Willie Gault in hot water with SEC
Sports stars are naturals for investment scams
By Matt Krantz, USA TODAY
Updated 15h 34m ago
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Willie Gault is best known for his fancy footsteps for the Chicago Bears that burned the New England Patriots in 1986's Super Bowl and a rap song with his teammates called the Super Bowl Shuffle.
- http://i.usatoday.net/money/_photos/...LJ15UBKP-x.jpg By Kyle Terada, US Presswire
Daniel "Rudy" Ruettiger, whose efforts to overcome challenges to join Notre Dame's football team inspired the movie 'Rudy,' settled a case for $382,866 without admitting or denying guilt.
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By Kyle Terada, US Presswire
Daniel "Rudy" Ruettiger, whose efforts to overcome challenges to join Notre Dame's football team inspired the movie 'Rudy,' settled a case for $382,866 without admitting or denying guilt.
But far from the cheering crowds and Soldier Field, Gault, one of the fastest wide receivers to ever play in the NFL, has become the latest public face of yet another kind of fast move, the kind that authorities say burns investors to the tune of millions of dollars a year: alleged financial fraud.
A huddle of ex-pro athletes have been accused of abusing their built-in trust and hero status from a previous life in sports to help orchestrate or perpetrate sweeping financial frauds. Gault, among other professional athletes, is a target of an ongoing crackdown by the Securities and Exchange Commission on financial ploys that use sports stars to separate unsuspecting victims, often sports fans, from their money.
The SEC doesn't disclose a tally of the number of ex-athletes it has targeted. And to be sure, many retired athletes move on to successful, upstanding careers. But in addition to Gault, other sports heroes the SEC has accused in civil cases filed in U.S. district courts within the past 12 months include Daniel "Rudy" Ruettiger, whose efforts to overcome challenges to join Notre Dame's football team inspired the movie Rudy.
The SEC's focus on high-profile athletes highlights a common weak spot for many investors: allowing adulation of sports heroes or other celebrities to cloud skepticism when investing their money.
"When you have a famous athlete fronting for a company or shilling for an investment, it causes people to lower their guard and assume … it must be legitimate," says Andrew Stoltmann, a financial fraud attorney at Stoltmann Law Offices. "Recently, we've seen how dangerous of a belief that can be."
The SEC declined to comment on its actions against former professional athletes. Gault could not be reached and has not yet filed a response to the charges against him. Ruettiger, who could not be reached, settled the case against him without admitting or denying guilt and agreed to pay $382,866.
Experts in financial crime say cases such as these are likely connected with:
•Regulators' eagerness to set an example. After failing to give early warnings to investors in giant Ponzi schemes such as Bernie Madoff and Allen Stanford, regulators are eager to show they're turning up the heat. When athletes are found to be part of cases such as these, regulators can generate awareness of the alleged crime and the severity of the penalties for those who are caught, Stoltmann says.
"These are big-headline cases," which can serve as a deterrent, Stoltmann says.
•Athletes' position to take advantage of investors' distrust of financial advisers. Situations such as Madoff and Stanford — on top of the financial crisis and subsequent bailouts of banks — have shaken investors' trust of traditional financial advisers. And athletes, with the right pitches, can be magnets for investors looking for someone they think they can trust, says Stanley Teitelbaum, a clinical psychologist and author of Athletes Who Indulge Their Dark Side.
"These guys can be made the figureheads for sinister schemes," he says.
http://i.usatoday.net/_common/_notch...lie-gaultx.jpg By Stephen Dunn, Getty Images
Former NFL star Willie Gault at the Bob Hope Classic on Jan. 21, 2011.
Gault played the role of a figurehead at a company called Heart Tronics, the SEC's complaint says. The football star was initially "installed," the SEC says, as a public face for a company that was purporting to be working on a heart-monitoring device called the Fidelity 100.
According to the SEC's complaint, Gault's role became more significant as he worked with the company and the alleged instigator of the scheme, Mitchell Stein, from Oct. 15, 2008, through June 23, 2011. During that time, the SEC says, Heart Tronics went to great lengths to make the money-losing company appear to be more successful than it was. The alleged scheme, which dates back to September 2007, involved the use of fake fax numbers and a company employee taking a one-day trip to Tokyo to create the illusion of a Japanese customer.
The SEC says Gault wound up serving as president and co-CEO of administration and allegedly engaged in some convoluted machinations to distort the success of the company. For instance, in November and December 2008, the SEC says Gault and Stein raised $150,000 from an investor, telling him Heart Tronics was close to generating revenue on sales in Mexico, South America and Canada. But rather than using the investor's money to support the company's operations as they pitched to him, the SEC says the money was diverted to Gault and Stein for personal use and the investor lost his entire investment. One attorney representing Stein declined to comment and another did not respond.
•Athletes' desire to maintain their standard of living. It doesn't take long before some retired athletes realize they will need significant income to keep living the way they did while they were playing, says Louis Straney of expert witness firm Arbitration Insight. Some "follow the money" and see that financial and investing firms can be very lucrative, much more so than coaching or writing, he says.
Meanwhile, many former athletes soon see how willing investors are to turn to them for financial help and entrust them with large sums of money, he says.
And additionally, athletes sometimes don't sense when a company being pitched to them to work with is not what it seems, says Thomas Ajamie, managing partner of law firm Ajamie LLP. An experienced investor, presented with a pitch about a company that will quickly generate millions of dollars in profits, likely knows that the claim is too good to be true. But for athletes, used to making millions of dollars in just a few years from their sports contracts, that might not be as outlandish, he says. "It's their view of reality," he says, and a reason why "sports stars are often used by bad people who are coming up with pump-and-dump ideas."
•Investors' long history of athletes getting tangled up in frauds. Ex-athletes' glowing image with their fans makes it easy for them to accumulate investors' funds. That was a key factor in a case the SEC targeted in late 2009. Triton Acquisition, headed by former NFL player Kurt Barton, raised more than $8 million from 90 investors as part of a company called Triton Financial. Part of the Ponzi scheme was powered by sales pitches made by retired NFL players to other players. In November 2011, Barton was convicted on multiple counts and sentenced to 17 years in prison.
Athletes' tangles with securities regulators go back for years. In another high-profile case in 1999, the SEC filed a civil complaint accusing former Minnesota Vikings quarterback Fran Tarkenton of allegedly working with six others with the plan of "carrying out a multimillion-dollar financial scheme" by inflating earnings at a software company called KnowledgeWare in 1994.
The SEC said the company "parked" inventory with resellers who didn't have to pay for the merchandise, although KnowledgeWare used these transactions to post record earnings growth. Tarkenton, who did not admit or deny guilt, agreed to pay a civil penalty of $100,000 and disgorge $54,187, which was the incentive pay he got in fiscal 1994. Tarkenton could not be reached for comment.
Despite recent SEC allegations, the "innate desire" of investors to trust sports heroes is something that appears to be unstoppable, Straney says.
Athletes are able to melt away many investors' "inherent skepticism. It's a matter of putting an arm around the investor and saying, 'Trust me,' " Straney says. "People want to believe. That's the dream."
