SAN LUIS OBISPO (CN) - A bankruptcy trustee sued Cal Poly San Luis Obispo, claiming the $625,000 donation the school took from an alumnus, for a $1 million scoreboard, was the fruit of a Ponzi scheme run by a now-convicted felon, who still owes his creditors $22 million.
Albert Stephen Moriarty Jr. pleaded no-contest on Aug. 4 to seven felony fraud and embezzlement charges, the San Luis Obispo County District Attorney's Office said.
Prosecutors said he swiped $3.2 million as president of Moriarty Enterprises, in Grover Beach, Calif., and will be sentenced to 5 years in prison, plus restitution, on Sept. 17.
Moriarty was not licensed to sell securities, but he did, paying old investors with new money.
Cal Poly "knew or should have known that they were benefiting from fraudulent activity," the lawsuit states, "or, at a minimum, failed to exercise reasonable due diligence with respect to the transfer in connection with the Moriarty Ponzi Scheme."
Michael P. Klein, Chapter 7 trustee for Moriarty's bankruptcy estate, sued California State University San Luis Obispo, the university's foundation, and the Cal State Board of Trustees, in Superior Court.
Moriarty, 81, is a Cal Poly alumnus, who played football and basketball for the school. A longtime financier and avid supporter of Cal Poly athletics, Moriarty paid $625,000 in 2009 for naming rights so the university could buy a new video scoreboard for its football stadium.
But the money came from Moriarty's Ponzi scheme, and by the time the school bought the scoreboard, Moriarty was insolvent, according to the complaint.
Moriarty claimed he invested clients' money in gold, high interest loans and real estate. But in a document filed in his bankruptcy case last week, he said the scoreboard money marked the beginning of his financial spiral.
He claimed that he'd borrowed money to pay for the scoreboard naming rights, then he sold his remaining gold to pay those two loans. Then the real estate market collapsed.
"When I purchased 41 acres of choice property, I used my resources of $7 million not only for the purchase but also for improvements," wrote Moriarty, who is represented by bankruptcy attorney Marc Stern. "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."
But Moriarty continued to take investors' money, prosecutors say, promising to secure their loans in gold he no longer had. An investigator said in a declaration that Moriarty spent the investor money on his "lavish lifestyle."
He filed for bankruptcy on Dec. 31, 2012 in Washington state, where he lived at the time.
While 103 individual investors are listed as creditors in his bankruptcy case, "Moriarty Enterprises" remains atop the scoreboard at Alex Spanos Stadium.
Under bankruptcy law, once a stay was ordered in Moriarty's case, Moriarty's naming rights were transferred to the trustee. If Cal Poly were to cover up or remove Moriarty's name, the university could face contempt charges and 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," university attorney Carlos Cordova said in a statement.
The trustee, represented by Jeremy Faith, sent a letter to the university in the spring of 2013, asking for the $625,000, but the university rejected that claim, leading to court action.
As a result, a felon's name will likely remain on the scoreboard when Cal Poly hosts its first home game, against Portland State, on Sept. 20 -three days after Moriarty's sentencing.
The receiver demands $625,000, plus $72,000 in interest.