Circuit Court Sides with NFL, Players Union in Fraud Suit

Kirk Wright has been dead for almost three years. But the legacy of his mismanagement and fraud remains very much alive – most of all in the minds of a half-dozen now-retired National Football League players taken for a collective $20 million ride. On November 23, a panel for the 11th Circuit Court of Appeals in Atlanta ruled in Atwater et al. v. NFL Players Association that neither the NFL nor the association were liable for financial losses sustained by Wright, an Atlanta-area hedge fund manager. Criminal as Wright’s Ponzi scheme was, argued the court, the plaintiffs in this civil suit bore the ultimate responsibility of performing due diligence. The decision, formally speaking, may be sound. Yet it also suggests that the union – i.e., the Players Association – has been less than diligent in its representation.

Kirk Wright (in photo) thought and lived large. A well-spoken, polished black man with a master’s degree from Harvard, he launched a Marietta, Ga.-based hedge fund, International Management Associates (IMA), sometime around 1996-97. At Las Vegas investment seminars, the hospitality suite at Atlanta Falcons home games, and private parties at his residence, Wright told his well-heeled audiences what they wanted to hear – that they could achieve phenomenal returns with minimum effort. His recommended vehicle was the short sale, the practice of borrowing shares of stock with a commitment to repurchase them at a later date in anticipation of a price decline. Short-selling long has been a risky, if lucrative investment strategy. But as the IMA sales pitch had it, there only was an upside. Word spread among executives, professionals, retirees and athletes: IMA was the place to go to get really rich.

The promised gains proved an illusion. IMA racked up enormous losses in nonexistent or money-losing trades, all the while reporting gains listing assets at up to a thousand times their true worth. What Wright didn’t lose, he spent on maintaining a lavish lifestyle, which included a $200,000 Lamborghini, a $50,000 Rolex watch, a $1 million remodeling job on his Marietta mansion, and $500,000 on his wedding reception. Even Bernard Madoff might have learned a lesson or two from this guy. Some 500 investors, including Wright’s own mother, were left in the lurch. In March 2006, two former business partners, Nelson Keith Bond and Fitz Harper Jr., both Atlanta-area anesthesiologists, having been bilked out of a combined $1.5 million, sued Wright. The Securities and Exchange Commission conducted its own investigation and eventually sued Wright in February 2006, alleging that he falsified information about assets and returns for the seven hedge funds under his control. The SEC shut down IMA that month, the total loss having reached anywhere from $150 million to $185 million, nearly all of it unrecoverable. “There was a large amount of money that traveled through these accounts over the years,” noted William Perkins, a partner at the Atlanta-based William G. Hays & Associates and court-appointed receiver. “But after all of the expenses, losses and consumption throughout that period, there was never a significant balance.” The Justice Department, meanwhile, filed criminal charges after the FBI had tracked him down at the Ritz-Carlton Hotel in Miami Beach in May 2006, with a load of incriminating evidence in tow.

Among the scammed investors were seven former pro football players – Steve Atwater, Blaine Bishop, Marco Coleman, Ray Crockett, Carlos Emmons, Clyde Simmons and Al Smith (Coleman eventually would drop out) – who had invested about $20 million with IMA during 2004-05 and were unable to withdraw their money. The players, led by Atwater, a retired all-pro free safety with the Denver Broncos, sued both the NFL and the NFL Players Association, arguing the defendants had insufficiently vetted Wright prior to including him as a participant in the league’s Financial Advisors Program. That Wright already had more than $400,000 in liens placed against his assets, alleged the suit, alone should have served as a red flag. The NFL and the union responded that the existing collective bargaining agreement (CBA) clearly stated that “players shall be solely responsible for their personal finances.” They further argued that Section 301 of the Taft-Hartley Act, which governs the enforceability of CBAs, preempted any and all state claims.

The case proceeded in Atlanta federal court. U.S. District Judge Julie Carnes in March 2007 denied a motion by the defendants and several unidentified financial entities to dismiss the suit. The plaintiffs’ high hopes, however, would be unrealized. The district court ruled in favor of the NFL and the union. The ex-players appealed, but on November 23, 2010 an 11th Circuit Court three-judge panel affirmed the judgment. Kirk Wright by now had been long gone from this world. An Atlanta federal jury, following a two-week trial, convicted him on May 21, 2008 on 47 counts of mail fraud, securities fraud and money-laundering. Wright, facing more than 700 years in prison plus a restitution order, chose suicide. According to the Fulton County Medical Examiner’s Office, he hung himself in his Union City, Ga. holding cell just three days after the verdict. He left behind his new wife plus four children, at least two of whom were from his first marriage.

Kirk Wright isn’t around to make restitution. And it’s highly unlikely that he could, even if he were around. But the ruling leaves some uncomfortable questions. While the National Football League and the NFL Players Association had not violated the collective bargaining agreement, the fact remains that the Financial Advisors Program was set up precisely to avoid the too-common scenario of active and retired players getting taken to the cleaners. Players should be more responsible for their own finances – they aren’t children – but the league did vow to provide help. Jonathan Spitz, a partner at Jackson Lewis, though calling for responsibility among players, argues they had a legitimate case: “If the league and the players association take it upon themselves to create this program, people do have the right to expect that they’re going to take some level of care. If you’re an employer and you insert yourself into the situation, you need to expect that people are going to hold you accountable.” With the current CBA set to expire this Thursday night at midnight, and with the prospect of an owners’ lockout increasingly distinct, such a thought more than once may cross the minds of players.

Related:

Atlanta Hedge Fund Manager Found Guilty, Kills Self

Player Suit against NFL, Union in Hedge Fund Scam to Proceed