Did This Company Help Defraud Millions from NFL Players?

Professional football players are incredible. Powerful, fast, and agile, with the controlled aggression of a precision guided missile. They are not, on the other hand, known for investing or money management prowess.

This inexperience and lack of expertise in financial matters makes these individuals prime targets for fraudsters. And when money is involved, you will oftentimes also find a bank. This time the focus falls on BB&T (NYSE: BBT  ) , which was named as a defendant in a lawsuit filed last week by 16 current and former NFL players.

The case is particularly unfortunate for the bank, as the alleged misdeeds occurred at an institution that was subsequently acquired by BB&T. Behind it all, though, is a moral that highlights a key problem for large or small financial institutions alike -- it is dangerous to become too enamored with certain large, profitable customers.

Overnight millionaires
Athletes entering the big leagues can go from being financially average or poor to mega rich practically overnight. Get drafted, sign your contract, report for work, and you're a millionaire.

It's a new world for them, and one that requires new knowledge, skills, and expertise. These players need professional financial help.

Enter Pro Sports Financial and its owner-operator, Jeff Rubin.

Rubin, now banned from the securities industry, offered the players "tax planning, business counseling, and concierge services," according the suit filed in U.S. District Court in Miami. He would essentially help manage a player's money. He had numerous clients within the NFL (16 of whom are currently suing BB&T), he had the expertise, and the players trusted him.

Each player signed a "client services agreement" that legally defined the scope of the relationship between the player and Pro Sports Financial, and defined the powers the company held to manage the players' monetary affairs.

Sadly, Rubin turned out to be a less-than-honest business partner. He and/or other Pro Sports employees allegedly executed "numerous unusual, suspicious and extraordinary withdrawals from accounts opened in the name of each plaintiff," according to the lawsuit, most related to a failed casino venture in Alabama. The players lost millions. 

Why sue BB&T?
The suit alleges a handful of misdeeds by the bank. First, the players claim that transactions executed from BB&T accounts were allegedly outside the scope of the signed client services agreements.This is the equivalent of allowing an unauthorized third party to transfer money from your savings account to their own, all the while knowing the transaction was not on the up-and-up.

Second, the suit alleges that many of the accounts in question were opened using forged signature cards -- nine, to be exact. All of the accounts were opened by the same banker within a few days of each other.

Third, the suit alleges that the bank, subsequently bought by BB&T, allowed Pro Sports Financial to open the accounts on the players' behalf under a power of attorney agreement. The players contend that no such agreement exists. Under these accounts, bank statements and client notifications went to the Pro Sports office, keeping the players completely in the dark.

Quick recap
So the institution allowed Rubin and other Pro Sports Financial employees to open accounts with potentially fraudulent signatures or with potentially nonexistent powers of attorney. The bank then allowed Rubin, et al to make transactions without the consent or knowledge of the players in a speculative Alabama casino project (which turned out to be illegal). Players like Frank Gore (out more than $8.7 million, according to the suit) and Jevon Kearse (out more than $7.9 million) only realized their money was gone when Rubin stopped paying bills on their behalf.

What was BB&T thinking?
Again, the alleged misconduct occurred at a bank that was subsequently bought by BB&T. However, when you buy a bank, you're also buying all the skeletons in the closet.

JPMorgan Chase can share some wisdom with BB&T on this front, as the bank is potentially forking over double-digit billions in fees as a result of its Washington Mutual acquisition. Wells Fargo (NYSE: WFC  ) was forced to deal with the mortgage mess it acquired through Wachovia. Bank of America (NYSE: BAC  ) is also no stranger to this issue, as it continues to grapple with its Countrywide assets six years after the acquisition.

But that is no excuse for the misconduct, and more significantly, it points to one of the greatest dangers for banks (and therefore bank investors). Letting one or a small group of customers become too concentrated in the business.

Pro Sports had tens of millions of dollars on the deposit with the bank. The company undoubtedly did other business with the bank. For the banker, this was a key relationship and one that certainly received a lot of customer service attention. A small bank can't just let tens of millions of dollars walk out the door. 

The banker certainly relied heavily on Pro Sports to meet his loan and deposit growth goals. It would not be uncommon for bonuses to be tied to these exact metrics. 

Blinded by the size and significance of the Pro Sports relationship, its easy to see how corners could have been cut, how favors could quickly grow from insignificant to fraudulent.

It is the same flaw in human nature that created the London Whale, and the same flaw that led Wachovia, Washington Mutual, and Countrywide down the subprime mortgage path.

For banks and for investors, greed is not good. Banking is a business built on integrity. The biggest legal and regulatory risk for banks is not Dodd-Frank or Basel III. It's losing sight of right and wrong in the quest for more money.

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