Former Philadelphia Eagles player Merrill Robertson Jr., and his business partner, Sherman C. Vaughn Jr., were certainly cavalier when they made their pitch to their future investors.
On Wednesday, the two were charged with defrauding investors by the Securities and Exchange Commission through their firm, Cavalier Union Investments. In a parallel action, the U.S. Justice Department announced criminal charges against Robertson.
According to the SEC’s complaint, the partners raised more $10 million from over 60 investors, including senior citizens and former football coaches from the University of Virginia and Fork Union Military Academy—Robertson’s alma maters. They then used roughly $6 million of those funds to pay for personal expenses, using the other $4 million or so to repay earlier investors.
In order to convince investors they should invest with Cavalier Union Investments, the pair made some bold claims, according to the SEC complaint. Robertson and Vaughn told investors they would earn returns with them of between 10% to 20%, and put their money in investments with limited risk in unregistered debt securities. Currently, the average U.S. bond pays an interest rate of around 1.9%. The investment pitches to prospective clients happened as recently as March 2016.
They corroborated their claims with a website that stated Cavalier had divisions staffed by investment advisors and funds, the SEC alleged. The website also claimed that it owned restaurants, real estate, alternative energy, and natural resource assets—though some of those businesses—Sweet Frog and Game Day Pizzeria—had been closed, the SEC said.
The defendants also managed to induce another $2 million from an existing investor in 2013. The group told that investor that his or her funds would go to a bottled water company called Drops. The partners told investors that Drops used a unique seven-step process to energize the water. They also claimed the company was public. Cavalier kept up the ruse by fabricating financial statements from the firm, the SEC alleged. According to the false financial statements, the company had over $400,000 in revenue, which would increase to $30 million over the next five years. Drop never existed.
Vaughn also told potential clients that he managed $250 million at a separate asset management company, which he said was the largest minority owned investment firm on the east coast. In fact, Vaughn managed no other funds.
The reality of the pair’s financial acumen however was far more bleak. Vaughn had filed for personal bankruptcy four times—including twice when he and Robertson were soliciting investments for Cavalier, the SEC said.