A SPECIAL REPORT : Kareem’s Financial Crisis : Adviser’s ‘Family’ Torn Apart as Losses Total in the Millions

Kareem Abdul-Jabbar of the Los Angeles Lakers will celebrate his 40th birthday next week in Salt Lake City. On that night, April 16, the Lakers are scheduled to play the Utah Jazz, the team they played when the 7-foot 2-inch center became the most prolific scorer in National Basketball Assn. history.

Already, plans are being made for a farewell tour of NBA cities next season, when crowds around the league are expected to give Abdul-Jabbar a fitting send-off from a career that has spanned parts of three decades.

For Abdul-Jabbar, this should be the triumphant closing chapter of his life in basketball. Instead, he is entangled in a financial disaster. He and nine other current or former NBA players have lost millions of dollars in bad investments.

Abdul-Jabbar and Ralph Sampson of the Houston Rockets may lose at least $5 million apiece. Sampson and another investor, Alex English of the Denver Nuggets, at one time considered filing for bankruptcy because of their seven-figure losses.

The investments, initiated by the players’ former business manager, Thomas M. Collins, primarily involved three Orange County hotel and restaurant ventures but also included Arabian horses, oil wells and gold coins.

Collins, who negotiated contracts for Abdul-Jabbar with the Lakers that are now worth $2 million a year, as well as Sampson’s 4-year, $4.42-million deal with the Rockets, liked to describe clients as his family. Besides Abdul-Jabbar, Sampson and English, the core of the family included Terry Cummings, star forward for the Milwaukee Bucks; Brad Davis of the Dallas Mavericks; and former players Charlie Scott, Ricky Sobers and Rudy Hackett.

Joining them in certain ventures were Tyrone Corbin of the Cleveland Cavaliers and former player Lucius Allen, who introduced Abdul-Jabbar to Collins nearly 10 years ago.

All of his clients gave Collins power of attorney in administering their business and financial affairs.

But anger and bitterness have torn the family apart and led to tense moments on the basketball court and litigation in the civil courts:

--Abdul-Jabbar has sued Collins, his sole representative for six years, and others for $59 million. He charges negligence, fraud and breach of trust.

--Collins has countersued, claiming that Abdul-Jabbar owes him $382,050.03 in unpaid commissions and fees.

--English has sued Abdul-Jabbar, and had the papers served on the Laker star in the locker room after a game in Denver.

--Abdul-Jabbar has added English to his suit against Collins, and had the papers served while English sat on the bench during a game in the Forum at Inglewood.

“Actually, Kareem didn’t sue Tom--he tore up the family,” said Cummings, whose own losses total more than $1 million.

“This was a group of people that had grown together. But when the lawsuit broke and the banks wanted their money, everything became emotional. There was a lot of friction.”

Collins has acknowledged that he bears some responsibility for the failed deals.

“We might have put too much on our plate,” Collins has said. “(But) I dreamed for my guys.”

Collins’ only background in finance was in an entry-level position at an investment information service. But with Collins as the point man, the professional athletes and other investors quickly built an unusual business empire with money borrowed against their personal lines of credit. Virtually none of their own money was invested.

They expected to pay off their loans with quick profits. But poor projections, slack administration and rapid growth that outstripped cash flow put too great a strain on the partnerships, and the empire crumbled.

The jewel of the empire was to have been the 58-year-old Balboa Inn in Newport Beach, where Errol Flynn, Cary Grant, Gary Cooper and other Hollywood stars once gathered.

The partnerships that owned the hotel and the Inn at Laguna in Laguna Beach have gone bankrupt. Their other business failures include the Bank Restaurant in Newport Beach, the Hotel Redmont in Birmingham, Ala., and Tony Roma’s restaurants in Fort Worth and Addison, Tex.

Financial statements and income tax returns obtained by The Times, and interviews with partners, their lawyers and other sources, reveal a pattern of questionable management, at best, by Collins.

Associates of Collins, however, contend that the deals were dealt a death blow while still in their early stages when the law firm that took over Abdul-Jabbar’s affairs elected to end his participation. They say that caused the banks involved to call in their loans, the other partners to splinter, and the hotels’ business to suffer because of bad publicity.

Had the partners stayed together and bought out Abdul-Jabbar’s share of the loan, Collins’ associates say, the businesses might have prospered as planned.

Abdul-Jabbar’s attorneys, those associates charge, were primarily interested in establishing a foothold in sports representation, and withdrew Abdul-Jabbar from Collins-created deals without considering the cost to Abdul-Jabbar and the other partners.

