April 26 (Bloomberg) -- Joseph Lombardo, founder of Prim Capital Corp., which advises the National Basketball Players Association, faces U.S. criminal charges that he obstructed a federal grand jury probe of a $3 million fraud scheme.
Lombardo and Carolyn Kaufman, a Prim principal who served as president of the company’s advisory services unit, were charged in a criminal complaint unsealed yesterday in federal court in Manhattan with obstructing the investigation.
In the complaint filed yesterday by the office of Manhattan U.S. Attorney Preet Bharara, Lombardo, 72, of Gates Mills, Ohio, is also charged with one count of attempted wire fraud and one count of attempted mail fraud.
Prim was the primary outside advisory firm entrusted with the union’s investments and finances from 2001 to 2013, according to the complaint. Prim helped in the management of as much as $250 million of the association’s assets.
In May 2012, as part of a U.S. Department of Labor investigation, Prim was served with a subpoena seeking documents pertaining to agreements between the association and Prim, prosecutors said. Prim produced copies of its agreements with the union, including a purported 2011 contract listing Prim’s fee as $602,000 a year for a five-year term, prosecutors said.
The contract was signed by Gary Hall, the union’s former general counsel. Bharara said an investigation revealed that Hall’s signature wasn’t authentic and was created at Prim, months after Hall’s death in March 2011, Bharara said.
Lombardo and Kaufman, 72, of Hudson, Ohio, were later summoned to appear before a federal grand jury in New York investigating the matter and provided false testimony, prosecutors said.
Lombardo and Kaufman were arrested yesterday in their homes in Ohio and presented before U.S. Magistrate Judge Greg White in federal court in Cleveland, Bharara said. They are scheduled to appear in federal court in New York on May 2, prosecutors said.
The two were released by White on $100,000 personal recognizance bonds. Both were represented by lawyer Sam Zingale, who didn’t immediately return a voice-mail message after regular business hours yesterday seeking comment on the charges.
Lombardo faces as long as 20 years in prison if convicted of wire or mail fraud, Bharara said in a statement. Lombardo and Kaufman face a maximum 20-year sentence if convicted of obstruction, Bharara said.
Lombardo’s arrest follows months of turmoil at the union, whose members in February voted to fire Executive Director Billy Hunter after an independent investigation found that the former federal prosecutor put his own interests ahead of the players’.
Hunter’s son, Todd, was a principal at Prim Capital. Billy Hunter in January purged family members from union roles after the investigation conducted by the New York law firm Paul, Weiss, Rifkind, Wharton & Garrison was critical of nepotism at the organization.
The New York-based union paid almost $4.8 million to Hunter’s family members and their professional firms since 2001, according to public records. Billy Hunter also severed ties with Prim.
The investigation concluded that Hunter didn’t do anything illegal.
The U.S. Attorney’s Office in Manhattan started investigating the union after the association’s president, Derek Fisher, called for a review of business practices, including nepotism.
Hunter, a former National Football League player, had guided the union since 1996. Union attorney Ron Klempner is running the association while the players search for a new executive director.
Billy Hunter says the players owe him the remaining $10 million left on his contract. The Paul Weiss report concluded that Hunter hid the fact his contract wasn’t properly ratified, rendering it invalid.
The case is U.S. v. Lombardo, 13-01072, U.S. District Court, Southern District of New York.