NFL Quarterback John Elway Victim of Ponzi Scheme

October 16, 2010

John Elway, former NFL quarterback for the Denver Broncos, has lost millions of dollars in an investment that turned out to be a Ponzi scheme.

Elway and his business partner Mitch Pierce invested $15 million in March 2010 with hedge fund manager Sean Mueller in what the Denver District Attorney Mitch Morrissey alleges was a classic Ponzi scheme, reports the Wall Street Journal.

According to court documents, Sean Mueller faces charges of securities fraud in which he made untrue statements or omissions, two counts of theft, and racketeering in violation of the Colorado Organized Crime Control Act.

Since 2000, Mueller allegedly created hedge funds and offered investors limited partnerships in his funds. He then conducted day trading in the funds to generate returns for the investors. By April 2010, there were about 65 investors in these hedge funds, who had invested approximately $71 million. However, between 2008 and 2009, Mueller suffered massive losses in his day trading accounts. By April 2010, Mueller had less than 9.5 million in cash and investments and liabilities to hedge fund investors of about $45 million.

When investigators reviewed Mueller’s bank accounts, they found that he used investor funds to live an extravagant lifestyle, including the purchase and maintenance of three luxurious homes, several expensive cars, personal expenses and memberships at exclusive country clubs.

Investigators allege that Mueller knowingly used new investor funds to pay returns and disbursements to existing investors in true Ponzi fashion. He failed to deposit investor funds into brokerage accounts as promised.

Mueller allegedly duped his own accountants by providing fictitious brokerage statements showing the hedge funds were solvent to hide his scheme. He also knowingly provided investors with fictitious monthly account statements reflecting positive returns. He caused investors to receive fictitious IRS K-1 schedules that reflected positive yearly investment returns in the funds for which they paid taxes when in actuality they suffered investment losses.

The Ponzi scheme was finally exposed when police responded to a call on April 22, 2010 and found Mueller threatening to commit suicide by jumping off a parking garage.

Mueller sent an email to employees and investors that day apologizing for the losses stating, “Nobody here or anywhere else had any idea what was happening. I think you can redo the taxes and recover a good amount of money.”

“I always thought I could make it back but that’s not going to happen,” he said.

Court papers filed for Elway and Pierce by lawyer Stephen Dietrich say their investment was to remain separate from other investor’s funds and held in trust until they could chose conservative investments, not Mueller’s hedge funds. They want to recover their losses ahead of other investors and have filed court documents requesting a declaratory judgment. The two had invested with Mueller in the past.