At its peak, Prim Capital Corporation managed as much as $250 million in assets on behalf of the National Basketball Players Association. Yet the people in charge of this Cleveland-area investment firm had an unorthodox, and illegal, idea on how to keep its clients. Last Thursday, November 14, Joseph Lombardo, company founder and managing director, pleaded guilty in Manhattan federal court to charges of mail fraud and obstruction of justice in connection with his attempt to forge signatures to retain a multi-year service contract with the players union. Two weeks earlier, on October 31, Prim Capital adviser Carolyn Kaufman was charged in a superseding indictment with perjury and obstruction of justice. These events are more than a little related to a power struggle within the New York-based association.
Union Corruption Update covered this story in detail in May. On April 25, federal prosecutors in Manhattan announced the indictment and arrest of Joseph Lombardo for attempting to defraud the NBA Players Association out of more than $3 million. The Independence, Ohio-based Prim Capital Corp. had served as the primary outside investment adviser to the association during 2001-13. Lombardo, 72, a resident of Gates Mills, Ohio, and Prim founder-managing director, allegedly used his position to forge the signature of union general counsel Gary Hall. Yet this might have gone unnoticed were it not for the growing rift between Players Association Executive Director George William “Billy” Hunter and its president, Derek Fisher.
On the surface, Hunter and Fisher were on the same side during the five-month NBA owners’ lockout in the latter half of 2011 (see photo). Hunter, now 71, an NFL wide receiver during the mid-60s and later a federal prosecutor, had served as NBPA executive director since 1996. Fisher, now 39, began his NBA playing career that year, asserting himself as one of the game’s leading point guards, specializing in steals and assists. Currently in his 18th season, he spent most of his career with the Los Angeles Lakers, helping that team win five NBA championships. He’s currently with the Oklahoma City Thunder, a championship contender. More significant has been Fisher’s role as union president since 2006. And over time, he developed issues with Hunter’s style of management, especially during and after the lockout. Hunter, he asserted, had engaged in numerous conflicts of interest, especially when it came to hiring family and friends.
Fisher hired the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP to conduct a full audit of union hiring and business practices. In January of this year, the firm released its findings in a report of nearly 470 pages. The authors concluded that Hunter had behaved unethically in his hiring and his business relationships with Prim Capital. In early February, a union interim committee placed him on indefinite leave. A couple weeks later, during All-Star Game weekend, NBA team player representatives voted unanimously to make the dismissal permanent.
The most serious allegations by the report were those relating to Prim Capital, most of all, Lombardo’s renewal of a service contract with the players association. This past January, Prim Capital, upon learning the results of the audit were about to be made public, presented investigators a letter dated February 24, 2011, detailing a previously undisclosed five-year agreement for Prim to provide services to the NBPA at $602,000 per year, or $3.01 million over the life of the contract. Unlike the $350,000-a-year contract established in 2005, this one had not been signed by Hunter. And this agreement, read a clause, “cannot be cancelled or revoked while in effect for any reason by the NBPA.” The document did, however, contain the rubber-stamped signature of Gary Hall, former union general counsel, along with those of Lombardo and another union employee. The problem was that Hall had died in March 2011. The auditors concluded the contract had been drawn up months later. This in turn led them to another conclusion: Joseph Lombardo forged the other two signatures.
The U.S. Department of Labor, meanwhile, had been conducting its own probe through its Office of Labor-Management Standards and Office of Inspector General. In May 2012, the DOL reportedly asked Prim Capital to hand over copies of all players union agreements. Lombardo, testifying before a federal grand jury, claimed he had not forged anyone’s signature. Carolyn Kaufman, a Prim investment adviser, told the grand jury the same thing. The claims proved unconvincing in the face of a U.S. Justice Department investigation. This past April 25 Lombardo was arrested and indicted for fraud, perjury and obstruction of justice. Kaufman likewise was arrested and indicted. She previously testified that she had not been coached on how to lie. Yet in a secretly recorded conversation, Lombardo could be heard giving Kaufman specific instructions on how to answer grand jury questions. In another conversation, Lombardo told another person “we’re home free” if that person gave false testimony. In another conversation, Lombardo instructed someone to provide false information, saying, “It’s important that we didn’t doctor this document up, okay?”
Sentencing for Lombardo is scheduled for March 20. He potentially faces up to 25 years in prison, although sentencing guidelines allow for a range of 51 and 63 months. The charges against Kaufman, who faces trial on December 2, remain intact. Prosecutors are satisfied justice has been done, at least in the case of Lombardo. U.S. Attorney Preet Bharara explained: “Joseph Lombardo engaged in an elaborate fraud involving the creation of a fake contract with the professional basketball players who had entrusted him to manage their union’s assets. He then lied to a federal grand jury about his illegal actions and told others to do the same. His guilty plea today shows that such fraud and obstruction will not go unpunished.” He added that the overall investigation is continuing.
The NBA Players Association, now headed by Los Angeles Clippers All-Star point guard Chris Paul (he was elected president in August), also has some unfinished business. Billy Hunter filed a wrongful termination suit against the union almost immediately after his February firing. The suit is still active. Hunter believes he was made a fall guy for things beyond his control and insists the union owes him $10.5 million in compensation for the remaining years on his contract. Meanwhile, life goes on in the NBA. The current season started without a hitch on October 29. The current per-team salary cap of more than $58.5 million is lower than a number of observers had been predicting, but it’s hardly chump change. Neither are the corresponding benefits. Whatever firm that the union selects to replace Prim Capital as manager of these benefits hopefully will operate within the law.