“The desperate, self-serving nature of that comment is obvious, to say the least,” said Leonard Armato, an attorney for Bushkin, Gaims, Gaines and Jonas, the Century City law firm that has represented Abdul-Jabbar since he ended his relationship with Collins in January, 1986.

“The history of our law firm’s growth and success speaks for itself. . . . In the sports area, we have represented a variety of athletes . . . coaches . . . professional players’ associations. Our commitment to Kareem is to maximize his potential, develop creatively and protect his business interests. That’s it.”

The collapse also has hurt smaller investors, people such as Joni Tada, a quadriplegic who illustrates religious books with a paint brush clenched in her teeth, and her husband, Ken, a high school teacher in Burbank. They met Collins in church circles and eventually joined his family of clients.

Among the incidents in the last 18 months that warned investors about problems were:

--A meeting of limited partners called by English and his wife, Vanessa, on Labor Day last year at the group’s Hotel Redmont in Birmingham, Ala., to investigate the investments. At that meeting, Bruce Stockburger, an attorney for Sampson at the time, said that the Houston center might be forced to file for bankruptcy.

“There was so much turmoil and confusion, at that point I think most everybody was thinking of filing bankruptcy,” said Cummings, who did not attend the meeting but was apprised of what took place.

“If we’d all just sat down and had a meeting where we acted like adults instead of children, things might have been worked out,” Cummings said.

--Discrepancies in financial statements prepared by Collins’ office. The Tadas’ financial statement of Sept. 30, 1985, for example, showed them making a $10,000 loan to English. There was no mention of the loan on English’s financial statement of September, 1985.

Ken Tada said Tuesday that he was still unaware of that loan. “The accounting procedures were very poor, obviously,” he said. “I don’t remember any transfer where we loaned Alex money.”

Another of Collins’ clients, Danny Cox, a management consultant from Orange County, also lent English $30,000, but English’s statement also failed to show a debt to Cox.

“There were a lot of surprises,” Cox said.

--Cost over-runs totaling more than $500,000 in the renovation of the Balboa Inn, even though Collins claimed to have received information that the project was under budget and on time.

The company that operated the hotel for the partnership, Griswold’s Hotel Services, went through five hotel managers in one year. One of those managers, Karyn Philippsen, spent $2,000 of her own money to keep it running.

--The filing of Abdul-Jabbar’s income tax returns for 1982 two years late by Collins’ office, resulting in a $182,000 federal penalty and interest of more than $24,000 paid to the state.

--Non-payment of Scott’s property taxes, which were four years delinquent, according to an audit.

--Non-payment of Cox’s gardener, who eventually told Cox he had gone four months without a check. That alerted Cox to look into other problems.

In addition, the investors must now pay taxes on most of $859,000 that they wrote off in 1985 as tax credits and charitable contributions for dedicating the Balboa Inn as a historic structure, according to tax returns for their Balboa Inn partnership. Abdul-Jabbar and Sampson each must declare as income and pay taxes on more than $191,000 they had written off.

Abdul-Jabbar also has paid more than $900,000 to the Bank of California to cover his share of a $4.05-million debt on the three Orange County partnerships. That includes $300,000 he paid to be relieved of further liability in case the bank fails to collect from the other partners. All of the partners signed an agreement that made each of them liable for the amount of the entire loan, not just his share.

“(The $300,000) may seem like a large amount of money, but it was a small price to pay for freedom,” Armato said.

Abdul-Jabbar declined to be interviewed for this story.

Collins also declined comment for this story but appears to be on the verge of financial ruin. He has closed his Los Angeles office, sold his home in Encino and moved to a ranch he owned in Colorado.

According to sources close to Collins, he has debts in excess of $1 million and no liability insurance. Most of the $345,000 he got for selling his house last December went to pay off debts, and recently, those sources say, he was forced to sell some of his Colorado property, which was appraised at $185,000 two years ago.

“I make no apology for any deal I’ve done for the guys,” Collins has told associates. “ . . . I’ve never taken a dime on any deal I’ve done.”

Said Donald Rivers, Collins’ attorney: “For one reason or another, Tom Collins still feels an allegiance to Kareem, even though severe damage has been done to his reputation.”

It is Collins’ belief that if Abdul-Jabbar had not defaulted on his loan payments on the advice of his attorneys, the Orange County investments might have been saved, particularly since they had not been given an opportunity to mature.

“When Kareem left (the partnerships), everybody else was responsible for (Abdul-Jabbar’s) share of the loans, which was quite a sum of money,” Cummings said. “That caused a lot of confusion and wreaked a lot of havoc.”

Collins has maintained that he did not invest in the Orange County properties until obtaining feasibility studies that recommended the ventures, that he was not “shooting from the hip.”

