BOSTON (CN) - Former NFL star Will Allen ran a $31 million Ponzi scheme by financing short-term, high-interest loans for professional athletes, federal securities regulators claim.
The Securities and Exchange Commission traces the alleged fraud to Allen's founding in 2012 of Capital Financial Partners in Massachusetts.
Allen, whose 12-year football career included time with the New York Giants, Miami Dolphins and New England Patriots, was living in Massachusetts at the time, according to the SEC's April 7 complaint, but the 36-year-old now lives in Davie, Fla.
Regulators froze Allen's assets and those of his business partner, 54-year-old Susan Daub.
Like Allen, Daub traded her snow shoes for sunshine, having moved from Acton, Mass., to Coral Springs, Fla.
The SEC names Daub as the co-founder of Capital Financial and its various affiliates, also named as defendants to the action.
Capital Financial offered short-term loans to athletes in the National Football League, Major League Baseball, National Basketball Association and National Hockey League during their respective off seasons at rates up to 18 percent, according to the complaint.
Regulators say Capital Financial raised about $31.7 million from at least 40 investors by February 2015, and used that money to fund about $18 million in loans to professional sports athletes.
Though the company only collected about $13.2 million in loan repayments from athletes in that time, it repaid approximately $20 million to investors, the complaint alleges.
"Lacking any other significant source in revenue, it is apparent that Capital Financial managed to pay nearly $7 million more to investors than it received from athletes only because Allen and Daub recycled a substantial portion of the approximately $31.7 million raised from investors," the complaint alleges. "They used money from some investors to pay other investors, while at the same time funneling millions of dollars of investor money to themselves - the hallmarks of a Ponzi scheme."
Regulators say Allen and Daub deceived investors about detail of the loans.
"Allen and Daub have used false documentation in order to mislead investors as to the terms, circumstances, and even existence of some of the loan transactions in which the investors are induced to participate," the complaint states.
In the last 2 ½ years, the defendants have withdrawn more than $7 million, the SEC says, pointing to bank records. The complaint alleges that the withdrawal amounts exceed what Capital Financial could have earned in fees.
Allen and Daub spent $1.4 million in cash withdrawals and credit and debit cards purchases, including charges at casinos, pawn shops, jewelers, grocery stores, cigar shops and clothing retailers.
The SEC alleges violations of the Exchange Act of 1934 and the Securities Act of 1933. It identifies four entities that benefited from the alleged Ponzi scheme as relief defendants: WJBA Investments LLC, Insurance Depot of America LLC, Simplified Health Solutions LLC and Simplified Health Solutions 2 LLC.
SEC attorney Frank Huntington signed the complaint.
"The defendants sold investors on the idea of lending money to pro athletes, but we allege that's not where a large portion of the investors' money went," SEC director Paul Levenson said in a statement. "As in any Ponzi scheme, the appearance of a successful investment was only an illusion sustained by lies."
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