Commentary

Libel, fraud and the (other) SEC

Names in the sports law news: Scottie Pippen, Willie Gault, Rudy Ruettinger …

Updated: December 23, 2011, 2:14 PM ET
By Lester Munson | ESPN.com

It's gettin' so it's hard to tell sports from the law anymore, the way those two worlds have been colliding at such a frenetic pace lately. An example: The phrase "pump and dump." Does it belong in the football world or in the legal world? Tough call, eh? Well, that's why the view from our Courtside Seat is so indispensable. Keep looking here and you'll get the answer, along with everything you always wanted to know about allocution but were afraid to ask. But first, we start today with …

Libel Most Foul

The rumors began as Scottie Pippen started to realize that he had made a dubious deal on the purchase of an airplane and that he was about to lose significant money in a real estate investment. They grew as he filed suits against two law firms and a real estate developer and as his new lawyers, George Spellmire and Jeffrey Katz of Chicago, helped him recover more than $15 million of his investments.

[+] EnlargeScottie Pippen
AP Photo/Mike FisherWhen he played for the Bulls, Scottie Pippen was a media darling more often than a media target.

Somehow, the rumors morphed into what passes for fact in the blogosphere, to the point that Pippen's Wikipedia page said he had lost $120 million and was "bankrupt."

And then, his lawyers say, the rumors became a bonfire fueled by reports of Pippen's bankruptcy on CNBC, CBS Sportsline, Sportsreport360.com, and several investment advice websites. Pippen and his supposed bankruptcy became a cautionary tale for investors, a warning that they must be careful.

The problem? Pippen never lost $120 million, and, more importantly, never filed for bankruptcy. His net worth, according to Spellmire, never dipped below $40 million even as Pippen fought to salvage a few of his investments.

In the libel lawsuit that Pippen and his lawyers filed last week against the news organizations and the financial advice websites, they describe a nightmare of lost endorsements and appearance fees that began after the bogus reports.

Pippen wants money damages from nine enterprises that reported his supposed bankruptcy. The list includes some deep pockets (Comcast, General Electric) and even a couple of universities (Arizona State and the University of Tampa) that operate news websites.

Typical of the reports of the never-filed bankruptcy are news stories on HoopsVibe.com and Mint.com. Under the headline, "If Dr. J. Is Broke, What Chance Do ANY of Us Have??," the HoopsVibe site listed Pippen as "another big name who lost big." Its story included the statement, "After making $120 million dollars [sic] during his playing career, he famously filed bankruptcy due in large part to a failed investment in a corporate jet."

[+] EnlargeScottie Pippen
Kevin C. Cox/Getty ImagesScottie Pippen certainly didn't look the part of a bankrupt businessman during the Bulls-Hawks playoff series in May.

He did not, of course, file for bankruptcy, famously or otherwise. And he remains in pursuit of the money he invested in the plane with a lawsuit now under consideration in the Illinois Appellate Court.

Mint.com offered a similar report in a different format under the headline: "From Stoke to Broke: Why Sports Stars Are Going Bankrupt":

"Scottie, Pippen, Basketball
Year bankruptcy filed: 2003
Risky investments, Buying a corporate jet."

Pippen and his lawyers will face a long-established rule that applies when public figures such as Pippen sue for libel. They must prove that the libelous statements of his bankruptcy were made willfully and with malice. It isn't easy, but Pippen has a running start with the clearly erroneous reports. Pippen's legal team will also rely on the fact that, in the Internet era, it would have been relatively easy for any of the reporters to check to determine whether Pippen had actually filed for bankruptcy. It's a matter of a few clicks into the federal courts reporting system, a task that can be completed in three or four minutes.

It might be a good idea for the nine defendants who reported Pippen's "bankruptcy" to consider a settlement. As his lawyers stated in their complaint, "It is a most foul libel indeed to be falsely accused of being bankrupt."

