SEC Settles Ponzi Scheme Suit Against Ex-NFLer, Biz Partner
By Christine Powell of Law360.com
A Massachusetts federal judge greenlit a deal Friday resolving the U.S. Securities and Exchange Commission’s allegations that a former NFL player, his business partner and three companies they founded together ran a $31.7 million Ponzi scheme that involved convincing investors they were helping provide short-term loans to professional athletes.
U.S. District Judge Indira Talwani entered final judgment just one day after the SEC moved for the approval of the settlement in its civil enforcement action against William D. Allen, who played for the New York Giants, the Miami Dolphins and the New England Patriots; former banker Susan C. Daub; and Capital Financial Partners LLC, Capital Financial Holdings LLC and Capital Financial Partners Enterprises LLC.
Under the agreement, the defendants are not only permanently enjoined from violating federal securities laws and participating in the sale of securities other than those for their own personal accounts, but they are also jointly and severally liable for disgorgement of $15.7 million, in addition to prejudgment interest of $1.3 million, according to the judgment.
However, the disgorgement and prejudgment interest are deemed satisfied by restitution entered against Allen and Daub earlier this year in a parallel criminal case. In March, after they had been arrested and had pled guilty to the criminal charges, Allen and Daub were each sentenced to six years in prison and ordered to pay $16.8 million in restitution for their roles in the scheme.
The SEC’s civil complaint alleged that from 2012 to 2015, Allen and Daub, through Massachusetts-based Capital Financial Partners LLC and Capital Financial Holdings LLC and Florida-based Capital Financial Partners Enterprises LLC, paid $20 million to investors while receiving $13.2 million in loan repayments from athletes.
“In other words, Allen and Daub have paid nearly $7 million more to investors than they have generated through Capital Financial’s lending business,” the complaint said. “To accomplish this, Allen and Daub have recycled money from some investors to pay other investors. In short, besides using fraud to obtain the investors’ money, Allen and Daub are operating a Ponzi scheme.”
Allen and Daub used false documents to mislead investors about the circumstances, terms and, in some cases, even the existence of the loans, according to the complaint, in addition to telling investors they could profit from the loans by receiving interest of up to 18 percent.
Meanwhile, Allen and Daub used some of the investors’ money to pay for personal expenses, including purchases at casinos, nightclubs, hotels, airlines, clothing stores and jewelers, the complaint said.
Representatives for the defendants declined to comment Friday.
The SEC is represented by its own Frank C. Huntington and Michael J. Vito.
The defendants are represented by Gary S. Matsko and Christopher J. Marino of Davis Malm & D’Agostine PC.
The case is Securities and Exchange Commission v. Capital Financial Partners LLC et al., case number 1:15-cv-11447, in the U.S. District Court for the District of Massachusetts.
The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.