NBA Players Association Financial Adviser Charged in $3 Million Fraud Scheme

Billy HunterJoseph Lombardo isn’t a pro basketball player. But a number of people who play the game for a living aren’t very pleased with his approach to managing their union’s finances. Neither is the Justice Department. On Thursday, April 25, federal prosecutors in Manhattan announced the indictment and arrest of Lombardo for attempting to defraud the National Basketball Players Association (NBPA) of more than $3 million. Lombardo allegedly used his position as managing director of a Cleveland-area investment bank in 2011 to forge the signature of the deceased union general counsel as part of a service contract renewal, and then, with another firm employee, gave false testimony before a grand jury. The actions come in the wake of a unanimous vote by the NBPA board of player representatives in February to oust Executive Director Billy Hunter (in photo) following the release of an full-length audit. 

Prim Capital Corp. for a number of years has been an integral part of pro basketball, even though probably not too many fans know of its existence. Founded in 1997 by Joseph Lombardo, the Independence, Ohio-based financial services firm since 2001 has been the primary financial advisor for the NBA players’ union, conducting investment seminars and reviewing asset performance. The company, until recently, managed about $250 million in association assets. Lombardo, now 72, a resident of Gates Mills, Ohio, was particularly close with George William “Billy” Hunter, executive director of the union since 1996. Starting in 2002, Hunter’s son, Todd, worked at Prim Capital and, according to the Securities and Exchange Commission, was an adviser there as late as this January. But the elder Hunter had fallen out of favor with several player representatives, especially its president, veteran NBA guard Derek Fisher, now with the Oklahoma City Thunder. And Hunter’s problems were directly related to those of Lombardo.

The players union had grown dissatisfied with Hunter’s leadership during and after the NBA owners’ five-month lockout during the second half of 2011. President Fisher came to believe that Hunter had a number of conflicts of interest that undermined his leadership. The union hired the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP to conduct a full audit of union hiring and business practices. After a lengthy investigation, the firm released a 469-page report this past January. The authors concluded that Hunter, now 70, used poor judgment, failed to recognize conflicts of interest, put personal gain ahead of union interests, and bypassed a vote by the union board of player representatives in renewing his employment contract. A union interim executive committee placed Hunter on indefinite leave on February 1. On February 16, at a meeting in Houston during All-Star Game weekend, the players’ association voted 24-0 (six teams were not represented) to make the dismissal permanent. The union earlier had severed its ties to Prim Capital.

The report took union leadership to task on a number of issues. The ones mattering most were those connected to Prim Capital. The authors noted Hunter had put daughter Robyn Hunter and daughter-in-law Megan Inaba on the union payroll, and (as mentioned earlier) got his son a job with Prim Capital. Moreover, Prim’s last contract had been established in 2005 and ran only one year, yet the firm continued to provide services afterward, noted an affidavit of an agent of the U.S. Department of Labor (DOL). The department had subpoenaed Prim during its own probe in 2012. Most damaging, however, was evidence that Prim Capital Managing Director Joseph Lombardo had forged a signature to retain NBPA business.

Here are the details. This past January, just two days before the release of the audit, Prim, having learned the audit was set to be made public, presented to Paul Weiss investigators a letter, dated February 24, 2011, detailing a previously undisclosed five-year agreement. The agreement would have Prim provide financial services to the union at $602,000 a year, or $3.01 million over the life of the contract. Things looked suspicious. Unlike the contract of six years earlier, this one had not been signed by Hunter. And it contained a clause stating that the agreement “cannot be cancelled or revoked while in effect for any reason by the NBPA.” As it turned out, there was a smoking gun. The document contained the rubber-stamped signature of Gary A. Hall, a former lawyer for the union, as well as those of Lombardo and another NBPA employee. But Hall died in March 2011. Auditors concluded that the contract had been drawn up after Hall’s death, and thus his signature was a fake. The auditors’ report also concluded that the other employee’s signature was forged as well. Moreover, Joseph Lombardo and a Prim Capital investment adviser, Carolyn Kaufman, each allegedly lied before a federal grand jury about the forgery.

Upon his arrest, Lombardo was charged with fraud, attempted mail fraud and obstruction of justice. If convicted on all counts, he faces up to 60 years in prison and hundreds of thousands of dollars in fines. Federal prosecutors also charged Ms. Kaufman with obstruction of justice. Preet Bharara, U.S. Attorney for the Southern District of New York, believes the Justice Department has the right people in his sights. “As alleged,” said Bharara, “Joseph Lombardo faked the signature of a dead man as part of manufacturing a multi-million dollar contract out of whole cloth that, had it been enforced, would have caused significant losses for basketball players who entrusted him with their savings.”

The National Basketball Players Association has yet to choose a successor to Billy Hunter. Speaking at a three-minute news conference announcing Hunter’s ouster back in February, NBPA President Derek Fisher announced, “This is our union, and we’ve taken it back…Going forward, we’ll no longer be divided, misled, misinformed.” Hunter hasn’t been charged with any offense, but the situation could change. The New York State Attorney General’s Office at the time had been looking into Hunter’s oversight of the union’s charitable foundation. Hunter, an NFL wide receiver back in mid-60s before embarking on a career in law – he’s an ex-federal prosecutor himself – is contemplating legal action against the union he once ran. He and his lawyers believe this is a case of termination without proper cause; the outcome, Hunter says, was “pre-ordained.” In addition, he insists the union owes him $10.5 million based on the remaining years of his current contract. While much of this leadership crisis is the product of bad blood between Fisher and Hunter, it’s hard to doubt that at least a few people in the union hadn’t performed due diligence.