Two Convicted In Multi-Million Dollar Investment Fraud Scheme That Victimized Professional Hockey Players And Long Island Investors
Defendants Diverted Investors’ Money for Their Personal Use
Following ten weeks of trial, a federal jury in Central Islip, New York, today returned a verdict convicting Phillip A. Kenner, a financial advisor, and Tommy C. Constantine, a part-time race car driver, on charges of wire fraud, wire fraud conspiracy, and money laundering conspiracy arising from the defendants’ pocketing of millions of dollars raised from Long Island businessmen and professional athletes ostensibly for the purpose of funding the development of land in Hawaii and a start-up credit card business based in Arizona. Sentencing has been scheduled for November 20, 2015. The defendants face a maximum of 20 years’ imprisonment on each count of conviction as well as forfeiture of up to $30 million in proceeds derived from the frauds.
The verdict was announced by Kelly T. Currie, Acting United States Attorney for the Eastern District of New York, Diego Rodriguez, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), and Shantelle P. Kitchen, Special Agent-in-Charge, Internal Revenue Service-Criminal Investigation, New York (IRS).
The evidence from 39 government witnesses and hundreds of exhibits, including audio recordings made by several investor victims of each of the defendants as they struggled to comprehend the extent of their losses, established that as early as 2004, Kenner and Constantine used a labyrinth of holding companies to siphon millions in investor dollars away from their intended use and into companies, real estate, and other ventures that solely benefitted the defendants.
“Driven by personal greed, Kenner and Constantine spent years lying to investors and stealing their money, and then attempted to conceal their fraud by repeatedly and brazenly avoiding responsibility, shifting blame, and scapegoating others. Today, their scheme has been brought to an end,” stated Acting United States Attorney Currie. Mr. Currie expressed his grateful appreciation to the United States Attorney’s Office for the District of Arizona, the FBI and IRS Phoenix Offices, and the Scottsdale Police Department for their assistance in this prosecution.
"After defrauding victim investors out of millions of dollars over many years, the lies, deception, and criminal behavior of Kenner and Constantine have caught up with them today. The FBI thanks all of our partners for their assistance with this case," said FBI Assistant Director-in-Charge Rodriguez.
“Hopefully, today’s verdict will bring some closure to the victims of Kenner and Constantine,” said IRS Special Agent-in-Charge Kitchen. “Their success in defrauding so many individuals reinforces how important it is to use care when investing, no matter how much confidence you have in the individual or company you are investing with. Fortunately, federal law enforcement strives to be vigilant in uncovering fraud schemes and thorough in its investigation of them.”
As a college hockey player at Renssellaer Polytechnic Institute in Troy, New York, Kenner befriended then-teammate and future Olympian and National Hockey League (NHL) star Joe Juneau, who testified during the trial that after college he helped introduce Kenner to a number of other NHL players in the 1990’s as Kenner began working as a financial advisor in Boston. Through those early contacts, Kenner developed a clientele that included one-time New York Islanders forward Michael Peca, 1995 first-round draft pick and U.S. Olympian Bryan Berard, and Stanley Cup champions Darryl Sydor, Bill Ranford, and Sergei Gonchar, among other NHL players, whose careers blossomed just as Kenner took over greater and greater control of their finances and wealth.
The Hawaii Real Estate Investment Scheme
Beginning in 2003, Kenner convinced Peca, Berard, and several other clients to invest $100,000 each for the development of land in Hawaii into luxury estates. Kenner also had the players open lines of credit, collateralized by their personal stock, bond, and savings accounts, worth at least $10 million. Witness after witness testified that Kenner assured them that the credit lines would be used only to pay for initial development costs associated with the Hawaii project, and would be fully replenished after Lehman Brothers Holdings, Inc. agreed to loan the project up to $105 million in August 2006. In fact, the government’s evidence established that Kenner borrowed nearly all of his clients’ lines of credit and used the money to purchase his personal interest in unrelated real estate projects in Hawaii and Mexico, transfer funds to his partner in crime Constantine, and fund both his and Constantine’s personal expenses.
