The Securities and Exchange Commission on Thursday charged a Tallahassee-based investment advisor firm and its two former principals with defrauding retired NFL players who had joined a class-action lawsuit against the league claiming they suffered brain injuries as a result of concussions.
The SEC charged Cambridge Capital Group Advisors; Cambridge’s president Phillip Timothy Howard, a Florida attorney who represented the retired players in the class-action lawsuit; and Don Warner Reinhard, a former registered investment advisor previously barred by the SEC, with defrauding 20 investors in two proprietary hedge funds operating out of Howard’s law offices.
According to the complaint, from 2015 through 2017, the defendants raised approximately $4.1 million from about 20 investors — the majority of whom were retired NFL players — through the offer and sale of securities in the form of limited partnership interests in two private investment funds for which Cambridge was the general partner and investment manager – namely, Cambridge Capital Partners LP and Cambridge Capital Group Equity Option Opportunities LP.
Howard represented National Football League players who suffered concussion-related brain injuries during their NFL careers in connection with a class-action lawsuit against the NFL, the complaint states.
Howard, the complaint states, “has acknowledged that these 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.’”
Nonetheless, Howard and Reinhard solicited the players to invest in the funds. More than half of the players “used their retirement accounts in order to make the investments happen,” the complaint states, with Howard and Reinhard allegedly raising $4 million from them.
Howard and Reinhard “knowingly or recklessly materially misrepresented the funds’ investment focus, how the funds would use investor money, and Reinhard’s background and experience in the securities industry,” the complaint says.
Investors were told the funds were invested in a diverse range of securities with a secondary focus on litigation settlement advances, which was “false and misleading.”
The funds “primarily paid settlement advances to former NFL players – including 18 of the 20 investors – in connection with the NFL Concussion Lawsuit,” according to the complaint.
The defendants also misappropriated a total of 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.
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 advisor firm.
The SEC further alleges that Howard defrauded investors by borrowing $612,000 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.
“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 Miami Regional Office, 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.”