A new civil suit filed against former NFL player Will Allen, who is accused of running a Ponzi scheme, involves NHL defenseman Jack Johnson as a debtor.
Johnson, who filed for Chapter 11 bankruptcy back in October, has been mired in financial trouble after reportedly being bilked by his own parents as a result of several risky high-interest loans.
According to the civil suit, recently released by the Securities and Exchange Commission, Allen, in concert with business partner Susan Daub, robbed investors of millions by claiming to have lent several professional athletes much more than was actually loaned.
The suit claims that Allen, 36, and Daub, 54, raised $31 million from investors yet lent only $18 million to said athletes. Allen, who formerly played for the New York Giants and Miami Dolphins, founded Capital Financial Partners with Daub in 2012.
"The defendants sold investors on the idea of lending money to pro athletes, but we allege that's not where a large portion of the investors' money went," said Paul G. Levenson, director of the SEC's Boston office, in a statement. "As in any Ponzi scheme, the appearance of a successful investment was only an illusion sustained by lies."
Among the more egregious examples of fraudulent claims was the loan issued to Johnson, a defenseman for the Columbus Blue Jackets.
According to the suit, at least 24 investors invested more than $4 million between April and May 2014 in a "purported" $5.65 million loan to Johnson, according to a source. That loan, according to the SEC, was a "sham."
"The player did not sign the $5.65 million promissory note or the loan agreement shown to prospective investors. Capital Financial did not make a $5.65 million loan to the player," the suit states.
According to a source, this sort of loan is "emblematic" of the type of loans Johnson was placed into that contributed to his current financial situation. Johnson's parents took out several loans in his name, and it is unclear whether these were taken out with his knowledge.
The source said that Johnson could pursue further litigation against Allen and Daub.
"That's an open door," the source told ESPN.com. "It's a definite possibility, if not a probability."
After Johnson filed for bankruptcy in October, Capital Financial filed a proof of claim for $3,429,750 and attached a $3.4 million promissory note signed by the player and a loan agreement. That provided documentation aims to show that Johnson's loan was for $3.4 million, not $5.65 million, as investors were told.
This was one of the cornerstones of the complaint, that Allen and Daub, through two Massachusetts-based companies and one Florida-based company, used "false documentation in order to mislead investors."
More than six weeks after Johnson filed for bankruptcy, Daub emailed investors to tell them that the investment was "performing as expected" and that all payments had been made in full, though Capital Financial told bankruptcy court that, in fact, no repayments had been made.
Whether some of those loans extended to Johnson were usurious, the industry term applied to loans that have excessively high and/or illegal interest rates, could be a factor in determining whether Johnson pursues legal action against Allen and Daub. That determination could also play a role in Johnson's current bankruptcy case.
After filing for Chapter 11 back in October, Johnson's legal team has since filed a motion in Ohio bankruptcy court to convert to a Chapter 7 filing, which would involve liquidating pre-bankruptcy assets in Johnson's name. The court is currently considering that motion, though it is not immediately clear when a determination will be made.