SANTA ANA, Calif. (CN) — A professional bicycle racing team sued its owner and manager, claiming he blamed their missing paychecks on washed-up sponsorships, though he was stuffing his own pockets in a Ponzi scheme.
SmartStop Asset Management and seven cyclists sued Premier Sports Group and James Bennett on May 20 in Orange County Court.
Premier Sports Group owns Team SmartStop, which competes in national and international cycling events. SmartStop paid Premier $450,000 and signed a contract to be title sponsor of the team in September 2014, for which it was to receive “extensive” sponsorship benefits, the team says.
“Among these benefits, the cycling team would wear jerseys with the SmartStop brand name prominently placed as the most visible sponsor logo. Additionally, the SmartStop brand logos would be featured throughout printing materials, posters, press releases, etc., relating to team activities.”
The sponsorship was to run for the 2015 calendar year. However, “In mid- to late-2015, rumors and media reports began to surface that the cycling team was in financial trouble,” the complaint states.
The team says Bennett “owned, managed, dominated and controlled” Premier. “Bennett treated the assets of Premier as his own, sold corporate assets for cash and kept the proceeds, siphoned corporate funds from Premier for his individual benefit and commingled Premier assets with personal assets,” the lawsuit states.
The team says Bennett did not keep minutes and corporate records or capitalize Premier, leaving the company insolvent and unable to pay creditors. In July, the team says, Bennett stopped paying them their monthly paychecks.
The cyclists, and their contracts, are Travis McCabe, $38,000; Michael Creed $75,000; Rob Britton, $45,000; Evan Huffman, $20,000; Zach Bell, $45,000; Eric Marcotte, $42,500; and Bobby Sweeting, $25,000.
The team says Bennett repeatedly promised to pay them if they promised not to go public. They say he blamed the missing paychecks on his inability to secure a new sponsor for 2016.
The complaint cites an unspecified “media news article” of Jan. 26 this year: “‘I thought for sure keeping our team together and being able to maintain the quality of the results that we got, for sure there’s got to be a sponsor out there for our team,’ Bennett said. ‘How could there not be the success that we had from last year and the year before? It’s me that’s what has been so disillusioning. We’ve tried our hardest. The riders have tried their hardest. But the reality is, there wasn’t anybody to make the team.'”
The team says Bennett ran it as a Ponzi scheme, using anticipated sponsorship fees to pay present contractual commitments.
“This ‘Ponzi scheme’ method of funding the cycling team was never disclosed to any of the plaintiffs,” the complaint states. “Had the plaintiffs known of this funding mechanism for the cycling team, none of them would have entered into the business agreements with defendant Premier and defendant Bennett.”
To top it off, Bennett blamed SmartStop for the financial problems, hurting the brand name, the team says.
“Defendant Bennett’s representations that SmartStop was the cause of the financial problems with the team, led the team riders to cover their SmartStop logos, when winning races and during photos shoots,” the complaint states. “This ultimately led to a number of media stories inferring that SmartStop’s failure to abide by its contract was the reason that the cycling team was suffering financial hardship and the riders could not be paid.”
Team SmartStop has won four national championships since 2013, a yellow jersey at the Larry H. Miller Tour of Utah, and an overall win at the Tour of the Gila.
None of the parties to the lawsuit could be reached for comment Wednesday.
The plaintiffs seek punitive damages for fraud and breach of contract.
They are represented by Michael Caspino with Buchalter Nemer, of Irvine.
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