Yet Collins also has acknowledged to clients and associates that he made mistakes in conducting his clients’ business affairs, which included the frequent transfer of money from one client’s account to another, often without their knowledge.

“Sometimes when Tom made those transfers, he showed them on our monthly statements as promissory notes to be repaid with interest,” Cummings said. “Other (transfers) we were not aware of until all of these things had broken out.”

A history of the dealings:

--In April, 1985, Collins and 10 of his clients formed a partnership to buy the Balboa Inn for $4.2 million, borrowing $1.8 million against their personal lines of credit from Bank of California for the down payment. The seller took back a second mortgage for $2.4 million.

The partners also took out a $2.4-million construction loan, giving Lloyds Bank a first mortgage. Last September, a month before it went into bankruptcy court, the partnership had debts totaling more than $7.5 million and the highest appraisal for the property was $6.8 million, according to financial statements. Bankruptcy records indicate debts totaling $5.7 million, not including the unsecured $1.8-million loan.

--In July, 1985, Collins and nine of the same clients--former Laker Charlie Scott did not join--bought the Bank Restaurant near the Balboa Inn, borrowing $1.2 million against their unsecured lines of credit from the Bank of California to cover the entire purchase price, and contributed $212,000 in cash for operating capital and other expenses.

Later, they took out a $960,000 loan against the property to pay off debts on the Balboa Inn. But the lender withheld about $200,000 to pay off personal debts of some of the partners.

Abdul-Jabbar’s lawyers sent a letter to all partners Aug. 26, demanding that the remainder of the loan be used to pay down the unsecured Bank of California loans, but the partners pocketed the money, his lawyers said. Debts on the restaurant last fall totaled $1.9 million, including the unsecured loan of $1.2 million.

The restaurant was leased to a company that was two-thirds owned by their general partner, Griswold’s Development Corp., which failed to get a liquor license and has not opened the restaurant yet, according to lawyers and other sources.

--In December, 1985, Collins and eight of the same clients--excluding Abdul-Jabbar and Scott--joined with Corbin to buy the Inn at Laguna. The partners borrowed $1.05 million for the down payment on the $5.2-million purchase.

Again the Bank of California loan was unsecured, and the bank consolidated the loans on all three Orange County properties into one $4.05-million unsecured loan with each limited partner liable for the entire debt in case of default.

Debts totaled $5.2 million last fall, financial records show. The Inn at Laguna partnership went into bankruptcy court early last month to reorganize its debts, which it listed as $5.5 million in its petition, not including the $1.05-million unsecured loan. The property reverted to a mortgage holder, Laguna Properties, Ltd., on Feb. 27, three days before the bankruptcy petition was filed.

--In May, 1985, Collins and 11 clients invested $1.5 million in Sports Club LA with money borrowed from Wells Fargo Bank. It appears that only Abdul-Jabbar, Sampson, Cummings and English were liable for the entire debt.

On March 20, the president of the club, D. Michael Talla, reached an agreement to buy the shares belonging to Abdul-Jabbar, Sampson and English for at least $1.1 million, and Cummings said he was considering selling his interest, too. The bank loan, Talla said, was nine months in arrears.

“The whole thing was out of control,” said Talla, who plans to retain Abdul-Jabbar in a promotional capacity. “Luckily, we were just innocent bystanders. A nuclear bomb went off and we got caught in the fallout.”

--On Oct. 31, 1984, Collins was president of a company that was a general partner in the Hotel Redmont. He and the same limited partners that went into the Balboa Inn joined with 27 other investors. The Collins group owned 194 of the 500 partnership units.

Abdul-Jabbar and Sampson paid $450,000 each through Collins’ company for the aging 13-story structure, and Sampson eventually bought out Abdul-Jabbar. The partnership agreement indicates that the partners put up $2 million for the property. They also provided letters of credit totaling $3.27 million to back up $5.5 million in industrial revenue bonds. The Amsouth Bank called in the letters of credit last December and January.

The remodeled hotel is still operating. Debts were $6.9 million, according to September financial records. Limited partners recently were asked to contribute $100 per partnership unit to meet payroll and other expenses, according to sources.

--On Oct. 26, 1984, eight of Collins’ clients--excluding Hackett and Scott--joined other limited partners to buy a Tony Roma’s rib restaurant in Addison, Tex. On March 25, 1985, seven of the same clients--except Abdul-Jabbar--raised $420,000 and joined other limited partners who had raised $200,000 in buying another Tony Roma’s in Fort Worth.

