Celebrity Fraud Schemes – When Lawyers, Agents and Accountants Steal from Clients
Today’s headline reads “Attorney Gets 18 Months for Defrauding NFL Players.” Previously, we have posted stories about Mike Tyson suing his investment adviser, Basketball great Tim Duncan losing $20 million to a different money adviser and a lawyer at a big named law firm assisting in a multimillion fleecing of several Hollywood celebrities.
Over the last few years we have represented a two-time Grammy winning musician, an NBA player and a MVP MLB pitcher. Thankfully, we have been largely successful in keeping our clients out of the press. The stories of other celebrities and professional athletes that have been fleeced offer a great opportunity to peer through the window and learn how and why these frauds occur.
The most recent headline to grab our attention, “Attorney Gets 18 Months for Defrauding NFL Players is where we will begin this post about celebrity fraud schemes. Headlines this have become far too common. Because of their wealth and status, athletes, actors and musicians are common targets of shady managers, stockbrokers with a quick get rich scheme, corrupt lawyers and even other athletes-turned-fraudsters.
Plaxico Burress, Adalius Thomas, Terrell Owens and Ray Lewis – Victims of Lawyer Gary Stern
Football fans have all heard the names Plaxico Burress, Adalius Thomas, Terrell Owens and Ray Lewis. What most folks don’t know, however, is that all four men claim to be victims of attorney Gary Stern. This week their former lawyer, Gary Stern, was sentenced to 18 months in prison for defrauding the men by selling them worthless alternative energy credits.
The indictment against Stern is for tax fraud. Congress granted the IRS the authority to provide alternative energy credits to businesses producing energy from nonconventional sources. An example would be a biomass plant that makes methane fuel from garbage dumps.
A credit can help offset a profit or gain. If a company can’t take advantage of its credit because it is unprofitable, IRS rules allow the company to “carryforward” the credit and use it later. The credits can’t be sold, however. These business credits work much like our personal returns. A divorced couple may be allowed to trade credits for their dependent children, but those credits can’t be bought and sold to others.
As a lawyer specializing in tax law, Gary Stern certainly would have known this. In fact, when he concocted the scheme one of his junior lawyers told Stern the scheme was illegal.
Knowing the scheme was illegal, prosecutors say that Stern still proceeded to take the unused credits from some of his business clients and help sell them to unsuspecting third parties. The four NFL players were part of a larger group who say they were duped into paying for worthless credits.
If the scheme ended here, it would be bad enough. It didn’t. The four men claim they deducted the phony credits on their tax returns which later resulted in huge tax bills, penalties and liens from the IRS.
In other words, the men not only lost their money, they were subjected to additional sanctions from the IRS.
Former Super Bowl 35 champ Adalius Thomas told the court this week that as a result of claiming the credits on his return, he was hit with a million dollar assessment from the IRS. Money he doesn’t have. According to Thomas, he can’t even lease a car today because his credit score was ruined by the IRS hit.
Prosecutors asked for a six year sentence. U.S. District Court Judge Harry Leinenweber only sentenced Stern to 18 months for his role in masterminding the celebrity fraud scheme. The reduced sentence appears to have been based on Stern’s remorse at court and his early acceptance of responsibility.
Prior to sentencing, Stern released a statement to the court through his lawyer.
“Mr. Stern now stands before this Court a broken man. He is extraordinarily humbled and contrite, deeply ashamed with himself; that his actions have not only affected his life, but also the lives of those he loves and cares for most. Since federal charges were filed against him, his life has been consumed with anxiety, regret, and anguish as he has waited for his time before this Honorable Court for judgment. He has suffered as his hard-earned law practice has ceased to exist. He has seen the direct impact of his decisions; decisions he knows were unnecessary and could have been avoided but instead were implemented by his clouded judgment.
“Unlike many others who come before this Court, it did not take government intervention for him to realize the impact of his poor decisions. Instead, not only was the charged conduct an aberration in his otherwise impeccable career, but it began and it ended four years prior to the filing of these charges. And still, his remorse is now clear as he prepares to accept his fate.
“There is no denying the seriousness of Mr. Stern’s transgressions, and he does not intend on doing so – he was clearly wrong. Rather, he offers himself to the mercy of this Court…”
Stern claims he did not profit from the scheme, rather he was motivated to help his business clients who were selling the credits. He was trying to help them and in his zealousness, crossed the line and hurt others.
In addition to the 18 month sentence, Stern gave up his license to practice law and claims to have paid restitution. A class action lawsuit filed by his victims suggests otherwise. Some say the loss of credit cannot be fixed by merely refunding the price they paid for the worthless tax credits.
Celebrity Fraud Study – Mike Tyson Sues Investment Adviser
We first wrote about Mike Tyson’s lawsuit against his former investment adviser, SFX Advisory, in February of 2013. Ironically, at almost the same time Gary Stern was being sentenced in Chicago this week, former SFX adviser Brian Ourand was sentenced before a federal judge in Washington D.C.
Ourand received a 33 month sentence. He was accused of ripping off professional athletes Mike Tyson, Dikembe Mutombo, and Glen Rice.
Tyson claimed his former advisers, Live Nation Entertainment and its subsidiary SFX Financial Advisory Management Inc, stole approximately $300,000 and caused him to lose out on millions of dollars in opportunities.
