Former members of the 49ers dynasty that won five Super Bowls from 1982 through 1995 are reportedly under federal investigation for misleading investors as the investment firm they owned struggled to stay solvent in 2008.
According to four people with knowledge of the probe, HRJ Capital LLC, co-founded in 1998 by Hall of Fame safety Ronnie Lott and All-Pro lineman Harris Barton, is being investigated by the U.S. Securities and Exchange Commission.
Lott, 52, and Barton, 47, traded on their gridiron glory to gain access to venture capital and buyout funds.
The defunct investment firm invested $2.8 billion in venture capital and leveraged buyout funds for public pension systems and athletes such as Indianapolis Colts quarterback Peyton Manning.
In early 2008, HRJ had more than $300 million in unfunded commitments to buyout funds when it received capital calls, according to company records. HRJ was unable to raise cash to meet those obligations and service loans from the Silicon Valley Bank.
SEC lawyers are investigating whether HRJ and its managers improperly shifted debt to investors to meet those capital calls, according to the sources, who declined to be identified because the probe hasn’t been made public.
SEC lawyers have been interviewing former HRJ employees and clients and reviewing emails and company records since about April. Investigators also are probing whether HRJ failed to disclose the alleged shift of debt, the sources said.
Barton and Lott’s lawyers both declined to comment. Marc Fagel, the SEC’s San Francisco director, also declined to comment.
In 2008, an HRJ affiliate responsible for fulfilling capital calls issued by private equity funds transferred those liabilities to HRJ’s funds of funds without informing investors, according to Deirdre Nectow, director of business development at Cambridge Associates LLC, a Boston-based consulting firm that advised many of the firm’s investors.
After HRJ’s investors discovered the maneuver, they protested that they were now responsible for meeting capital calls to buyout funds instead of the affiliate controlled by Barton and Lott. Such exposure could drain the funds of capital and ruin its performance.
HRJ was on the verge of bankruptcy when Capital Dynamics AG, a Swiss firm, took over management of its accounts in April 2009, according to company records. HRJ’s investors suffered no losses, according to a term sheet of the deal.