Ronald Reagan said it best, trust but verify.
In this week’s special edition of Retire in Texas, Darryl Lyons dives into the world of financial crime, breaking down the story of Tim Duncan’s unfortunate encounter with deceit and manipulation in the realm of wealth management. Through a detailed recounting of Duncan’s experience, Lyons sheds light on the tactics employed by fraudsters like Charles Banks IIII, emphasizing the importance of vigilance and due diligence in safeguarding one’s financial well-being.
Show highlights include:
*The story of Tim Duncan, an NBA Hall of Famer, and how he was a victim of financial crime orchestrated by Charles Banks IV, whom he befriended early in life.
*Why vigilance is crucial, and how seeking assistance from trusted advisors like PAX Financial Group can provide added security against financial fraud.
*An explanation of the three attributes of trust: empathy, transparency, and consistency.
*The importance of skepticism in financial relationships, along with the necessity of verifying investment legitimacy.
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Transcript:
Hey, this is Darryl Lyons, CEO and co-founder of PAX Financial Group. Thanks for tuning in to Retire in Texas. Remember this information is general in nature only. It is not intended to provide specific investment, tax or legal advice. Visit PAXFinancialGroup.com for more information. So today I want to talk about fin crime. That’s financial crime and I’m going to give you a case that was in our backyard in San Antonio with Mr. Tim Duncan, who’s an NBA Hall of Famer.
I’ve had a chance to meet and chat with him multiple times. He’s a pretty incredible guy, very much an islander. So you would imagine a kind of relaxed guy. But I want to talk about a situation that happened to him around 2015. 2015 was kind of the date that really the SEC came in and addressed a situation, but the situation had been materializing for over a decade.
So let me take you back a little bit about where this fin crime started with Tim Duncan being the victim. He went to Wake Forest. Somehow fresh off the campus, he became friends with this guy named Charles Banks IIII. I don’t know necessarily how they developed this rapport, but really early in life, Charles Banks started I guess, I’m trying to get in the mind of Charles Banks a little bit.
Probably Charles Banks was helping him with little things and earning his trust over the years just kind of building it up with smaller zeros, knowing that Tim was going to have some big zeros down the road. Now, Charles Banks is an interesting character in this story. I’ve told you about Tim Duncan, kind of an islander.
By the way, Tim Duncan, one of the best of all time, made 240 million over his nearly 20 year career, so very wealthy guy. But he bumped into this guy named Charles Banks when he was young, probably 20, 22, 23, and just became friends with him. Charles Banks, I guess at the time was probably in his late twenties, maybe thirties.
At the time of the incident he was 48, 47 when the SEC came in. 49 maybe. But at the time, you know, relatively young business guy, but probably just smart enough to know that Tim Duncan is going to be very wealthy dude someday and I’ve got to kind of latch on to him. So he did that. And so then Charles Bank started to develop this network of rich people.
And it’s kind of strange, if you notice with rich people and riches with air quotes right now, oftentimes it’s like, my buddy who’s rich works with him, so it must be legit. Bernie Madoff is a great example of this. You know, you let your guard down when other rich people are doing business with somebody and that’s kind of, I think, how Tim Duncan ended up getting swindled because all these other rich people were gathering and it was this very much in cohesive group think everyone was like, Charles Banks is a good guy.
I work with them. You’ve worked with them? Yeah, I work with them. You know, they’re having wine talking about Charles Bank. He’s my guy. He’s your guy. Oh. And what happens is, yeah, that’s good in a lot of ways, because it has this, hey, we’re in this together, behavioral finance. But the problem with that group think is you let your guard down because you assume that because somebody who’s rich works with him as an advisor, that they’re perfectly legitimate. In fact, that’s when you probably need to elevate your guard.
So, Tim’s just playing ball, you know, he’s a basketball player and so he’s doing his thing, winning championships and unfortunately, in about 2013, Tim filed. I don’t know if it’s Tim or Amy, but they got a divorce. Well publicized, probably too much. Unfortunate situation. They had some kids involved, but that’s when it kind of all came to a head, that this Charles Banks guy’s not so legit after all.
And he had been working with him for years and just trusted him. Tim’s just playing ball. Just like I think a lot of us, we’re just kind of doing life, right? Letting our finances do his thing. We got a guy we trust our guy or we trust our gal and we’re just doing our thing. That’s what Tim was doing and I get that, but what happened in the divorce is the attorneys, and I’m kind of laughing because attorneys are really good at doing this, and if you’re an attorney listening, you know it.
The divorce attorneys started to look at all the finances. You know, they’ve got to separate this thing. Amy gets half and Tim gets half. I don’t know how it actually split, but that’s generally how it goes.
