Celebrity doesn't equal financial competence

By DAVID MOON, Moon Capital Management, LLC
March 17, 2013

Former NFL player, Freddie Mitchell just pleaded guilty to a tax fraud that earned him up to 10 years in prison. He and two co-conspirators charged an unnamed professional athlete $100,000 in return for preparing a tax return that fraudulently claimed a $2 million tax refund.

The US Attorney’s office says that the player was unaware that his return was fraudulent.

The player trusted Mitchell. After all, Mitchell was an All-American wide receiver at UCLA and had enjoyed a four-year professional career. If you can’t trust someone who could have easily been your teammate, who could you trust?

Simple familiarity is a terrible – but too common – way to choose an adviser.

But it’s an old story, one that continually repeats itself with new actors. This time it was a former NFL player stealing from a peer.

In a still unresolved case, the SEC accused Hall of Fame Georgia football coach Jim Donnan of orchestrating an $80-million investment swindle.

That’s the Securities and Exchange Commission, not the Southeastern Conference.

Donnan used his prominence to attract fellow coaches like Tommy Tuberville, Barry Switzer and Frank Beamer. The SEC complaint alleged that Donnan told one former player “if you weren’t my son, I wouldn’t be doing this for you.”

The young man lost $800,000.

60-year old AAU basketball coach and self-styled investment manager David Salinas died of an apparent suicide in 2011 after the SEC began an investigation into Salinas and a multi-million dollar Ponzi scheme – one that snared a number of college hoops coaches, including, according to Sports Illustrated, former Kentucky head Billy Gillespie.

Both Salinas and Donnan were apparently quite accomplished name droppers, using the names of high profile clients and colleagues to attract more investors.

If part of someone’s sales pitch involves bragging about his clients, run.
Even famous Notre Dame football player Daniel “Rudy” Ruettinger – immortalized in the heart warming movie about him – disappointed his friends, colleagues and fans. Before accepting a $382,000 settlement from the now motivational speaker, the SEC said “investors were lured into the [fraudulent] scheme by Mr. Ruettinger’s well-known, feel-good story but found themselves in a situation that did not have a happy ending.”

From NBA players to high school coaches, the examples are both numerous and disheartening.

Sports is one common area where familiarity and celebrity often invite casual acceptance. But it also happens at church, the PTA and family reunions.

Don’t hire someone just because of a sense of perceived familiarity – either because you see them on television or because they sit across the aisle from you at church.

I’m in the newspaper and regularly on network television. I was also an athlete (well, offensive lineman) at one time in my life. I know this from having witnessed too many disasters: neither familiarity nor celebrity creates competence or trustworthiness.

Too often our society ascribes these qualities for all the wrong reasons.

Bernie Madoff and Allen Stanford both gave millions of dollars to charity.

Of course, it was other people’s money.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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