This article was originally published by Law360.com
NFL Player Adviser Settles With SEC Over Unregistered Sales
By Cara Mannion
Law360, New York (February 13, 2017, 5:08 PM EST) — A former investment adviser for Morgan Stanley and Wells Fargo on Friday settled with the U.S. Securities and Exchange Commission over allegations he sold more than $5 million in unregistered, illiquid stock to NFL players while misrepresenting their investment returns and failing to disclose his financial stake in the deal.
The SEC accused Sylvester King Jr. of failing to verify investment information for clients from the National Football League Players Association who invested in Global Village Concerns Inc., an internet branding company no longer in operation. The adviser additionally didn’t notify these clients that he was paid in Global Village Concerns stock options for soliciting their investments, the SEC said.
“In addition to presenting information on potential returns on investment and current valuations without conducting any due diligence, King also never disclosed to his advisory clients that GVC had or would issue [him] stock options … in exchange for introducing them to [the company],” the SEC said.
King neither admitted nor denied the allegations, and a future proceeding will determine what, if any, civil penalties will be assessed against him.
The investment adviser worked at Morgan Stanley Smith Barney from 2009 to 2011 and then switched to Wells Fargo Advisors LLC, where he worked until 2015, according to the settlement. During this time, he was a registered financial adviser for the National Football League Players Association and had about 40 active or retired professional athletes as clients, the agency said.
The CEO of Global Village Concerns approached King in 2009 to find the company investors and raise money, the SEC said. King’s clients served as the primary source of money raised for Global Village Concerns, including $3.2 million raised in two stock offerings and $2.5 million raised in convertible note offerings, according to the deal.
But King didn’t tell these clients that his company received stock options in exchange for these introductions, the SEC alleged. This omission violates the National Football League Players Association’s code of conduct, which requires players’ advisers to disclose their financial interests, the agency said.
The SEC also accused King of misrepresenting or omitting information during these introductions and when he provided clients updates on their investments.
King told one client to expect a 20 percent return on a Global Village Concerns investment, according to the SEC. When he switched to Wells Fargo, King told the same client that the value of the initial $200,000 investment was then at $500,000, the agency said.
But another client who invested $250,000 in Global Village Concerns saw a 40 percent increase in just six months, the SEC said.
“The estimated returns and valuations contained in the above written reports were not based on any due diligence of GVC or the GVC investments, and there was no reasonable basis to quantify the reported expected return or the valuation of a GVC investment when those written representations were made to the advisory clients,” the SEC said.
King never told Morgan Stanley or Wells Fargo about these offerings, according to the deal. He additionally used a personal email account to speak with his brokerage clients without preserving the communications on the companies’ email servers or in written form, the SEC said.
In 2015, King was suspended from associating with any Financial Industry Regulatory Authority member for 18 months and was ordered to pay a $35,000 fine. FINRA later revoked his registration for failing to pay fines and/or costs, according to the deal.
The SEC does not comment on pending litigation. Counsel for King did not immediately respond to a request for comment on Monday.
King is represented by James D. Sallah of Sallah Astarita & Cox LLC.
The SEC is represented by its own Alejandro Soto.
The case is In the Matter of Sylvester King Jr., case number 3-17839, in the U.S. Securities and Exchange Commission.