It has been brought to my attention that several NFL players may have fell victim to yet another reckless financial advisor who placed their funds in questionable investments. The advisor has been fired by his firm for not fully disclosing his outside investment activity. The advisor placed money into an unregistered Orange County based hedge fund named Westmoore Capital Management, LLC.
On June 16th, 2010, the Securities and Exchange Commission got an emergency court order to freeze the holdings of Westmoore and its’ principal, Mathew Jennings, because of a civil complaint that the fund was operating a $53 million dollar ponzi scheme.
Be wary of the alluring investment
The Westmoore fund claimed extraordinary returns as much as 130% annually. It also boasts that it managed millions of dollars for professional athletes. So the next question is, were the financial advisor(s) duped like some of the smartest and richest people in the world were duped by Bernie Madoff? Or, was the advisor lured by big commissions which enticed him to waive any due diligence?
Regardless, if it sounds too good to be true it usually is. 130% is too good to be true. Any advisor with any common sense should have steered clear of the fund. Furthermore, any investments loaded with athlete money should be highly scrutinized.
In a separate incident, Saints defensive end, Alex Brown, is suing his financial advisors alleging that they “abused his trust”.
His advisors, Capital Management Group Wealth Advisors Inc., headed by Michael Rowen and Jason Jennings, are being sued by Brown for about $20 million in damages.
My observations of financial advisors who do take advantage of their clients are that they get intoxicated by the status and access they receive by working with the athletes. They begin to mirror the lifestyle of the athletes and develop a sense of entitlement. When that happens, they abuse the friendship and trust of their clients, and let their greed and ego take control of their decision making.
Other typical transactions:
-Advisors getting paid by the mortgage company who they refer their clients to. This practice is okay if the client gets a smoking deal. However, the referral usually means an additional layer of commission and higher cost to the athlete.
-Buying large one time premium life insurance policies where 80 to 90% of the premium goes back to the advisor. Premiums can range from $100k to $1,000,000. These policies have little cash value and are the biggest rip off going.
-Getting kick-backs from hedge funds; real estate developers and private equity funds do so without disclosing it to the clients and are motivated by the big commission.
-Invest client’s money into entities controlled or owned by the advisor without any disclosure to the client.
The best way athletes can best protect themselves from these deals is by hiring an attorney and or CPA to evaluate each investment. There are some firms out there who charge either by the hour or have a flat fee to evaluate the merits of an investment. If an advisor is buying you DuPont stock or a well-known mutual fund, you may not need this type of supervision. But anything else should have a third set of experienced eyes on it to help the athlete decide if the deal is right for them.
A lot of times, if an athlete makes their advisor check with their attorney or CPA before doing a deal, 8 out of 10 times the advisor will not even bother and move on to somebody else.
Another way an athlete can protect himself is by doing business with big well-known investment firms. The advisors with these firms have a stringent internal audit and compliance system which makes it hard for the advisor to stray. And if the advisor does stray, the firm usually makes the client whole as to avoid national public embarrassment.
The ultimate way to protect wealth is by being ultra conservative, preserve capital in boring investments and stay away from the sexy investment and the partying financial advisors.
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