Criminal Charges Filed In Alleged $32 Million Pro Athlete Loan Ponzi Scheme

A former National Football League player and his business partner were arrested this morning on charges they masterminded a $32 million Ponzi scheme that promised generous returns purportedly generated from loans to high-profile athletes.  Will Allen, 36, and Susan Daub, 55, were arrested in south Florida on one count each of securities fraud.  The pair, who already face civil fraud charges filed by the Securities and Exchange Commission, were charged on a criminal complaint filed by authorities in Boston.  The securities fraud charge carries a maximum prison sentence of up to twenty years as well as a fine of up to $5 million. Each of the defendants is free on a $200,000 bond.  

According to authorities, Daub and Allen operated Capital Financial Partners, LLC, Capital Financial Holdings, LLC, and Capital Financial Partners Enterprises, LLC (collectively, "Capital Financial").  Allen had a length career in the NFL that spanned over ten years and included stints with the New York Giants, the Miami Dolphins, and the New England Patriots.  Beginning in 2012, the pair began soliciting investors to contribute some or all of a short-term loan to a professional athlete who might not have access to guaranteed salary money during that particular athlete's "off-season."  As Capital Financial's website explained,

In many cases, athletes' contracts do not allow them to access their guaranteed money during the off season or early in the season when they may need a significant sum to purchase a house or car, pay the bills, or meet a financial demand. By pooling the resources of a network of investors, CFP gives athletes access to money when they need it while providing investors with solid, short-term returns on investment.

Potential investors were told that Capital Financial required a minimum $75,000 investment, of which a 3% origination fee would be subtracted, and that a typical athlete loan was for $600,000.  Before making an investment, a potential investor was often provided with information about a particular athlete, including that athlete's sports contract and what amounts of that contract were guaranteed.  According to authorities, at least some potential investors were led to believe that their investment was backed by that particular athlete's contract and that Capital Financial had the ability to receive payments from that athlete's team if needed.  In return, an investor was promised monthly interest rates ranging from 9% to over 18% depending on the duration of the loan.  In total, Capital Financial raised at least $31.7 million from over 40 investors from July 2012 to February 2015.

However, authorities charge that nearly half of the money raised from investors never made it into the pockets of a particular professional athlete.  For example, over two dozen investors contributed more than $4 million in mid-2014 with the understanding that they were participating in a $5.65 million loan to an unnamed National Hockey League player.  The SEC previously alleged that the $5.65 million promissory note was never signed, and the particular NHL player subsequently filed for bankruptcy in October 2014.  While Capital Financial filed a proof of claim in the player's bankruptcy case claiming a $3.4 million debt, none of the investors were informed of the bankruptcy and continued to receive monthly payments amidst assurances that the loan was "performing as expected".  The pair is accused of similar misrepresentations with respect to purported loans made to MLB and NFL players.

From July 2012 to February 2015, Capital Financial allegedly received approximately $13 million in loan repayments from athletes, yet paid out approximately $20 million to investors - a scenario in which the additional $7 million paid out to investors was possible only by using new investor funds in a classic Ponzi scheme.  Allen and Daub are also accused of withdrawing more than $7 million for various personal and unrelated business expenses, including casino and travel expenses as well as loans to various insurance companies.

While it is unknown when Capital Financial appeared on the radar of authorities, it appears that the unnamed NHL player in the SECcomplaint filed by the SEC in April was veteran NHL player Jack Johnson, whose high-profile October 2014 bankruptcy filing disclosed at least $15 million in undisclosed loans taken out by his parents - loans that the Columbus Dispatch characterized as "nonconventional" high-interest loans.  Given the significant media coverage of Johnson's bankruptcy and allegations that some of the loans were fraudulently obtained by his parents, it is certainly plausible that authorities may have discovered the fraud after closely scrutinizing Capital Financial's creditor status.

According to criminal prosecutors, investor funds were also spent at Florida and Las Vegas casinos, where Allen had accounts.  Allen is alleged to have profited by more than $4 million from the scheme, while Daub and her son allegely received nearly $300,000.  At a bond hearing earlier today, the Court rejected a Boston prosecutor's request for a $500,000 bond apparently based on claims by Allen's lawyer that most of his money had been frozen by the SEC and that former Miami Dolphin teammate Vernon Carey would be paying the bond.  

A copy of the Complaint filed by the SEC is below: