Ex-Broncos sue investment firm

Fraud and forgery claimed in managing of Ga. hedge funds

James Paton, Rocky Mountain News

Tuesday, February 21, 2006

The former Denver Broncos players liked the investment pitch, pouring millions of dollars into the Atlanta-based hedge funds.

Now they say they were burned.

Steve Atwater, Terrell Davis and Ray Crockett, along with other investors including current Broncos wide receiver Rod Smith, have filed a lawsuit in Georgia against International Management Associates, saying the firm and its fund managers committed fraud and forgery and failed to return their money.

Clyde Simmons, who played with the Philadelphia Eagles and the Chicago Bears, among other teams, and Blaine Bishop, a former Eagle and Tennessee Titan, entrusted money to the firm, too, the lawsuit said.

The football players listed a host of complaints in the lawsuit, filed in Fulton County Superior Court.

International Management Associates claimed its hedge funds would aim to maximize gains and minimize risk and would not keep more than 10 percent of a fund's assets in a single security.

The firm's principals also said that "although the fund would partake in risky investment practices such as 'short-selling' stock, the fund's reliance upon such practices would be limited," the lawsuit read.

However, the managers exposed investors to "intolerably high risks," with about two-thirds of two funds' assets devoted to short-selling the stock of just one company, Time Warner, the document alleged.

Short-sellers borrow shares and then sell them, waiting for the stock to fall so they can return the cheaper shares and pocket the difference. Those who use the strategy prosper when stocks fall, but the method can backfire if the shares rise.

And that's what happened to the International Management Associates funds, the lawsuit said. When Time Warner stock increased, the investors in the two funds lost about $3 million, the lawsuit read.

In addition to misleading investors about the investment strategy, the principals of the Atlanta company also failed to provide audited financial reports for the funds, according to the complaint.

Growing worried about the funds, Atwater and the others finally fired off letters in December seeking their money back. Initially the fund managers promised to return the cash, but they failed to fulfill the pledge, the lawsuit contends.

Kirk Wright, the founder and chief executive of the firm who also is named as a defendant in the lawsuit, then forged the signatures of Atwater and Bishop on the backs of checks trying to deposit the money into their bank accounts, but the checks bounced because of insufficient funds, the plaintiffs say.

Wright did not return telephone calls left at his office on Monday.

The Wall Street Journal, which first reported the story, quoted Wright as saying the company was grappling with large withdrawal requests from clients after the departure of two key executives. International Management, with about $167 million in assets under management according to regulatory documents, told securities officials about the redemptions, the story said.

Hedge funds, private investment pools traditionally aimed at the wealthy, have had broader appeal in recent years as investors frustrated with the stock market's returns have sought out alternatives.

Atwater declined to comment, and a lawyer representing the plaintiffs, Mark Trigg, did not respond to telephone calls and e-mails.

Atwater, a former safety, and his family had $4.5 million in the funds, the lawsuit said. Davis, a star running back in the late 1990s, had investments valued at $2.2 million, while Crockett, an ex-cornerback, had a total of $3.7 million. Smith, meanwhile, had $1.5 million.

patonj@RockyMountainNews.com or 303-892-2544