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Cases of celebrities accused of financial crimes adding up

Since 2004, a growing list of athletes and actors has been accused of financial misdeeds by the SEC, helping send a message that nobody is above the law.

January 19, 2013|By Stuart Pfeifer, Los Angeles Times
  • Since homemaking guru Martha Stewart’s five-month stint in jail in 2004, there has been a steady drumbeat of celebrities accused of financial chicanery. And most of them have been played out in the media. Above, Stewart, flanked by U.S. Marshals, leaves after her sentencing in federal court in New York.
Since homemaking guru Martha Stewart’s five-month stint in jail… (Bebeto Matthews, Associated…)

Call it the Securities and Exchange Commission's most wanted celebrities list.

Daniel Ruettiger, the Notre Dame football player made famous by the movie "Rudy," was on it. Baseball legends Eddie Murray and Doug DeCinces as well as football great Willie Gault made the list. Even good guy actor Larry Wilcox, better known as the motorcycle-riding officer in the TV series "CHiPs."

They are among the athletes and actors who have butted up against the nation's top securities cops in recent years. Experts say such high-profile cases send a message that nobody is above the law.

"Going after celebrities reinforces the view that our laws are being applied fairly, that the small investor has a champion to watch after him or her, and that those who cross the line will pay a heavy price if they do," said Harvey Pitt, a former SEC chairman who is now a private securities lawyer.

Since homemaking guru Martha Stewart's five-month stint in jail in 2004, there has been a steady stream of celebrities accused of financial chicanery. And most of the cases have played out in the media.

In November, DeCinces was indicted by a federal grand jury in California for alleged insider trading.

His troubles began in 2009 when a neighbor, James V. Mazzo, gave the former Angels third baseman a hot stock tip, authorities said. Mazzo, the chief executive of Advanced Medical Optics, allegedly told DeCinces that the Santa Ana company was going to be acquired by Abbott Laboratories.

Shares of the medical device maker skyrocketed 143% after the deal was announced. DeCinces pocketed more than $1.7 million in profit when the stock he snapped up soared.

Along the way, DeCinces also shared the inside information with friend and former teammate Murray, who used it to make more than $235,000 on the stock, the SEC said.

Both men denied wrongdoing and settled their cases with the SEC. They declined to comment for this story.

"Celebrities have developed the mentality that they're above the crowd and the rules don't apply to them," said Boyd Page, a partner at Atlanta law firm Page Perry, which represents investors in litigation. "Think about these guys, Eddie Murray, Doug DeCinces, to their entourage, they're gods. No one questions them."

Daniel M. Hawke, chief of the SEC's market abuse unit, said that celebrity status plays no role in the agency's decision to pursue charges.

He said the agency pursues cases based on an analysis of the evidence, and if the regulator would have a good case.

"We do not single people out based on their profile," he said. "We go where the evidence leads."

In August, the agency accused former football coach Jim Donnan of helping run an $80-million Ponzi scheme that involved other college coaches and former players as victims. The former University of Georgia coach allegedly promised investors they could earn substantial profits by buying leftover merchandise from retailers and then reselling it to discount retailers.

However, the SEC alleged, Donnan and his business partner pocketed a majority of the money, and the remaining cash was used to pay fake returns to early investors.

Gault, the former NFL wide receiver and Olympic sprinter, was accused of a "pump-and-dump" scheme in 2011. The SEC contended that he took part in a plan to artificially inflate the stock of a medical-device company at which he served as an executive.

The agency said in a complaint that Gault hyped millions of dollars in fake sales orders for Studio City-based Heart Tronics from 2006 to 2008. That good news sent the stock skyrocketing, and Gault was accused of sharing part of an $8-million profit from stock transactions. He denied wrongdoing in the case.

The agency went after Wilcox a few years ago for allegedly paying kickbacks to investors in classic pump-and-dump schemes: The cooperating investors would buy shares of the promoters' thinly traded penny stocks, with the goal of driving up the prices in hopes of luring other investors into the shares.

Wilcox, who lives in the West Hills area of L.A., eventually settled with the SEC. He declined to comment.

Stanley Teitelbaum, a psychologist and author of the book "Athletes Who Indulge Their Dark Side," said it isn't surprising that some celebrities get snagged in these kind of investigations.

He said many people who become famous have a sense of entitlement developed through years of pampering and special treatment.

Retired athletes are particularly vulnerable because they often confront reduced incomes and have few job skills, Teitelbaum said. The same might be said for actors and other celebrities whose stars have faded.

"They're celebrities and they've been treated so special and they're trading on their name," he said. "Hero worship creates a population of affluent fans who are ready targets, who savor an affiliation with a sports star."

Ruettiger said he knows that all too well.

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