By Michael Williford, 2016 fall student intern
The SEC has charged a former University of Virginia and Philadelphia Eagles football player with defrauding investors of approximately $10 million. The SEC alleges that Merrill Robertson, Jr. and his partner, Sherman C. Vaughn, Jr. used their the company they co-owned to prey on senior citizens, Robertson’s former coaches at UVA, and alumni—more than sixty people in all—by pitching investments in unregistered debt securities they promised would generate annual returns of up to 20%, all “while providing safety and security for [their] investors.”
The company’s website boasted of having numerous funds managed by experienced investment advisers. The reality was that the company was “functionally insolvent” due to bad investments in restaurants that had all failed by 2014. Instead of disclosing the truth to potential investors, the pair allegedly relied on the goodwill and trust Robertson had accrued as a result of his professional athletic career and the trust he enjoyed with former coaches and UVA alumni. According to the SEC, the two men spent lavishly on themselves to the tune of $6 million, using $4 million they convinced later investors to pony up to pay early investors, in what the SEC complaint alleges was basically a Ponzi scheme. The SEC and FINRA have repeatedly warned investors generally, and senior citizens in particular, of the dangers associated with relying on personal relationships and the reputation of the broker in deciding whether or not to invest.
In the case of Robertson and Vaughn, neither had much investment experience. According to BrokerCheck, the website that allows anyone with an internet connection to do a basic background check on a broker, Robertson had only one year of investment experience, Vaughn was not registered at all, and their company, Cavalier Union, does not appear anywhere in FINRA’s databases. This simple tool could have potentially saved investors millions of dollars had anyone bothered to look.
The take-away for investor should be that they must do their own homework before investing; that there are simple tools available that can shed a lot of light on a broker’s claim; and that if an investment sounds too good to be true, it probably is.
Robertson, Vaughn, and their company used an important term in perpetrating the fraud on their customers: “investment adviser.” In a future post, I’ll explore that term in more detail—the legal requirements investment advisers are subject to, why those requirements should be of paramount importance to investors seeking financial advice, and why an investment adviser is not necessarily the same thing as a broker. Stay tuned.
The SEC complaint can be viewed here. Federal prosecutors in Virginia have announced Robertson will also face criminal charges in connection with the fraud.