A search of SEC and District of Columbia records shows that SFX is a small boutique investment advisory firm representing just a handful of individuals, all high net worth clients.
Tyson’s lawyer claims that adviser, Brian Ourand, admitted the theft and subsequently SFX attempted to get him to quietly settle. They also cooperated in the government’s investigation.
Prosecutors told the court that Ourand ripped off his celebrity clients and used the money to support his high lifestyle. If he couldn’t be a celebrity, he would certainly live like one. That meant he used his ill-gotten gains for “stays at high-end hotels, rental cars, health club membership fees, department store purchases, golf course fees, tanning salons, and fancy restaurants.”
According to the government’s sentencing memo, “Brian Ourand engaged in a multi-year scheme through which he embezzled over a million dollars from clients who had entrusted in him control over their personal finances. Ourand abused his position as the victims’ financial advisor and manager to access the victims’ bank and credit card accounts. He enriched himself by, among other things, issuing checks, initiating wire transfers, and conducting credit and debit card transactions on the accounts of his clients without their authorization..”
Ourand’s sentencing arguments showed little remorse. He appeared to argue that his million dollar celebrity fraud was an aberration in an otherwise fine career. Ourand had asked for a 12 month sentence. The government asked for 37 months. U.S. District Court Judge Tanya Chutkan sided with government prosecutors and sentenced him to 33 months. After the sentencing, he must pay $1 million in restitution.
An FBI spokesperson said after court, “Brian Ourand concocted a series of lies with one goal in mind – to enrich himself and others by stealing approximately $1 million and deceiving those who put their trust in him.”
It appears that SFX Financial Advisory has already repaid the losses incurred by Tyson and the other athletes.
Russell Erxleben – When Athletes Steal from Investors
Home for me is Texas. And in the Lone Star state, football is king. In my little hometown, stores close on Friday evening if the local high school team has a home game. One of Texas’ many football legends is Russell Erxleben.
A former University of Texas Longhorn, Erxleben was the team’s kicker for several years in the 1990’s. That may seem long ago, but he still holds NCAA records today. He is probably best known for his 67.5 yard field goal and his NCAA season punting record. (The YouTube video of the kick appears at the end of this post)
After playing for Texas University, Erxleben played for the New Orleans Saints where his career was disappointing. He was released from the team in 1998. Two years later he was arrested for securities fraud. Erxleben served 7 years for that crime, one involving the sale of $28 million in foreign currency trading.
After doing his time, Erxleben was released. Too old to go back to football, he turned back to crime. His new crime? Running a Ponzi scheme! This one involving defaulted post World War I German gold bonds.
Erxleben was sentenced to another 90 months in prison in 2014. Many of his victims are still suffering from the losses he caused, however.
Why would someone invest with a convicted felon? Because of his celebrity status. His two time All American football player status causes some people to look the other way or not as hard as they should. Often victims of these celebrities-turned-fraudsters are other celebrities. This unique brand of celebrity fraud is especially true with professional athletes.
Ken Starr – Adviser to the Stars
This is the last celebrity fraud story in this post but there thousands more. Ken Starr was the former money manager for Wesley Snipes, Al Pacino and Sylvester Stallone. He is now serving a 7 and one half year sentence for stealing as much as $30 million form his clients.
According to prosecutors, Star laundered the money from his clients’ accounts through use of a lawyer’s trust account. The lawyer, Jonathan Bristol, was also convicted for his role in the crimes. And their victims didn’t just include celebrities, prosecutors say Starr stole from a 100 year old woman. Clearly they are not nice guys.
Where did the money go? The Justice Department says that much of it was spent by Starr in his effort to impress his younger (and 4th) wife. She reportedly received a $7.6 million Manhattan apartment. (Starr’s newest wife and recipient of the apartment was reportedly a pole dancer.)
Fortunately for Starr’s victims, his lawyer Jonathan Bristol was a partner in a prominent law firm. The law firm may be responsible for the losses caused by Bristol’s actions. There is little chance of justice if the 100 year old woman must wait over 7 years to even have a shot of receiving restitution.
Why Is Celebrity Fraud So Common and Why Does It Often Go Unreported?
Celebrities and athletes attract much attention from American society. Often that attention is unwanted. Fraudsters and con artists know there is a great deal of money in the media world and that makes actors, musicians and athletes big targets for celebrity fraud. Unfortunately, as long as there are people with money, there will be others trying to steal it.
Many victims of celebrity fraud schemes don’t come forward for fear of publicity. After the Tyson story above broke, we found several websites were as condemning of Tyson as they were of his broker, Ourand!
To date, we have been successful in keeping our celebrity and athlete clients out of the limelight but if the media finds out, the stories usually spread quickly. (We have a media consultant on retainer to assist our clients should a story break.)
If the fraudster isn’t associated with a big company, getting restitution can be a real problem. Brian Ourand worked for a big agency and Jonathan Bristol worked for a big law firm. Not every victim is so lucky, however.
If you have been the victim of a dishonest investment adviser, financial planner, agent or stockbroker, gives us a call. Our fraud recovery lawyers understand the special needs of celebrities and respecting their privacy. We also aren’t afraid to sue other lawyers when their malpractice or criminal behavior is to blame for a client’s losses.
Want to learn more about the fraud cases we handle? Visit our fraud recovery page.