Former RIA Charles Augustus Banks IV has been indicted on two counts of criminal wire fraud for allegedly bilking legendary San Antonio Spurs power forward Tim Duncan out of at least $7.5 million.
Banks, 48, who maintains his innocence, could face 20 years in prison if convicted. The owner of vineyards around the world, Banks turned himself in to the FBI in San Antonio, Texas, on Sept. 9 before appearing handcuffed at federal court there. He is free on $1 million bail after posting a $50,000 bond. The SEC has filed a parallel case against Banks.
'SUFFERING CONSEQUENCES'
"Nobody did this to him but himself," the Spurs’ general counsel, J. Tullos Wells, who is representing Duncan in the case, said of Banks in an interview. "He made bad decisions that adversely impacted other people and now he's suffering the consequences of his own judgment."
The regulator plans to ramp up scrutiny of bad brokers and electronic communications, among other new measures.
Wells says Duncan, 40, who retired this summer after 19 years as a player, has lost as much as $26 million overall in Banks' investments. The basketball player has filed two other cases against Banks in other courts; at least one deals with investments Duncan made in Banks' winery ventures.
"When Charles decided to be a rock star and do all of these private equity deals," Wells said, "it became too easy for him to use other peoples’ money, and the more he used the more he needed."
In a statement, Banks' lawyer, Johnny Sutton, defended his client.
"He is innocent of these charges and confident that when all the facts and circumstances are brought to light, he will be exonerated of any wrongdoing," Sutton said. “Charles Banks is a respected businessman, husband, and father with a long and successful business career," he added.
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Reached by phone last year, Banks called Duncan's accusations "naïve and immature and total nonsense." Attempts to reach Banks this week were unsuccessful.
Duncan's problems with his investment advisor came to light in 2013 when he went through a divorce.
Duncan met Banks in 1998, early in his long career, according to the indictment. Banks began managing Duncan's money while working for an RIA firm he eventually ran, CSI Capital Management, which SunTrust Banks bought in 2011. In 2012, Banks convinced Duncan to loan $7.5 million to a sports apparel and merchandise company he ran, Gameday Entertainment, in Lone Tree, Colorado, according to the indictment.
Gameday "has grown like crazy and we have a chance to land all the merchandising for the Dodgers, so we need cash to buy the inventory," Banks wrote Duncan in a 2012 email, according to the SEC's complaint.
'I'M CONFUSED'
Banks promised Duncan returns on his loan at an annual rate of 12%, payable monthly, the indictment says.
He didn't tell Duncan he would take a 20% fee – similar to a hedge fund – on the 12% returns, which amounted to $15,000 of the monthly $75,000 payment to Duncan, the SEC alleges.
After Gameday found itself in need of more cash the following year, Banks told Duncan he was restructuring the $7.5 million loan to reduce Duncan's exposure by $1.5 million. However, the restructuring created an additional liability of $6 million for Duncan, the SEC claims.
The indictment contains texts between Banks and Duncan about the restructuring, with abbreviations and grammatical errors preserved.
On June 4, 2013, the advisor texted his client: "On the good news front Gameday is crushing," Banks wrote. "We are changing your 7.5m loan to 6m. Paying it down 1.5m. Sending you an amendment to the loan I need you to send back when you get it."
“Why are we changing the loan??” Duncan replied. “If its crushing should I get more of the company?? Or at least what's agreed upon?? I'm confused."
Banks responded: "My fault for not explaining more clearly. Your exposure is going down but your upside remain and your monthly payments remain. This just removes 1.5m of risk for you. All GrEAT news. No downside."
Following this assurance, Duncan signed and faxed over just the two signatures pages to the agreements.
THEY ARE 'OWED TO ME'
In defense of the Gameday loan, Banks said last year that Duncan "signed limited partnership documents for a private equity fund that has a 10-year life, with some extensions. You just don't have the chance to say, 'Oh, I changed my mind. Just because I want out doesn’t mean I can kick and scream until I get out.’ ”
When it came to the interest payments, Duncan had verbally agreed to pay him a 20% fee on profits, Banks also said.
However, when Duncan "and his advisors said they were not happy with that, he was repaid in full," Banks insisted. "At the time, in order to make a good will gesture and him being a friend, I thought, 'OK, if you are unhappy with that, I'm fine, let's change it.' "
Yet he also added, " We have not given up our rights to those fees. They are owed to me."
Across this and other investments, the advisor took more than $1 million in fees for himself that he did not disclose to Duncan, both federal cases allege.
Duncan claims that Gameday has yet to produce much in the way of returns.
Terroir Capital, Banks's wine investment firm, owns more than a dozen brands that produce 500,000 cases of wine annually from vineyards in Australia, California, France, and New Zealand, according to industry publication The Drinks Business.
Until the conclusion of grand jury hearings, Banks is forbidden from traveling outside the United States or opening new lines of credit without authorization. He also must refrain from the "excessive use of alcohol," according to the terms of his release on bail.
'PERSONAL CONFIDANT'
Duncan had hoped to work out his dispute with the advisor he once called his "personal confidant" without the need for a trial, according to Wells.
"We tried on at least two occasions to have a civil conversation with Charles to explain how serious this was to our client," Wells said. "He was given a chance to work with us and he chose not to, either because he could not or would not do so."
Duncan's $236 million in career earnings, according to sports salary firm Spotrac, made him the fourth-highest paid NBA player at the time of his retirement. Although his wealth means his losses to Banks won't leave him broke, Duncan still felt compelled to put a stop to his former advisor, Wells said.
"Duncan filed the [lawsuits] because he didn't want Banks to do to others what he did to Tim and his family," he said. "That is why we are here."
This story has been corrected to show that Banks was not an advisor with SunTrust Banks at the time of the alleged fraud.
