Charles August Banks IV was arrested in San Antonio this week. Banks, is charged with two counts of wire fraud related to a $7.5M investment that former NBA basketball star Tim Duncan made with Gameday Entertainment, a sports merchandising company. Banks became Duncan’s financial adviser nearly two decades ago while working for CSI Capital management and he advised him for years.
Banks, now a renowned wine investor, is also facing a securities fraud lawsuit brought by the SEC. Although Duncan, formerly with the San Antonio Spurs, isn’t named specifically in the complaint, the regulator said that the case involves an ex-pro basketball player who was Banks’ client.
The SEC claims that Banks made material misrepresentations and omissions of key facts to the basketball player to persuade him to invest in Gameday. Among the alleged misrepresentations:
- The investment opportunity was in a $15M mezzanine debt that needed two two investors.
- Each investor would get 12% interest, to be paid each month, security interest in all of the company’s assets, and equity in Gameday.
- $5M of the money raised was to go toward Gameday’s business development and operations, while the rest was supposed to pay off the existing bank debt. This would give investors a first lien position on the company’s assets upon repayment.
The SEC said that Banks knew these representations were misleading and false and it is because of these alleged misrepresentation that the basketball player invested $7.5M in Gameday. Banks allegedly knew that there was no second investor, which meant the bank debt would not be repaid and the lone investor would get the first lien position promised. Banks also failed to disclose that he would be receiving $225K from the company for getting the former NBA player to invest. According to the Commission, Banks had the company divert 20% of what should have been the investor’s monthly return to him each month for two years. That’s about $15K/month.
The SEC said that Banks defrauded the investor again when he persuaded him to sign a personal guarantee and subordination agreement on a bank line of credit to the Company. In the signature page that was sent to the investor, Banks allegedly falsely represented that the agreement would lower the investor’s investment risk in the company when, in fact, it did the opposite. Banks told Gameday to divert at last $180K of what should have gone to the investor as a 3% guarantee fee.
Last year, Duncan filed a Texas securities lawsuit against Banks. The ex-San Antonio Spurs star claims that he lost over $20M because he listened to Banks’ financial advice. Duncan said that Banks advised him to invest in hotels, wines, sporting goods, and beauty products that the latter owned or had a stake in.
Our Texas securities fraud law firm works with investors throughout the state to recoup losses they sustained because of the negligent, careless, or wrongful actions of brokers, investment advisers, and brokerage firms. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.
Wine investor Charles Banks charged with defrauding NBA star, SFGate, September 10, 2016
SEC Charges Atlanta investment adviser with $7.5M fraud, BizJournals, September 13, 2016
Sun Antonio Spurs Star Tim Duncan Files Texas Investment Adviser Fraud Case, Stockbroker Fraud Blog, January 31, 2015