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A former Morgan Stanley investment adviser and three others were charged with defrauding professional basketball players of $13 million, in the latest alleged scheme targeting pro athletes.
Federal prosecutors in New York on Thursday charged the former adviser, Darryl Cohen, along with a financial planner, an NBA agent and a former stockbroker in two schemes to cheat players.
The US claims Cohen and the financial planner, Brian Gilder, fraudulently convinced three of the unidentified players to buy life insurance policies at markups as high as 310%.
He used some of the money to pay off his credit card bill, for work on his home and pool and to pay $200,000 to a person with whom he was romantically involved, according to the government.
Cohen also allegedly transferred $500,000 from two of the players, claiming it was for charity, then used $238,000 to build athletic training facilities in his own backyard, the US claims. Cohen is a defendant in a lawsuit by the US Securities and Exchange Commission as well.
In the second scheme, involving the planned sale of a women's professional team, prosecutors charged Charles Briscoe, an NBA agent, and Calvin Darden Jr. Convicted of fraud in the past, Darden spent almost $900,000 of his latest spoils on luxury cars, the government says.
Athletes as Targets
The case comes amid a rising trend of frauds on the pros, marked by their fame, financial inexperience and high net worth, according to a 2021 report by Ernst & Young LLP. Professional athletes have reported almost $600 million in fraud-related losses from 2004 to 2019, according to the report, which is based on publicly available criminal, civil and bankruptcy pleadings.
Morgan Stanley said it had fired Cohen and has worked with the authorities.
"We fully cooperated with the investigation and have resolved clients' claims related to Mr. Cohen,” a spokeswoman for the firm said in a statement. "Mr. Cohen was terminated from the firm in March 2021 and has since been barred from the securities industry by Finra.”
Mark Sedlander, a lawyer for Cohen, said his client is innocent. "Mr. Cohen denies the charges and looks forward to fighting them in court,” he said.
Lawyers for the other three defendants couldn't immediately be identified.
Three of the alleged victims in the case are Jrue Holiday, Chandler Parsons and Courtney Lee, their lawyer, Phil Aidikoff, confirmed.
"I think this was an appropriate action for the government to take to deal with a very, very significant course of conduct by a broker at a wirehouse,” Aidikoff said of the charges.
From 2017 to 2020, prosecutors said, Cohen and Gilder induced the three players to buy policies at markups of 222%, 244% and 310%. A "purported law firm” controlled by Gilder allegedly made $4.5 million from the sales.
As part of a plan to buy the team, the US says, a player transferred $7 million into a bank account controlled by Darden. As an active professional, the player wasn't eligible to buy the team. But prosecutors claim Briscoe and Darden stole from the fund, with Darden sending $1 million to Briscoe.
Darden sent $500,000 of the player's money to a relative and more than $400,000 to a cryptocurrency exchange, according to prosecutors. He spent $880,000 on the cars, $300,000 on art, $100,000 to buy a piano and $1 million in home improvements, including the addition of a koi pond.
Darden and Briscoe allegedly also defrauded one of the athletes who was a victim of Cohen out of $1 million, falsely claiming it would be used by another player preparing for the professional draft.
According to the Ernst & Young report, "from 2004 through 2019, athlete victims identified in legal proceedings claimed to have suffered almost $594 million in alleged losses.
The losses and the efforts to recoup them are only picking up steam: legal proceedings filed between 2016 and 2019 accounted for more than $197 million, or 33%, of all identified losses” in the period.
Darden, a former Wall Street stockbroker, is the son of Darden Media Group Chairman Calvin Darden. He pleaded guilty in 2015 to a scheme to impersonate his father in a multimillion-dollar fraud tied to the purchase of Maxim magazine and was sentenced to a year in prison.
The case is US v. Cohen et al., 23-cr-134, US District Court, Southern District of New York (Manhattan).