Last month we learned that Tim Duncan’s financial adviser was sentenced by a federal court to four years in prison for defrauding the NBA legend of $7.5 million. Duncan earned over $220 million during his playing career, so he is by no means financially ruined, but there are some good lessons to learn about investing and placing too much trust in the person who manages your money.
Tim Duncan is an accomplished, 15-time NBA All-Star and future Hall of Famer. He retired in July 2016 after playing nineteen seasons of professional basketball with the San Antonio Spurs. In today’s age of free agency and mega-million-dollar commercial endorsements, it is a rarity for a player to play his entire career with a single franchise. As one of the greatest to ever play the game, Duncan could have sought greener pastures and taken his talents to the highest bidder in any city of his choosing. Instead, he was noted for having taken yearly pay cuts to stay in San Antonio to allow the Spurs to remain under the league salary cap while paying for talent at other positions. Duncan was generally known for his loyalty and being the consummate teammate and role model for fans and younger players. His loyalty on the court perhaps says a lot about how he conducted himself off the court, where he showed similar trust and loyalty to the people in his daily life, including his financial adviser.
Last month, Duncan’s financial adviser, Charles A. Banks, IV, made headlines when a federal court in Texas issued a judgment against Banks, convicting him of wire fraud, and sentencing him to 48 months in prison followed by three years of supervised release. The court also ordered Banks to pay $7.5 million in restitution.
Separately, Banks entered into a consent order with the Securities and Exchange Commission (SEC), which permanently bars him from ever working in the securities industry again. As part of its investigation into Banks, the SEC alleged that Banks induced Duncan to invest $7.5 million in Banks’ own private sports retail apparel business, Gameday Entertainment, LLC. Amongst other allegations, Banks also falsely and knowingly misrepresented to Duncan that there was a second investor willing to invest the same amount in the venture, but there was no other investor. The SEC further alleged that Banks defrauded Duncan again by deceiving him into signing on as a guarantor for a $6 million line of credit for Gameday. In obtaining Duncan’s signature on the guarantor document, Banks provided Duncan only with the signature page, and misrepresented to him that signing the document would actually decrease Duncan’s investment risk in Gameday.
At Banks’ court sentencing in Texas, Duncan provided a victim’s statement, where he stated: “I’m the poster child for the dumb athlete whose financial adviser took his money. I hate it and am embarrassed by it, more than you can imagine . . . . I hate the thought of Charles being able to do this to anyone else.” Duncan added, “I see a lot of kids who come into professional sports and end up losing most of the money they earn to someone like Banks.” In his statement, Duncan further revealed that Banks had angled for even more control of his finances: “While in the midst of my divorce Banks continued to bring deals to me and even went as far asking me to start a family office which would have put Charles’ hands in control of all my money.”
There are a host of lessons to take from the above about investing and managing your relationship with your financial adviser. Let’s review them as follows:
First, while there are many ethical and law-abiding financial advisers, it is a sad reality that the financial industry attracts many unsavory types who prey on trusting investors. At Malecki Law, we have seen this in our representations of celebrity athletes like Duncan, but similarly so with investors and retirees of more modest investment portfolios. Duncan did not need an adviser to gamble with his money and to constantly “bring deals.” This is also true for most retirees, who instead need an adviser who seeks to protect the investor’s principal with safe and diversified investments, and typically with a buy-and-hold strategy. A broker who is always calling you up with the latest deals is generally a bad sign.
Next week, we will continue in Part 2 of this blog post to provide you with some additional lessons to take from the fallout of Tim Duncan and his dealings with his financial adviser, Charles Banks.