Founder Of Investment Advisory Firm Pleads Guilty In Manhattan Federal Court To Mail Fraud And Conspiracy To Obstruct Justice In Connection With Attempt To Defraud NBA Players Union

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JOSEPH LOMBARDO, the founder and managing director of Prim Capital Corporation (“Prim”), pled guilty in Manhattan federal court to mail fraud and conspiracy to obstruct a grand jury investigation in connection with an attempt to defraud the National Basketball Players Association (“NBPA”) through the use of a fraudulent retention contract. LOMBARDO, who was arrested in April 2013, along with Carolyn Kaufman, a principal at Prim, pled guilty today before U.S. District Judge Jesse M. Furman.

Manhattan U.S. Attorney Preet Bharara said: “Joseph Lombardo engaged in an elaborate fraud involving the creation of a fake contract with the professional basketball players who had entrusted him to manage their union’s assets. He then lied to a federal grand jury about his illegal actions and told others to do the same. His guilty plea today shows that such fraud and obstruction will not go unpunished.”

According to the Complaint, Indictment, previously filed documents, and today’s plea proceeding:

Prim was founded by LOMBARDO. From 2001 until 2013, Prim was the primary outside investment advisory firm entrusted with the NBPA’s investments and finances. In that capacity, Prim performed various services for the NBPA, including assisting with the management of up to $250 million of the NBPA’s assets, reviewing the investments of individual NBA players, and conducting financial seminars for NBA players.

In May of 2012, as part of a U.S. Department of Labor (“DOL”) investigation, Prim was served with a grand jury subpoena requesting, among other things, copies of all agreements between Prim and the NBPA. In response, Prim produced a copy of a 2005 contract between the NBPA and Prim, under which Prim’s fee was $350,000 per year. The 2005 contract was signed by the Executive Director of the NBPA, the Treasurer of the NBPA, and LOMBARDO, and was renewable annually upon agreement of the parties. That was the only contract that Prim produced at the time.

Several months later, in January of 2013, after Prim learned that a law firm’s review of the NBPA was going to be made public in the near future, Prim then produced to the DOL a previously undisclosed contract with the NBPA (the “Purported 2011 Contract”). Prim’s fee under this contract was $602,000 per year for a five-year term, for a total of $3,010,000. The Purported 2011 Contract also contained a provision indicating that it could not be cancelled for any reason by the NBPA. The Purported 2011 Contract was purportedly signed in March 2011 by LOMBARDO, Gary Hall, the former NBPA General Counsel, and one other NBPA employee.

An investigation revealed that the signature of Hall was not authentic, and that the Purported 2011 Contract was actually created at Prim months after the death of Gary Hall. The investigation also revealed that LOMBARDO arranged for the creation of a signature stamp capable of stamping the signature “Gary A. Hall,” and used the stamp to falsify Hall’s signature months after his death.

In addition, the investigation revealed that LOMBARDO and Kaufman had agreed and attempted to obstruct a grand jury investigation. During the course of the investigation, both LOMBARDO and Kaufman appeared before the grand jury and provided false and misleading testimony. Kaufman testified, among other things, that she had not spoken with anyone regarding her testimony prior to testifying. However, in a recorded conversation prior to appearing before the grand jury, LOMBARDO gave her specific instructions on how to answer questions before the grand jury, and said that his “life is in [her] hands.” In another recorded conversation, LOMBARDO instructed another individual that, if he provided certain false information to the grand jury about the creation of the contract,“[w]e’re home free.” In a third recorded conversation, LOMBARDO instructed another individual to provide false information and said, “It’s important that we didn’t doctor this document up, okay?”

LOMBARDO, 72, of Gates Mills, Ohio, pled guilty to one count of mail fraud and one count of conspiracy to obstruct justice. He faces a maximum sentence of 20 years in prison on the mail fraud count, a maximum sentence of five years in prison on the conspiracy to obstruct justice count, and a maximum fine of $250,000, or twice the gross gain or gross loss from the offense, on each count. LOMBARDO is scheduled to be sentenced by Judge Furman on March 20, 2014.

Kaufman has been charged in a superseding indictment with one count of conspiracy to obstruct justice, one count of obstruction of justice, and one count of perjury for her alleged role in the agreement to obstruct, and obstruction of, the grand jury investigation. She is scheduled to stand trial beginning on December 2, 2013, before Judge Furman.

Mr. Bharara praised the outstanding investigative work of the U.S. Department of Labor’s Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, and the U.S. Department of Labor’s Office of Labor-Management Standards. Mr. Bharara added that the investigation is continuing.

This case is being handled by the Public Corruption Unit of the U.S. Attorney’s Office. Assistant United States Attorneys Daniel C. Richenthal and Paul M. Krieger are in charge of the prosecution.

The pending charges against Kaufman are merely accusations, and she is presumed innocent unless and until proven guilty.

Lombardo, Joseph and Carolyn Kaufman Indictment 13 Cr 411.