Wherever there are professional athletes with money, people looking to take advantage of them aren’t far behind. The case of Dwight Freeney vs.
A couple of years ago I wrote an article about how a Washington, D.C. investment firm started a Ponzi scheme that eventually cost dozens of professional athletes millions of dollars. Fast forward to today…not much has changed. Malicious people continue to dupe professional athletes of their hard-earned money as they are ideal targets of financial scams.
A recent case that caught my attention involved Colts and Chargers defensive end and seven-time Pro Bowler Dwight Freeney and Bank of America Corp. (BofA) Freeney sued Bank of America’s N.A. subsidiary, and Merrill Lynch financial adviser Michael Bock in February of this year. Freeney alleges he was taken advantage of after trusting the bank's wealth management division with his assets. He was eventually swindled out of more than $20 million.
The circumstances of the case warrant a closer look at how financial institutions conduct business, and how the lines between an advisor and the company they represent, in the past or present, can easily become blurred.
Down the Rabbit Hole
According to his 120-page criminal complaint, Freeney was recruited by Bank of America in 2010 to become a client of its division that services clients with high net worth. But to get the full picture, you have to go back even further. Previously, Freeney worked with Jade Group, the company involved in CFP and Success Trade -- the aforementioned Ponzi scheme that swindled more than $18 million out of nearly five-dozen clients (this will come into play later in the story).
In a phone interview for this article, Freeney said that when Bank of America approached him during the 2010 Super Bowl, he felt confident that his money would be safe with the nation’s second largest bank. He assumed his money would be backed by insurance and multiple safeguards put in place by the bank. When signing with BofA, Freeney was convinced that he was a bank client, not a brokerage client, because of the broad range of cash management, business planning and investment services marketed to him as a "comprehensive concierge service."
The problem was, the persons actually recruiting Freeney were Michael Bock, Eva Weinberg (Bock’s ex-wife), and Michael Stern (associate of Bock and Weinberg who previously created a $60 million Ponzi scheme). Stern had fled to Uruguay a year prior as details of his Ponzi scheme came to light. Yet he was somehow able to return to the U.S. undetected. Soon after, he began collaborating with Weinberg.
Weinberg was indeed a Merrill Lynch advisor at the time Freeney was recruited. After gaining access to Freeney’s financials, she left Merrill Lynch and with Stern, launched a scheme in which she opened a firm called Global Wealth Management. She then became Freeney's business manager and financial planner having control over his bills, taxes, savings, and salary. Stern and Weinberg went as far as leasing a private jet (purportedly owned by Stern) in order to maintain Stern’s façade of the wealthy real estate tycoon. As a “token of friendship” and “good faith” Stern let Freeney use “his” jet and made him pay only for the jet fuel. Unfortunately, that was not the only expense that Freeney had paid for. Stern and Weinberg used $750,000 from Freeney’s accounts to pay for the jet lease, pilot salaries, fuel, and hangar fees.
Though Freeney began working with Weinberg of his own volition, he claims he never signed a Power of Attorney with her. Yet a Power of Attorney clearly existed to enable Weinberg to carry out the financial transactions that removed large sums of money from Freeney’s accounts. Freeney speculates that Stern simply forged one, allowing Weinberg to transfer money at her own discretion. Acting on the supposed forged document, Weinberg (among other acts) recruited her brother to sell Freeney three insurance policies valued at $55 million dollars (80-90% commissions for insurance broker). Weinberg, not a licensed insurance agent, illegally split the $450,000 commission with her brother after the initial premium of $510,000 was paid. After collecting the commission, Weinberg stopped paying the premiums on behalf of Freeney, which caused the policies to lapse. As a result, Freeney lost $55 million dollars in coverage and half a million dollars in premiums.
Ironically, Weinberg “saved” Freeney from losing money in the previously mentioned Ponzi scheme overseen by Jade Group. Weinberg transferred the $1.7 million he invested with CFP Group Inc. and the $1.5 million he invested with Success Trade Inc. into other accounts she could access.
In 2012, Freeney reviewed some of his financial returns and said, “Something just didn’t feel right.” Soon after, the FBI contacted him. They were on Stern’s tail, and found out Freeney had been working with him. The FBI dug further and eventually unraveled the complex scheme that by that time had defrauded Freeney of over $20 million. Later in March of 2012, the FBI arrested Weinberg and Stern, who both pled guilty to wire fraud. Stern is currently serving a 13-year prison term, while Weinberg is on supervised relief following six months of incarceration.
A Shell Game of Responsibility
While there is no disputing the fact that Freeney was defrauded, the most interesting aspect of this case is the question of who was actually responsible for the fraud. In his lawsuit, Freeney alleges that Bank of America "participated in and aided and abetted" in an elaborate, malicious scheme and that truthful disclosure would have dissuaded him from agreeing to become a "BofA client or to entrust the management of his assets, investments and income to BofA.” Bank of America, on the other hand, said that Stern, the primary wrongdoer, never worked for the bank or any of its affiliates, and that Weinberg committed her criminal conduct after leaving Merrill Lynch.
But a deeper examination reveals even more interesting details. Weinberg had given up her brokerage licenses in 2005, yet she was still hired by Merrill Lynch/BofA in 2010 and allegedly operated unlicensed for a period of time. In addition, she allegedly participated in numerous illicit activities while working at Merrill Lynch/BofA (soliciting business for Bock, for one thing). Even after she left Merrill Lynch/BofA, Weinberg allegedly wired money between various accounts with the help of a BofA employee. Though the BofA employee had asked Weinberg to follow proper protocol for executing such wire transfers, when Weinberg failed to do so, the employee eventually completed the wire transfers for her anyway.
BofA may have been unaware of Weinberg’s activities, but as the organization overseeing her, don’t they have some responsibility? Where are the checks and balances on their end to ensure their employees act responsibly when managing other people’s assets and, at the least, are currently licensed to do so?
Last week, U.S. District Judge Margaret Morrow dismissed Freeney’s case, saying it failed to link the bank to the Merrill employees who allegedly defrauded him. The decision said Freeney never proved that Bank of America employed the brokers who joined Merrill's global wealth and investment management division in April 2009, three months after the second biggest U.S. bank by assets bought Merrill. For Freeney and his attorneys however, this is only the beginning. They plan to refile a suit soon, this case naming Merrill Lynch as the chief defendant.
Lessons Learned
unfortunately, what happened to Freeney could have happened to anyone. Freeney made an attempt to select an established firm to protect and grow his assets. Freeney learned the hard way that trust can be dangerous, even in the hands of the most reputable companies.
So what can athletes -- or anyone with money to invest -- do to ensure this doesn’t happen to them? First do your due diligence. Make sure your advisor is licensed and a registered employee of the bank or financial institution. Being associated with a larger financial institution often means there will be certain policies in place to protect you as an investor, but get proof first. Many people erroneously believe that brokers with big wire house firms like Merrill Lynch or
Secondly, ensure you have a system of checks and balances in place. It may cost, but it’s worth it to have multiple advisors -- who are not affiliated with each other -- overseeing your financial affairs.
Freeney said he’s not sure he’ll ever feel completely comfortable investing his money again, but as a person with substantial assets, he “has to do something,” he said. “I can’t put my money under a mattress,” he said during our phone interview. “Other people simply have to be involved when you have large sums of money. And even though it’s more money out of my pocket, it’s worth it to me to have multiple people involved to oversee each other.”
Bank of America did not respond for comment.
