Famous Athletes Fall Prey to Ponzi Scheme

Posted September 4, 2012 in Banking Law by

Professional athletes pulling in millions of dollars are wise to invest some of that money using a financial professional. Unfortunately, some former football players and a U.S. Olympic soccer player are finding they put their trust in the wrong hands.

St. Louis Rams quarterback A.J. Feeley, his wife, who is soccer star Heather Mitts, and several other current and former football players are suing their financial adviser, William Crafton Jr., as well as various firms and banks that employed him.

According to the lawsuit, Crafton enlisted over 20 athletes in his investment scheme, which he advertised as conservative and low risk, since most athletes only have a few years of high-earning potential and might have no way to replace their principal if it is lost in the market. Then, the suit claims, Crafton went ahead and poured money into risky ventures, including the Ponzi scheme Westmoore Capital, ultimately losing millions.

The lawsuit also names Suntrust Bank, Martin Kelly Capital Management and CSI Capital Management for negligent hiring of Crafton and improper supervision.

All told, the money manager handled more than $7.5 million of the players’ investment money.

How To Protect Yourself

Jordan D. Maglich

Anyone can lose money in an investment, but the lawsuit against Crafton alleges he made misleading statements and omissions of fact, contrary to the plaintiffs’ interests and the level of risk they had specified. If rich athletes can get burned like that, how can average investors ensure they are getting a square deal through their financial adviser?

“One of the first things would be to make sure you do your due diligence and research on who you’re investing with,” says Jordan D. Maglich, a security law attorney in Florida. “When you hear about investments from a company or individual, it’s not too hard to Google them, check out their background, look at the website, etc.”

To delve a little deeper, investors can call up the U.S. Securities & Exchange Commission or a state regulatory agency to find out a little more information about their potential money manager.

“Be especially cautious of investments that are just word of mouth,” Maglich says. “[Or those] you hear about from your neighbor. It turns out that in the end, he might be running a scheme, people who refer to him might be getting a commission.”

The next step: Understand the investment. “The biggest warning signs is if someone offers you a fixed rate of return,” Maglich says. Financial markets are volatile by nature, so a guarantee of a certain amount of interest — particularly above-average interest rates — is a good sign that something fishy is going on. Along those same lines, for money that’s already invested in a fund, if year after year brings back the same positive rate of return, something may not be right.

If you do suspect your money is being used in a Ponzi scheme or other type of fraud, the best thing to do it pull it out immediately. If the manager delays or refuses to return the money, that’s another huge sign of concern.

If you can’t get your money back, or the Ponzi scheme has already blown up, hire an attorney immediately. Once the scheme is discovered, usually the funds are frozen and are then distributed by a trustee back to the investors for equal distribution of whatever is left. Hopefully, the scheme hasn’t gone too far down the road and investors can recover some or most of their money.

The best way to avoid getting burned, of course, is to only invest in reputable funds to begin with and don’t go chasing outlandish promises and unbelievable returns. “It’s the age old cliche,” says Maglich. “If it’s too good to be true, it probably is.”

Tagged as: ,