Recently convicted of fraud, Cal Poly Hall of Famer Al Moriarty believes his finances began to spiral when he spent $625,000 to help his alma mater purchase a new scoreboard for its football stadium, according to a document Moriarty filed in bankruptcy court this week.
Meanwhile, despite being a convicted felon, the fallen financier’s name will likely remain on the scoreboard for the Mustangs’ home opener, Sept. 20, because the scoreboard is now the focus of a lawsuit between the university and Moriarty’s bankruptcy trustee, who claims Cal Poly benefited from Moriarty’s fraudulent actions.
“The university has either got to let us sell this scoreboard or pay us the amount (Moriarty paid),” said James Rigby, an attorney representing bankruptcy trustee Michael P. Klein.
Moriarty, 81, pleaded no contest earlier this month to seven felony fraud charges. The District Attorney’s Office alleged that Moriarty — a former Cal Poly football and basketball player and an ardent supporter of Mustangs athletics — ran an illegal Ponzi scheme, paying older investors with new investor money.
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Moriarty, who will be sentenced Sept. 17, said he planned to use money loaned to him — considered securities by the District Attorney’s Office — to invest in gold, high-interest loans to teachers and real estate, but the poor economy thwarted his plans.
In his bankruptcy case, filed on the last day of 2012, 103 people are listed as having given him personal loans, some for more than $500,000, that Moriarty defaulted on. Most of the lenders expected 10 percent interest on the loans, paid monthly, over five years.
Moriarty promised lenders their money was secured by real estate, his own $6 million life insurance policy and gold.
According to a declaration filed this week with the U.S. Bankruptcy Court, Moriarty said he paid $300,000 for 1,000 1-ounce gold coins in the 1980s. That investment, he claimed, appreciated to $2 million.
But while once flush with money, he wrote, his fortunes began to unravel around the time he paid for the 16-foot tall, 28-foot-wide video scoreboard.
“In 2009, I was offered the naming rights to the Cal Poly football video scoreboard in the football stadium,” wrote Moriarty, who was featured on a video played on the scoreboard the day it was officially unveiled.
The scoreboard cost $1 million, according to the document. He paid $625,000 for naming rights.
Because gold was going up in value, he said, he collateralized $700,000 with a private loan from two investors to pay for the naming rights. He later renewed the loan for $1.2 million due to the increase in the value of gold.
Eventually, he wrote, he sold his gold to pay off those two investors.
“That is where the gold went, and that is where the money from the gold went,” the document states.
Moriarty had also used gold to purchase land in the South County, which he told investors he planned to develop, said his bankruptcy attorney, Marc Stern.
That land had many water rights, which could have been valuable in the current drought, Stern said.
“He was very prescient,” said Stern, noting that Moriarty had made profits for clients for decades.
But the real estate market soured, damaging his credit line, Moriarty wrote.
“When I purchased 41 acres of choice property, I used my resources of $7 million not only for the purchase but also for improvements. I did not expect to get hit with the downturn of the 2008 recession. ... If I would have put the money in gold that was then selling for $600 per ounce, I would have doubled my money and had more than enough to pay everyone.”
The District Attorney’s Office disputes Moriarty’s intentions.
According to records filed in his criminal case, Moriarty, who was not licensed to sell securities, continued to take loans through 2011. During his preliminary hearing, A.J. Santana, an investigator with the District Attorney’s Office, testified that Moriarty promised his lenders that their investment was backed in gold when he had none. Meanwhile, the life insurance policy he said also secured their investment was actually in his wife’s name.
Chief Deputy District Attorney Jerret Gran said his office had no comment on Moriarty’s bankruptcy declaration, saying Moriarty’s guilty pleas are telling. In a declaration filed with the court in 2013, Santana wrote that Moriarty lured investors with promising early returns. Then once they invested more, he deposited the money into his own bank account and used the money to “improve his personal real estate holdings and lavish lifestyle.”
The bankruptcy trustee in Washington, where Moriarty lived at the time he filed for protection, has filed a complaint opposing the discharge of debt.
If the bankruptcy protection is denied, Moriarty will have to pay off his creditors, a debt amounting to roughly $22 million.
While the bankruptcy proceedings are ongoing, the scoreboard at Alex Spanos Stadium remains in limbo. Despite Moriarty’s convictions, “Moriarty Enterprises” still graces the top of the scoreboard — a bitter reminder for those who feel Moriarty defrauded them.
According to a statement from university attorney Carlos Cordova, once Moriarty filed for bankruptcy, his naming rights to the scoreboard were transferred to the bankruptcy trustee, who now owns the rights. According to bankruptcy law, once a stay was ordered in the case, Cal Poly cannot interfere with the property. If the university does, Cal Poly could be ruled in contempt of court and subject to punitive damages.
“Cal Poly would like to reach an agreement with the bankruptcy trustee concerning the continued presence of the Moriarty name on the scoreboard, and discussions to that end are ongoing,” Cordova said in a statement released earlier this month.
In May 2013, attorneys for trustee Klein sent a letter to the university Chancellor’s Office, asking for the money Moriarty donated to the scoreboard, plus 7 percent interest ($72,000). When the university declined to pay the trustee or allow the trustee to sell, the trustee filed a civil suit in San Luis Obispo Superior Court on July 24.
“Their position is to not try to work this thing out,” Rigby said.
In the suit, Klein’s attorneys state that Moriarty was either insolvent at the time he purchased the naming rights or became insolvent as a result of it. “Because the (purchase) was made pursuant to the Moriarty Ponzi scheme, the debtor was necessarily insolvent at the time of the transfer,” the suit states. As a result, the suit adds, Cal Poly officials “should have known that they were benefiting from fraudulent activity, or at a minimum, failed to exercise reasonable due diligence with respect to the transfer in connection with the Moriarty Ponzi scheme.”
Cal Poly, which received notice of the suit this week, issued a statement about the action Friday, which read, "The university’s legal counsel is reviewing the lawsuit, and the university is considering options for how to proceed."
The suit further adds that Moriarty should have known he couldn’t pay for the scoreboard when he made the purchase.
The bankruptcy trustee has already sold some of Moriarty’s properties in an effort to pay some of his debts, according to bankruptcy court documents. But the trustee cannot sell the naming rights to Cal Poly’s scoreboard so easily, Cordova said in a statement emailed to The Tribune this week.
“It is Cal Poly’s position the trustee has no legal right to sell the naming rights without the express permission of Cal Poly.”
With litigation pending, Rigby said, it’s likely Moriarty’s name will remain on the scoreboard when the Mustangs play their first home game against Portland State, three days after Moriarty is sentenced.