Ex-Dolphins Player Accused of $31 Million Ponzi Scheme
Former Miami Dolphins defensive back Will Allen and his business partner, Susan Daub, are accused of operating a multi-million dollar Ponzi scheme. Allen and Daub are now facing civil charges by the federal Securities and Exchange Commission. Criminal charges may be on the horizon for the pair as well.
Using his NFL connections, Allen promoted a business which specialized in making short-term loans to cash-strapped professional athletes. The idea was to help alleviate athletes’ need for money during the off-season, or while they wait for their contracts to become effective. Allen and Taub allegedly solicited money from investors under the guise that once an athlete’s contract commenced, the athlete would pay back the loan quickly. The success of this business rested on the assumption that the athletes would accept the high interest rate and loan repayments, thus resulting in a high return of interest for the investors.
From July 2012 to February 2015, Allen and Daub raised $31.7 million from 40 investors. They allegedly told the investors that they could receive interest rate returns as high as 18 percent from various athletes in the National Football League, National Basketball Association, National Hockey League, and Major League Baseball. However they only provided $18 million in loans to athletes. This created a $13.7 million discrepancy. The SEC alleges that approximately half of the remaining money was used for personal expenses at various nightclubs, pawn shops, and casinos. Not only did Allen and Taub use more than $7 million of the investors’ money to pay for personal expenses and to fund other business ventures, the SEC further alleges; but when the loan repayments were not coming in fast enough, the pair used new investor money to repay old investor money. This is the mark of a classic Ponzi scheme.
What’s a Ponzi Scheme?
A Ponzi scheme is a specific type of investment fraud that involves paying returns to existing investors with funds provided by newer investors. These schemes function on the “appearance of a successful investment.” The typical red flags for this type of fraud are: claims of high investment returns with little to no risk; overly consistent returns; investments that have not been registered with the SEC or state regulators; unlicensed sellers; secretive strategies; inconsistent or unavailable paperwork; and problems in cashing out an investment. Ponzi schemes collapse because they require a steady flow of money from an increasing number of new investors in order to pay returns to older investors. Eventually the pool of potential investors dries up. (As Warren Buffett likes to put it: once the tide goes out, you find out very quickly who’s been swimming naked.)
Because of the sheer number of investors needed to sustain the scheme, the direct contact between the originator and various investors, the distribution of funds, and the possibility of reinvestment by investors, a Ponzi scheme can take many years to collapse, and can implicate a large swath of parties. While the Allen-Daub case is an example of only two individuals being held accountable, much more elaborate schemes can result in the leveling of civil charges against multiple individuals.
Of course, it’s possible that federal authorities could pursue criminal charges against the pair, if the facts indicate criminal intent. Given the extensive prison sentences that have been imposed on Ponzi schemers such as Bernie Madoff, Scott Rothstein, and Marc Dreier, it’s clear that the feds take these schemes very seriously, and they’re willing to devote whatever resources are needed to expose and take down these schemes, and to prosecute the parties responsible.
If You Think You Need a Lawyer, YOU DO. Call Now!
If you find yourself under investigation for Ponzi scheme fraud, or suspect you have invested into one, please contact Attorney Tony Moss at the Tony Moss Firm, L.L.C. to discuss these issues, or any other white-collar defense matters. He has offices located in Miami and Fort Lauderdale, and is prepared to put his 27 years of experience to work for you.