The status of the Tony Roma’s restaurants was unknown last fall, though the first one had debts totaling $500,000, according to financial records then. The operations are attempting to reorganize internally under Barry L. Ross, who took over the Collins company that is the general partner in the Hotel Redmont and the Tony Roma’s restaurants.

--On June 18, 1984, Collins and 11 clients formed All-Pro Enterprises, Inc., to promote and distribute a weighted jump rope known as Heavyrope.

Collins was the president of the corporation, which was financed by a $250,000 loan drawn on a line of credit at the California Overseas Bank and $350,000 in other notes and loans provided by the partners. Abdul-Jabbar’s share of the $600,000 was $155,000. In addition, Abdul-Jabbar lent All-Pro Enterprises $75,000 in December, 1985.

All-Pro Enterprises, described by one attorney as a “Mickey Mouse operation,” is out of business, with losses of at least $565,000. It failed in part because Collins neglected to obtain a right of exclusivity from the product’s inventor, Mike Mattox of Grand Rapids, Mich.

--Besides the properties listed above, Collins’ clients invested substantially in other interests. Financial statements, for example, show that Abdul-Jabbar and English invested $1 million apiece in Arabian horses, Sampson $700,000.

English reportedly has sold his interests, but Abdul-Jabbar’s horses have been moved from Bentwood Farms in China Springs, Tex., to Somerset Farms near Santa Barbara.

Abdul-Jabbar invested $500,000 in cattle feed and lost nearly $300,000 of that investment, according to court documents. He had $1 million in BTA Oil Producers, a Texas firm run by Carlton Beal, one of the Forbes 400, a list of the wealthiest men in America.

Scott had $150,000 invested in gold coins, but Scott claims not to have received the coins, according to an audit. Collins’ office claims to have delivered the coins but did not get a receipt, the audit says.

Scott, owner of a shoe store in Los Angeles, would not comment on the transaction.

“This is all because of Tom, that’s what happened,” Scott said. “Basically the problem is what Tom did. He did it all, and it was done wrongfully.”

Cummings, however, has remained friends with Collins, and retained him to negotiate a 2-year, $3.2-million contract with the Bucks before this season. Collins also was in town a few weeks ago to conduct contract negotiations for Kenny Fields of the Los Angeles Clippers.

“I’m not saying (Collins) was not responsible because he was--I know he made a lot of mistakes,” Cummings said.

“He told me man-to-man it was his fault. . . . He took on a whole lot more than he was prepared for.

“But it’s my mistake, too. I felt within myself that I should have looked deeply into the situation, but I kept putting it off.”

Some time before the Laker season ends, Abdul-Jabbar, the oldest player in the NBA, is expected to sign a contract extension worth more than $2 million for one more season. According to Armato, his attorney, Abdul-Jabbar is playing only because he wants to, not just for the money.

Recently, Abdul-Jabbar put his Bel-Air mansion up for sale at $4.2 million. He had built the house after a 1983 fire destroyed his previous home.

Ten days ago, Armato, the attorney who said he had recommended that Abdul-Jabbar put the house on the market, said that it had been taken off. That was done, Armato said, to end speculation that Abdul-Jabbar was selling the house because he needed the money.

That also was done the day after reporters had questioned Armato about the propriety of the listing agent for the house being his wife, Liz Armato, an employee of Jon Douglas Realtors.

According to Armato, Abdul-Jabbar had selected his wife to list the house because they were friends and he trusted her.

Normally, the listing agent shares in a 6% commission on a sale, according to a spokesman for the real estate firm. Six percent of the asking price on Abdul-Jabbar’s house is $240,000.

“Kareem is not saddled with debts all over the place,” Armato said. “Whatever losses he has had he has pretty much absorbed. He has some money deferred and a nice sweet pension plan. Anyone who would declare that he’s insolvent would be foolish.”

Abdul-Jabbar also owns land on the Hawaiian island of Kauai, where he is building a house, and some stocks and bonds. He also is president of Cranberry Records, a recently formed jazz division of MCA Records.

Armato said that his firm is investigating other possible investments for Abdul-Jabbar. Recently, he said, Abdul-Jabbar signed a shoe contract with Adidas, with whom he has worked for the last 21 years, that will include the establishment of a summer basketball camp and his own shoe store in Los Angeles.

What may be incalculable, however, is the damage done to Abdul-Jabbar’s reputation, the exposure of his private affairs to public scrutiny and the loss of long-time personal relationships, such as those he had with Collins and Catherine Moses, the bookkeeper and personal assistant who handled Abdul-Jabbar’s business affairs for eight years.

Moses has been named a defendant in the suit, as have the accountants, attorneys and other parties who did business with Collins.

