A Florida investment adviser and lawyer has been charged with defrauding investors, most of whom were former professional football players suffering from brain injuries due to concussions received during their playing careers.
The SEC charged Cambridge Capital Group Advisors and its president, Phillip Timothy Howard, with defrauding 20 investors in two proprietary hedge funds operating out of his law offices. Also named as a defendant in the complaint is Don Warner Reinhard, a former registered investment adviser previously barred by the SEC.
The victims were mostly former NFL players who Howard had previously represented in a class-action lawsuit against the NFL over brain injuries caused from concussions received while playing football. Howard and Reinhard allegedly raised $4 million from the retired NFL players, approximately half of whom rolled over their NFL 401(k) accounts to the hedge funds.
“We allege that Cambridge, Howard and Reinhard defrauded these particularly vulnerable investors, many of whom invested their retirement savings,” Eric Bustillo, director of the SEC’s Miami Regional Office, said in a statement. “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.”
The SEC’s complaint quoted Howard as having said that the retired NFL players’
“brain function is not there, their body has been beat up from the NFL, they don’t have employment capacity, they don’t have credit, and they don’t have capital anymore.”
The complaint, however, says the opposite. To attract investors, Howard allegedly knowingly or recklessly misrepresented the funds’ investment focus, how they would use investor money, and Reinhard’s background and experience in the securities industry. Specifically, the investors were told the funds were invested in a diverse range of securities with a secondary focus on litigation settlement advances.
“This was false and misleading,” said the complaint. “In truth, the funds primarily paid settlement advances to former NFL players – including 18 of the 20 investors – in connection with the NFL concussion lawsuit.”
The SEC said Howard and Reinhard misappropriated more than 20% of investor funds, or about $973,000, to pay themselves fees and to cover costs associated with Howard’s personal residential mortgages.
Additionally, the firm is accused of misrepresenting Reinhard as an “extremely successful investment manager” without mentioning that he had served time in jail for bankruptcy and tax fraud, and had been barred by the SEC from working for any investment adviser firm.
The SEC also alleges that Howard defrauded investors by borrowing over $600,000 in undisclosed personal mortgage loans from the 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 complaint doesn’t mention who the former NFL players are by name, only by their initials. But one victim, referred to only as C.F., is almost certainly Corey Fuller, a former NFL defensive back who sued Howard last year for the same reasons he is being charged by the SEC.