The challenge that attorneys often have when they do the divorces is they’re not familiar with the different investments that are in the client’s name, nor are they familiar with the tax consequences of those investments, nor are they familiar with the probability of success of those investments. So it’s pretty tricky. I’ve had to have conversations about splitting assets, but in this case, and I’m sure Tim and Amy hired some good attorneys, they’re actually doing their due diligence on the assets.
And so they’re crunching numbers and making sure that every dollar is accounted for, which is really cool. And so here’s where one of the attorneys, this is where they figured everything out. One of the attorneys recognized that there is income coming into the Duncan household. And, right? You got to split that income. So he or she asked questions. How much is coming in? Where’s it coming from? What’s the interest rate?
And so when you have all those variables, what we call present value, future value interests, and you’re crunching the numbers, you go, wait a minute, there’s some interest payments missing. That’s when it happened, because Tim said I’m getting 12%. So he’s doing the math, how much did you invest? What’s 12% of whatever he invested, which was millions, actually 7.5 million.
He was investing 7.5 million in this deal. He did the math. Okay. So you should be getting 75,000 a year and you’re getting 60,000 a year. Where’s the rest? We’re missing $15,000 in your interest payments. Tim’s like, I don’t know, you know, I’ve just been doing life. So that’s when it happened; is in the divorce and the attorneys found it.
I guess lesson here, I’ll pause just because I’m going to try to give you some lessons throughout. The lesson here is just do that forensic analysis. I know it’s hard periodically just to check to make sure things make sense periodically. Don’t let a divorce trigger a forensic analysis. Not many people have eclectic investments like Tim, so it’s not too difficult to double check the math.
PAX can even help you with that. Obviously, assuming that PAX isn’t the perpetrator, which I feel very comfortable enough, but I don’t want you to just trust us. I want you to always verify PAX, but there are clients and friends that we have in the community that have outside investments. And if you do, if you want us to double check to make sure that nothing nefarious is happening, we’ll do that for you because I’ve caught it before.
I have. I’ve caught nefarious activity before, and I’m thankful that the attorneys caught this. So it was like, okay, so the guy stealing $15,000, Tim, you made 220 million. That’s not a big deal, but you start asking questions and you’re not getting straight answers. So the attorneys or Tim, whoever called Charles Banks and said, hey, where’s my extra interest that’s missing.
It’s all documented in emails. This is when they started sweating in the armpits. Him and the CEO. So what happened was, not only was he skimming off the interest payments, he was taking $15,000 to just put it in his pocket. It actually went deeper than that. So when you peel back the onion, what happened was, Charles Banks had a big chunk of ownership in this company called Game Day and Game Day Entertainment was a sports marketing and apparel company.
And so here’s every single scam artist. This is going to be a huge deal. I’m going to sign a deal with the Dodgers and we’re going to have all these apparel distributed. These are some of the words that Charles Banks used. It’s the hottest deal, very little risk. It’s a homerun. It’s a sure thing. These are the words that are in the SEC documents that Charles Banks used. So what Charles Banks had done was he took Duncan’s assurance. It was actually a guarantee that Duncan was making.
So he went to Comerica Bank after another bank rejected this transaction. He went to Comerica Bank and said, We need to borrow from Comerica Bank as Game Day Entertainment 7.5 million sowe can be successful. They had various reasons why they wanted that 7.5 million, but first of all, SunAmerica said, no, this is not a good deal, so he went to Comerica.
Comerica said, You want 7.5 million? He goes, Yeah, we’re good for it. And they said, The only way we’re good for it is if you tell Timmy, Tim Duncan, that he’ll back it up if Comerica fails. Oh no problem. So he goes to Timmy. Timmy said, yeah, I’ll back it up. Now, this is after some conversations.
Timmy, to his credit, he questioned this. It didn’t smell right, to him. But he’s busy, right? So what Charles Banks did is he sent Tim. He faxed it. Remember what a fax is? He sent him to sign, but he only sent the signature pages. He didn’t send the full document. So that’s another big red flag. When you only get one paper, you know.
But all the other documents were squirreled away. Charles Banks didn’t send it to him, so Tim just signs it and moves on. So now Comerica gave this company $7.5 million. So Charles Banks says, you know, I made this deal happen, so I’m going to pay myself. So he paid himself a fee of $225,000 for making this transaction work.
Okay. So let me stop there for a second. Financial advisors that get paid a commission, that becomes problematic in a lot of ways. If you ever want to unpack how PAX navigates that world, please let me know. We’re fiduciaries and I really find that the way we navigate that world is healthy. But he took a fee. Now he’s a fiduciary and he took a fee, so there’s a conflict already and that conflict wasn’t disclosed.
