course, but this is the sport of kings, for heaven's sake, not jai-alai. It is a failure of the sport's regulators that Iavarone could so quickly accumulate investor capital (some $40 million) and become an industry power.

How could this happen? Consider:

1) When there are dozens of state authorities overseeing horseracing, there's no real authority. Crucially, there also is no central self-governance either. That's why the sport was slow as Old Dobbin to react to the post-Derby outcry over Eight Belles. (The Jockey Club finally appointed a blue-ribbon safety committee to study the issue.) That's why it also can't develop a business strategy. There's no true industry leadership, just Balkanized factions of breeders, tracks and others.

Quality Control

The lack of ownership quality control is of a piece with this. Nobody argues that every last person who plunks down $10,000 for a claims-race also-ran should be screened. Nobody argues sainthood is required. The last Triple Crown horse, Affirmed, had an owner, Louis Wolfson, who was convicted of illegal stock sales. But as the sport is trying to attract new fans and rebut its critics, sleazy plays particularly poorly. There could be much stricter standards for owners, and their associates, at the elite level.

2) When your sport is anemic and your vital signs are declining, you don't get picky about the infusion of new blood; you take 'em.

Slick Look

The traditionalist hardboot crowd in Kentucky never cared for the arrivistes from IEAH. It wasn't just the usual offputting New York thing. Something was a little off about the whole operation. Its Web site was slick as Iavarone's hair, but some of its personnel were curious. Michael Sherack, a self- styled ``successful handicapper and gambler,'' was working at the Daily Racing Form prior to becoming vice president of investor relations.

The firm was drawn to trainers who were less than pristine. An early one, Greg Martin, pleaded guilty to conspiracy to commit wire fraud, following a federal investigation into illegal gambling on a December 2003 race won by an IEAH horse. The firm wasn't implicated, but it galloped back to the sketchy side in hiring Big Brown's trainer, Rick Dutrow, who's had multiple suspensions for doping -- both of himself and his horses.

The thing is that racing lifers may not have liked the IEAH crowd, but they sure liked and took their money. Iavarone believed in buying proven horses, as opposed to yearlings, which meant paying premium prices.

Sometimes this has worked beautifully for IEAH, as with the $2.5 million purchase of Big Brown following his first race last September. Sometimes it has not, as with the purchase of 50 percent of Court Vision in January for, by one analyst's estimate, about $5 million. The colt went from Derby contender to also-ran to, most likely, a low-rent stud.

Sellers' Market

On the other hand, it's always worked out splendidly for the sellers -- Paul Pompa Jr. and WinStar Farm, respectively, in the above cases. They get big checks, which help keep this wobbly industry on its feet. Now, Iavarone is no Sheikh Mohammed of Dubai, who's singlehandedly driven the price of top breeding stallions sky-high with aggressive bidding. But he represents the same principle -- the power of he who spends liberally in a troubled industry.

That is why even the Kentucky hardboots held their noses and looked the other way -- or at least not too closely -- until the news about Iavarone. Even if they're smirking in bluegrass country at this bad turn for Iavarone, they must know at some level it's bad news for them, too.

(John Helyar, co-author of ``Barbarians at the Gate,'' is an editor-at-large for Bloomberg News. The opinions expressed are his own.)

To contact the reporter on this story: John Helyar in Atlanta at jhelyar@bloomberg.net

Last Updated: May 30, 2008 00:01 EDT