Meanwhile, Kenner and Constantine negotiated sweetheart deals that also dissipated the players’ assets and diverted millions to the defendants’ various pet projects. In one such deal, Constantine brokered a loan from an Arizona businessman for $3.5 million, ostensibly to close on a certain Hawaii parcel of land. The loan would have been unnecessary but for the fact that Kenner had already stolen millions through the player lines of credit. Worse, the loan agreement included a $2 million prepayment penalty at a time when the Lehman funding deal was all but certain to trigger the penalty. Although he put up no money of his own, Constantine walked away from that single loan with some $2 million that represented the diverted player assets. Bank records established that Constantine almost immediately kicked back a portion of the loan repayment proceeds to Kenner.
The Eufora LLC Scheme
During the conspiracy, Constantine operated Eufora, LLC, a prepaid debit card business which he founded in 2002. Between February 2008 and May 2009, as Eufora’s operating balances were in the red and Constantine testified in civil depositions that the company was nearly worthless, Kenner urged his clients to invest in Eufora. Approximately $700,000 of player investments was immediately wired out of Eufora to Kenner-controlled accounts. Another $725,000 in funds were similarly diverted to accounts that Constantine controlled and was used to cover the costs of Kenner’s and Constantine’s personal mortgages, credit card bills, and other debts.
In December 2009, Constantine fraudulently convinced a Long Island electrician, who had previously worked on a Kenner real estate project, to invest another $200,000 in Eufora, an investment that Constantine subsequently disavowed. In a recorded phone conversation played for the jury, Constantine offered a series of contradictory explanations refusing to acknowledge that the $200,000 was to have bought the victim a 1.5 percent interest in the company, which included a refusal to admit receiving the money, an admission that the investment had been received but not approved by Eufora’s board of directors, and even a suggestion that the victim should have asked for the money back before it was spent, even though records show that victim’s money was diverted and spent by the defendant within a day of being wired into Constantine’s control.
The Global Settlement Fund Scheme
In early 2009, Kenner’s player-clients who had opened lines of credit for the Hawaii venture received notices that their lines of credit were in default. For years, Kenner concealed that he had wiped out most of his clients’ savings by borrowing against one line of credit to pay monthly interest charges for another. By late 2008, the concealment scheme collapsed. Rather than admit to the diversions, Kenner and Constantine used the crisis to engineer a new phase of their fraud conspiracy by persuading the players to contribute new money towards something they termed the Global Settlement Fund or GSF.
At trial, the victims testified that Constantine and Kenner told them that the reason for their losses was the purported failure to repay loans by the managing partner of a Mexican resort known as Diamante Cabo San Lucas (DCSL). None of the players had previously been told that funds intended for the Hawaii land deal had been loaned to another developer in Mexico. Furthermore, documentary evidence at trial showed that much of the money that Kenner stole from the Hawaii project ended up being used to buy Kenner a personal 39 percent stake in DCSL.
Convinced that the only hope to recoup their losses lay in contributing to the Global Settlement Fund to fund litigation against the DCSL partner, Constantine and Kenner raised more than $2.9 million from the players. However, only $225,000 in contributions to the GSF were used for litigation. Instead, the vast majority of the money was again diverted to the defendants’ personal use, which included Constantine buying his personal home out of foreclosure, Kenner and Constantine paying legal bills related to Kenner’s personal investment in a tequila company in Mexico, defending Constantine in Florida litigation over his race car sponsorship activities, and an aborted effort by Constantine to buy Playboy Enterprises.
The Sag Harbor Scheme
In a separate scheme, Kenner acquired a 25 percent interest in real property in Sag Harbor, New York, without using any of his own money. To achieve this result, Kenner took $395,000 from Michael Peca’s line of credit, without Peca’s knowledge or permission, while at the same time convincing Berard to pay $375,000 for a supposed 50 percent interest, when in fact Kenner diluted Berard’s stake by half and pocketed the excess money. In early 2010, the investors realized Kenner had not contributed any of his own money, and they sold the property at a loss.
The government’s case is being prosecuted by the Office’s Long Island Criminal Division. Assistant United States Attorneys James M. Miskiewicz, Saritha Komatireddy, and Diane Leonardo are in charge of the prosecution.
E.D.N.Y. Docket No. 13-CR-607 (JFB)