An advisor firm and two of its former principals are charged with defrauding investors, most of whom are retired NFL players. These players had joined a lawsuit against the league, alleging they suffered brain injuries from concussion.

Former NFL players, claiming that they suffered brain injuries from the sport, have created a controversy which has hit the US wealth management sector, according to a US case announced last week.

The Securities and Exchange Commission late last week charged a Tallahassee-based investment advisor firm and its two former principals with defrauding investors, most of whom were retired NFL players. The players had joined a class-action lawsuit against the league claiming they suffered brain injuries as a result of concussion.

The SEC charged Cambridge Capital Group Advisors; Cambridge’s president Phillip Timothy Howard, a Florida attorney who represented the retired players in the class action lawsuit; and Don Warner Reinhard, a former registered investment advisor previously barred by the SEC, with defrauding 20 investors in two proprietary hedge funds operating from Howard’s law offices.

The defendants advertised the funds as investing in a variety of instruments, but unbeknownst to investors, in fact they were almost exclusively invested in settlement advance loans to more than 70 of Howard’s NFL class-action clients.

Reinhard was an “extremely successful investment manager,” but failed to mention that he had served jail time for bankruptcy and tax fraud, and had been barred by the SEC from working for any investment advisor firm, the SEC’s statement about the case said.

The SEC also alleges that Howard defrauded investors by borrowing $612,000 in undisclosed personal mortgage loans from the funds, which he never repaid, and that Howard and Reinhard used investor funds to pay themselves fabricated “broker fees” on settlement advance loans to Howard’s legal clients. Howard and Reinhard allegedly raised $4 million from the retired NFL players, about half of whom rolled over their NFL 401(k) accounts to the hedge funds.

“We allege that Cambridge, Howard and Reinhard defrauded these particularly vulnerable investors, many of whom invested their retirement savings,” Eric I Bustillo, drector of the SEC’s Miami regional office, said. “Instead of investing all of the funds’ assets as promised, Howard and Reinhard used a significant portion of investor money to line their own pockets.”

The SEC’s complaint filed in federal district court in the Northern District of Florida charges Howard, Reinhard, and Cambridge with violating the anti-fraud provisions of the federal securities laws, and seeks permanent injunctions, disgorgement of allegedly ill-gotten gains, prejudgment interest, and financial penalties.