Fraud: It's a Full-time Job

Memo to ESPN management: It might be wise to assign a reporter full-time to the SEC. (No, not that SEC. We've already got full-time reporters covering that SEC.) This SEC is the U.S. Securities and Exchange Commission, and its people are suddenly all over the world of sports at least as much as LSU, Alabama, Georgia, Florida and those other Southeastern football powers are.

This SEC is investigating the bonds that are paying for the new Marlins ballpark in Miami. These people have sued former Chicago Bears receiver and Olympic sprinter and bobsledder Willie Gault for his role in a stock scam known as "pump and dump." And this powerful organization has concluded a long investigation of Hollywood's favorite 'Domer, Daniel (Rudy) Ruettiger.

The Stadium

The focus of the SEC's look at the Miami baseball stadium, scheduled to open in April, is a controversial $500 million Miami-Dade County bond issue. The use of taxpayer funds to build a stadium for the Marlins has already led to the recall and removal from office of the mayor, Carlos Alvarez, whose support led to its approval.

[+] EnlargeMarlins Baseball Stadium
AP Photo/J Pat CarterIf you build it, they will come. If you finance it under false pretenses, the SEC will come.

In a 20-page letter and subpoena to Miami-Dade authorities earlier this month, the SEC demanded a huge quantity of documents and correspondence with the Marlins, the bond underwriters, and broker-dealers who sold the bonds. The focus of the probe will be the adequacy and accuracy of the financial reports that were the basis for the public financing of the stadium.

A critical issue, according to two attorneys involved in the investigation, will be the financial state of the Marlins. Did the team claim to be suffering losses? Did the franchise admit that it was profitable?

Documents leaked to Deadspin indicate that the Marlins have been profitable despite an average attendance that is among the lowest in major league baseball.

It's an investigation worth watching. If the SEC finds any chicanery in the reporting of the Marlins' finances, it could lead to serious problems -- huge fines and reimbursement of any funds the city paid for the stadium based on inaccurate reports.

The Kicker

In contrast to "Rudy," the feel-good film that made Rudy Ruettinger famous, the SEC's Rudy story does not have a happy ending. So far. Ruettinger and a Notre Dame pal founded a company called Rudy Beverage Inc. in South Bend eight years ago. They hoped to compete with Gatorade, but things did not go well.

In an effort to save the company, Ruettinger brought in a new CEO in 2007, but it was a mistake. According to the SEC, the new CEO gathered a group of notorious stock manipulators, including a disbarred lawyer, and they embarked on a series of maneuvers that led to the company offering stock to investors. It was the first step in an apparent scam designed to push up the stock price. The next step was to produce false reports of taste tests in which consumers supposedly preferred the Rudy drink to Gatorade by a margin of 2 to 1. It worked for a while, but then the SEC came knocking at the door.

After a detailed investigation, Ruettinger was able to settle with the SEC with a payment of $383,866 and his agreement to stay away from any business that issues stock. The agency remains in pursuit of two of his colleagues.

The Receiver

The SEC's case against Gault is based on his work as co-CEO of a company known as Heart Tronics that developed an electrocardiogram that was supposed to be able to detect early heart disease faster than other diagnostic devices.

[+] EnlargeWillie Gault
AP Photo/Mark FliesWith the Bears in 1985, Willie Gault's stock was rising. Legitimately.

For Gault, the critical allegation is that he sold $150,000 in company stock to an investor and kept the money for himself. Gault, who played on the 1985 Bears Super Bowl team, told the Chicago Sun-Times that he did what the investor told him to do with the money.

"He wanted his money to go to pay the workers which I did, pay the back taxes which I did, and some small amount went to buy stock to fight the shorts," he told the paper. ("Shorts" are investors who were selling short on a bet that the stock would drop in price.)

Gault claims that he had documented his story with the SEC. But after reviewing his material, the agency sued him and is demanding reimbursement of the $150,000 and an injunction that would prevent Gault from working for any company that issues stock to the public.

Gault and other company officers are also accused of staging stock sales that gave the false impression that the company's value was increasing. They "pumped" up the price with the manipulated sales and then "dumped" the stock when its price rose, according to the SEC's lawsuit.

