In an extreme case of unsportsmanlike conduct, a former RIA and an attorney who represented a group of retired NFL players with brain injuries resulting from concussions were charged with defrauding investors on Aug. 29 in Florida.
The Securities and Exchange Commission charged Cambridge Capital Group Advisors, its president Phillip Timothy Howard, and Don Warner Reinhard, a former advisor previously barred by the SEC, with defrauding 20 investors in two proprietary hedge funds operating out of Howard’s law offices.
Howard represented the retired players in the class action lawsuit.
Howard and Reinhard allegedly raised $4 million from the retired NFL players, about half of whom rolled over their NFL 401k accounts to the hedge funds.
According to the SEC’s complaint, the defendants advertised that the funds would invest in a variety of instruments, but unbeknownst to investors, in fact invested almost exclusively in settlement advance loans to more than 70 of Howard’s NFL class-action clients.
“We allege that Cambridge, Howard and Reinhard defrauded these particularly vulnerable investors, many of whom invested their retirement savings,” said Eric Bustillo, director of the SEC’s regional office in Miami. “Instead of investing all of the funds’ assets as promised, Howard and Reinhard used a significant portion of investor money to line their own pockets.”
Not Reinhard’s first offense
As alleged, the defendants represented that Reinhard was an “extremely successful investment manager,” but failed to mention that he had served jail time for bankruptcy and tax fraud, and had been barred by the SEC from working for any investment adviser firm.
Reinhard, a former chairman of the Florida State University Seminole Booster board, was also sentenced to 5 years in prison last year in a Bay County, Fla., aggravated child abuse case. The prison time runs concurrently with a 5-year violation of probation sentence from December 2017 in connection with a 2014 grand theft charge in Leon County.
According to the Tallahassee Democrat, In October 2009, Reinhard was sentenced to 51 months in federal prison after pleading guilty to fraud and money laundering related charges. He was charged after a two-year investigation by the Internal Revenue Service and the U.S. Trustee Program found he falsified tax returns and concealed assets in bankruptcy filings. He was released from federal prison in 2015.
Fabricated broker fees
In the new case, the SEC further alleges that Howard defrauded investors by borrowing $612,000 in undisclosed personal mortgage loans from the hedge funds, which he never repaid, and that Howard and Reinhard used investor funds to pay themselves fabricated “broker fees” on settlement advance loans to Howard’s legal clients.
The SEC’s complaint filed in federal district court in the Northern District of Florida charges Howard, Reinhard, and Cambridge with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8 thereunder, and Howard and Cambridge with also violating Section 207 of the Advisers Act.
The SEC seeks permanent injunctions, disgorgement of allegedly ill-gotten gains, prejudgment interest, and financial penalties.
Among the retired NFL players involved is Corey Fuller, who played for the Minnesota Vikings, Cleveland Browns and Baltimore Ravens during his 10-year professional career. Fuller sustained brain injuries from concussions during his career, and hired Howard to represent him in a class action lawsuit against the NFL to recover damages for concussion injuries and related issues.
Fuller and his wife sued Howard in Leon Circuit Court last year, claiming he took $700,000 in their life savings under false pretenses and put it in a private investment fund run by Reinhard.
Reinhard and Howard also used their clients’ money to recruit other clients who were retired NFL players and to pay advances to those potential plaintiffs in the concussion case, Fuller’s lawsuit alleged.