The FBI has dropped its investigation into the horse-switching case at Laurel and Pimlico last spring involving the mounts Dr. Peatoppy and Sun Dandy, and trainer Raymond Stifano.

FBI spokesman Robert Braver said yesterday, "The United States attorney (Michael Shatsow) has decided that there has been no violation of the federal laws and we are dropping the investigation."

Stifano's problems began last winter when he was sent two horses, Sun Dandy, a cheap claimer, and Dr. Peatoppy, a faster horse, with their nameplates on the halters switched.

Dr. Peatoppy, racing as the inferior Sun Dandy, won twice and finished third once. The fourth time he was entered, a substitute horse identifier, Coley Blind, noticed that the numbers on the lip tattoo and the color of the horse did not match those listed on the foal papers assigned Sun Dandy. He reported the discrepancy to the stewards and they ordered Sun Dandy scratched.

After a confrontation with Blind, Stifano realized that he had been racing Dr. Peatoppy as Sun Dandy and reported that fact to the stewards, who ordered an investigation by the track.

In June, a federal grand jury and the FBI began looking into the case. Several persons, including the regular horse identifier and members of the postrace testing crew, were called to testify before the grand jury. The decision to drop the investigation was made two weeks ago, according to the FBI.

Stifano was later suspended in Pennsylvania for failure to reveal his entire racing record. Maryland followed suit. He was reinstated in both states after paying a fine in Pennsylvania of $1,000.

"They . . . had no case and they knew it from the start," Stifano said yesterday. "I offered to take the (polygraph) test. The facts show that the odds on the horse were actually higher than all the handicappers rated him. Those two horses don't even look alike.

"If I or anyone else were trying to do something, we wouldn't have kept entering the horse. The authorities, anybody, knows that . . . I'm turning this case over to my lawyer (Edward Holton) for possible suit. My record in racing shows I've had only two $50 fines for frivolous things. I was not treated fairly at any time during this entire affair . . . I've lived under a cloud for nothing."

On Watch, a longshot, circled clear of trouble in the stretch to win the feature race at Laurel Race Course yesterday by a half-length over Wyetown. Valiant Flight held well for third.

On Watch was ridden by Jamie Ryan and paid $24.60 after running the six furlongs over a sloppy track in 1:12 1/5. The exacta of 6 and 4 returned $179.

Apprentice Alberto Delgado had three winners on yesterday's card, bringing his total for the meeting to 37.