Now, maybe Tim would have said, okay, you know, that’s a part of the deal. I’ll pay you that, maybe, but that was not disclosed. And then Banks said, you know what? Not only am I going to take a fee from this $7,500,000, I’m going to go ahead and take $543,000 because I want $543,000.
Then around Christmas time, he said, I’m going to take $950,000 because I need a nice Christmas, whatever. And then he took another 1.1 million, so like three or four different transactions and he took them in various ways. One, the $500, he just took cash. The other two, he did short term loans. So they were short term loans, I’m using air quotes, that never got paid back.
So the $7,500,000 lent to this Game Day Entertainment that was going to sell all this apparel to the Dodgers, a bunch of it was put in Charles Banks pocket. So then eventually Game Day doesn’t have anything. They go bankrupt. So Comerica says, where’s my money? And Game Day says, We’re out of business. So then they turn to Tim and says, you owe us money.
So that’s kind of how the whole thing happened. And Tim, he had to cough it up. But as Tim looked back on this relationship and the forensics happened, there was a lot of nefarious stuff happening. There was an investment in a beauty company that ended up filing bankruptcy. I mean, this guy was skimming everywhere. He took advantage of them.
And the thing about this guy, you can Google him. He’s on LinkedIn now. I mean, you can find him. The thing about this guy is there was over 100 letters of support saying this guy’s a stand up church guy. Of course, that, you know, that kills me in a lot of ways because I have conviction that that’s how you use the Lord’s name in vain.
That’s a separate episode, but that kills me. But a church guy, three kids, a wife, and like I said, 100 letters going to the judge saying he’s a good guy. I attest for him. The judge is saying, I don’t care what all your friends say. It’s clear here you lied and you stole and you’re going to jail. So sure enough, the guy who went four years in prison, he’s out now.
He had to pay back Tim. He got 7.5 million back. I don’t think it’s the entire amount, I don’t have access to that information. He did get some of that money back, which is a good thing. The guy did have jail time. Tim wanted him to have jail time. I’ve had some conversations with Tim in the past and Tim has zero tolerance for people taking advantage of other people and I tell you that based on what I know about him and Tim had zero tolerance for him.
He did not want him to get back out on the streets and start doing this again. So there’s a lot of lessons out of this. Let me see if I can grab some for you as we tie a bow on this. Happy to do another episode about this if you’re curious to get in the details. I really wanted to keep this high level, but let’s go through a couple lessons real quick that might be helpful.
First of all, there are words that were used that should be a red flag and we talked about those. Some of those are: home run, sure thing, no downside, hottest deal, great deal, very little risk, I personally guarantee. Like if I was an advisor and I said I personally guarantee this work out. So those are some red flags when you see those things.
Craig Groeschel, in a video series, he says there’s three attributes of trust. Empathy, transparency and consistency. Now, this guy showed a lot of empathy, and con artists are really good at that empathy one. They show that they really like you and care about you, so just know that’s the con artist tool of choice is to use empathy because they know that bridges the gap to trust.
But the other two elements of trust; transparency and consistency are worthy of consideration. Here in transparency, there was no transparency. It would have been nice if Tim or his legal team could have assessed these transactions prior to the execution. Right? So that transparency is very important. And then consistency. You know, this guy, Banks started to be inconsistent when he got pushed back and some of his deals. If you see your advisor starting to get kind of anxious about getting deals done, it could be because they’ve gotten themselves in a financial situation and they’re relying on you to get them out of that situation.
So, think about that for a second. How empathy, transparency and consistency, all three of those need to be in your financial relationships. And in this case, empathy was there, but transparency was not, and then consistency started to fail. You know. And if you do have an investment, even with PAX or anybody else, you may not be needing to ask questions about whether or not it’s a good investment, that’s what you’re relying on the expert for.
But you do need to ask, is this legitimate? And you want to make sure nothing nefarious is happening. Nefarious being defined is wicked or criminal. And sometimes you just need to go to somebody else and say, hey, I’m not asking you if this is a good investment, I’m already making that decision on my own, I need you to tell me if this is legitimate or nefarious.
And so having some people in your life that can help you just double check stuff I think is very helpful. So sorry to be long winded in this. This is a very interesting dialogue and I guess story. I’ll do more on fin crime, but want to just make sure that you’re keeping your eye out double checking.
I think Ronald Reagan said it best, trust but verify. And leverage PAX if we can help in any way, If you have investments on the outside and we can just kind of double check and just make sure nothing nefarious is happening. For the most part, this is not a common situation, but it does happen. So stay vigilant and remember, you think different when you think long term.
Have a great day.
Resources:
The Curious Case of Charles Augustus Bank IV
Fraud Case Study: How Did Charles Banks Defraud Tim Duncan by David Byrne
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