Enforcement News: SEC Charges Investment Adviser and Attorney With Defrauding Retired NFL Players Who Were Members Of The Concussion Class-Action Lawsuit Against The NFL

• Posted on: Sep 6 2019

On August 29, 2018, the Securities and Exchange Commission (”SEC”) announced (here) that it charged a Tallahassee-based investment advisory firm and its two former principals with defrauding investors, most of whom were retired NFL players who had joined the class-action lawsuit against the National Football League (“NFL”) claiming they suffered brain injuries as a result of concussions.

The SEC charged Cambridge Capital Group Advisors, LLC (f/k/a Cambridge Capital Advisors, LLC); Cambridge’s president Phillip Timothy Howard (“Howard”), a Florida attorney who represented the retired players in the class action lawsuit; and Don Warner Reinhard (“Reinhard”), a former registered investment adviser previously barred by the SEC, with defrauding 20 investors in two proprietary hedge funds operating out of Howard’s law offices.  According to the SEC’s complaint (here), the defendants represented that the Funds would invest in a variety of instruments, when, in fact, they invested monies almost exclusively in settlement advance loans to more than 70 of Howard’s NFL class-action clients.

As alleged, from no later than October 5, 2015 until at least March 31, 2017, the defendants raised approximately $4.1 million from about 20 investors (about half of whom rolled over their NFL 401(k) accounts to make the investments) 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 (“Cambridge Partners”) and Cambridge Capital Group Equity Option Opportunities LP (“Cambridge Opportunities”) (collectively, the “Funds”).

According to the SEC, the defendants distributed offering documents in which they made materially false and misleading statements about the Funds’ investment focus, the ways in which the Funds would use investor money, and Reinhard’s background and experience in the securities industry. More specifically, the defendants falsely told investors that the Funds were invested in a diverse range of securities with a secondary focus on litigation settlement advances. In truth, the Funds primarily paid settlement advances to former NFL players – including 18 of the 20 investors – in connection with the class action lawsuit.

Moreover, the defendants allegedly represented that Reinhard was an “extremely successful investment manager,” but failed to disclose 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.  The SEC further alleged 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. 

Additionally, in 2015 and 2016, Howard filed disclosure statements with the SEC on behalf of Cambridge in which Cambridge represented that in the past ten years no affiliate had pleaded guilty to a felony or been enjoined by a domestic court in connection with any investment-related activity. According to the SEC, these statements were false. As alleged, at the time of the filings, Reinhard was or had been an affiliate of Cambridge and in 2009 had pleaded guilty to a felony. In 2008, a court permanently enjoined Reinhard from violating the anti-fraud provisions of the federal securities laws in a civil enforcement action the SEC filed against him for securities fraud for misleading clients regarding investments. In 2011, as noted above, the SEC barred Reinhard from being affiliated with an investment adviser.

“We allege that Cambridge, Howard and Reinhard defrauded these particularly vulnerable investors, many of whom invested their retirement savings,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “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 filed in federal district court in the Northern District of Florida charges Howard, Reinhard, and Cambridge with violating the anti-fraud provisions of the federal securities laws, and seeks permanent injunctions, disgorgement of allegedly ill-gotten gains, prejudgment interest, and financial penalties.

Tagged with: Disclosure, Duty of Candor, Fraud, SEC, SEC Enforcement Proceedings, Securities