Who will be the SEC's next sports industry target? There is no way to know, of course, but it would be wise to have someone checking in with the agency every now and then. (Hear that, ESPN management?)

Here's To You, Mr. Robinson …

Rumeal Robinson's life since basketball has been marked by a series of bad decisions -- among his legal scrapes are accusations that he tried to bribe a bank loan officer, that he used his mother's house as collateral for another loan that resulted in her eviction, and gathering 10 moving violations in two months of driving in Florida -- but the most costly of his blunders might be the lengthy personal statement he gave to a federal judge in Iowa who was about to sentence him after a jury convicted him of bank fraud.

The kind of statement Robinson gave, known in the prolix patois of the courthouse as an allocution, typically includes a plea for mercy, an apology to the victims, a recognition of responsibility for the crimes, and a showing of contrition. It's a proven combination that can sometimes lead to reduced time in the penitentiary or even to probation.

When Robinson's time to speak came up, he tried a different approach as he addressed U.S. District Judge Ronald Longstaff in Des Moines. He claimed that his trial in Longstaff's courtroom was unfair. He claimed his lawyer was incompetent. He claimed he was the victim of a conspiracy.

These are not the kind of statements that dispose a judge to a minimum sentence or to probation.

[+] EnlargeRumeal Robinson
Stephen Dunn/Getty ImagesIn the game, Rumeal Robinson fared well. Out of it? Not so much.

So he was headed in a wrong direction as he spoke. And then he made the biggest mistake of all. Robinson, 45, included the judge among the people conspiring against him.

The judge's reaction was quick and conclusive. Longstaff told Robinson, "You have turned what was a very difficult task for me into a rather easy task because by your statement today, you demonstrate to me absolutely no remorse, absolutely no acknowledgment of fault."

And the judge was just warming up.

"You're just demonstrating your total lack of understanding of what you have done," Longstaff continued. "You took over a million dollars and spent it mainly on your personal finances. … You said it was to develop a business, but what it turned out to be was a matter of satisfying your own greed."

According to court records, Robinson spent more than $1 million in bank loans on strippers, luxury hotels in Las Vegas and Miami Beach, three Mercedes, two BMWs, five motorcycles and a $10,000 M16 machine gun.

Robinson's blunder earned him the 6½-year sentence that he is now serving in a medium security federal prison in Edgefield, S.C., about 25 miles north of Augusta, Ga.

If Robinson had shown a scintilla of remorse, he might have shaved some time off his sentence and been assigned to minimum security. That's a scintilla. It's another of those courthouse words, and it describes an amount that is tiny and barely noticeable. It isn't much. Use of the word "sorry," for example, would qualify as a scintilla.

Any period of incarceration anywhere is a miserable experience, of course, but medium security is several levels of misery worse that minimum security. Prisoners in minimum security reside in dorms and are sometimes permitted to leave the institution during the day on prison business. Prisoners in medium security are confined to cells, locked down, and are subject to repeated strip searches.

Did Robinson learn anything from Judge Longstaff's harsh sentence? Apparently not. From his cell in Edgefield, he pursued an appeal and made the same claims in it that he'd made to Longstaff. And Robinson suggested to the U.S. Court of Appeals for the Eighth Circuit that the judge in Des Moines had used his allocution against him in the harsh sentence. No kidding.

Earlier this month, three judges of the high court made short work of Robinson's appeal. In two short paragraphs, they disposed of Robinsons's claim, labeling his allocution as an "outrageous protestation of innocence" and approving of Judge Longstaff's sentence.

The terse and abrupt tone of the judges' opinion demonstrates their dismissive response to Robinson's claims. Reading their opinion, you have the feeling that, if the law permitted it, they would have added to his sentence.

Robinson will have time now to consider his allocution speech and the bad decisions he has made since his basketball days in the NBA and at the University of Michigan. He isn't scheduled to be released until Aug. 15, 2016.

Lester Munson, a Chicago lawyer and journalist who reports on investigative and legal issues in the sports industry, is a senior writer for ESPN.com.

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