In an article that appeared in the April, 1986, issue of Forbes magazine, Abdul-Jabbar was quoted as saying that most athletes and their business managers resemble “the blind leading the lame.” That was not the case in his relationship with Collins, he said.

And in a story that appeared in The Times in October, 1985, detailing his investment in the Balboa Inn, Abdul-Jabbar said he was “sharply defining” his financial goals.

“Not only am I paying a lot closer attention to my finances, but I’ve tried to assume a lot more control over investments decisions,” he said in the article.

Yet in his suit, filed three months after the Forbes article appeared, Abdul-Jabbar said that he did not read financial documents given to him because of his trust in Collins, and unthinkingly signed a $1.8-million business loan on the Balboa Inn that obligated him for the entire amount of the loan. One source describes a meeting in Collins’ office at which Abdul-Jabbar, given a financial statement, tossed it into the wastebasket on his way out.

In his suit, Abdul-Jabbar alleges that Collins allowed him to spend “excessive sums” of money on personal items. But Collins told associates he had had frequent meetings with Abdul-Jabbar about the amount of money allegedly being spent by Cheryl Pistono, Abdul-Jabbar’s former girlfriend and mother of Abdul-Jabbar’s 6-year-old son, Amir.

Pistono, who has since broken up with Abdul-Jabbar and married another man, Steven Jenkins, was said to have spent close to $800,000 in seven years on clothes, charge accounts, travel and household extravagances, according to sources. Before Pistono entered his life, sources said, Abdul-Jabbar was budgeted at $1,500 monthly for personal expenditures. But he ignored the warnings about Pistono, sources said, because he wanted “peace of mind.”

Financial statements given Abdul-Jabbar clearly listed Pistono’s expenditures as “Cheryl’s spending,” associates of Collins say.

Pistono, who says she was at odds with Collins during the time she was living with Abdul-Jabbar, denied the allegations of excessive spending. She said she was given a budget of $60,000 a year directly by Abdul-Jabbar.

“These allegations are not coming from Kareem,” she said. “ . . . Hundreds of thousands of dollars? I wish Tom Collins could prove it.

” . . . They’re being sued, I’m not. If I were involved, I’m sure I’d be sued, too.

”. . . They can make all the allegations they want. The bottom line is, they’ve got the money.”

Abdul-Jabbar spent more than $2 million in rebuilding his house, far more than the amount Collins had budgeted. That is one reason, apparently, that he was lent money from other clients. The insurance money from the house that burned down, a construction loan, and money drawn from Abdul-Jabbar’s pension plan were all used to finance the house, sources close to Collins said.

“Kareem knew that he had to get outside financing in some way to finish the house,” a source said. “He knew he was really extended on the house. You can’t get permanent financing on a house when it’s not completed.

“They figured they could put the money in the house, get it refinanced, and pay the guys back.”

English is attempting to recover a portion of that money in the suit he filed against Abdul-Jabbar for $150,000 last month in Denver. According to one source, English lent Abdul-Jabbar $25,000 for the house and $50,000 for Heavyrope.

When the Nuggets played the Lakers in Los Angeles on March 10, Abdul-Jabbar refused to shake English’s hand as is customary for team captains, sending Magic Johnson in his place.

Collins, answering allegations of improprieties in Abdul-Jabbar’s lawsuit, has denied that he transferred Abdul-Jabbar’s money into his own account to help finance his own investments.

Collins has offered to repay Abdul-Jabbar the $60,000 the player claimed was rightfully his but was credited to Collins’ account instead. That was due to a bookkeeping error, Collins has said.

Collins has disputed that he bought $9,000 in tickets in Abdul-Jabbar’s name from the Al Brooks Theater Ticket Agency but used the tickets himself. The tickets were used by Abdul-Jabbar for girlfriends, according to Collins associates.

The $20,000 the suit contends is missing from an account called ‘Cheryl’s Gold” was money that went to Pistono to replace personal effects she had lost in the fire, according to a Collins associate.

The $13,000 from the sale of a car purchased from Abdul-Jabbar was credited to Collins’ account due to another bookkeeping error, Collins has said.

After commissioning an audit of his finances, Abdul-Jabbar was convinced that it was in his best interests to break with Collins. The audit was conducted by the accounting firm of Ernst and Whinney in the fall of 1985.

He asked for the audit because he became suspicious, according to the lawsuit. An associate of Collins, however, claims that Collins suggested the audit after being warned that Abdul-Jabbar was being talked to by Henry Bushkin, the attorney who represents Johnny Carson and whose firm had represented Abdul-Jabbar in determining custody and child support for Amir.

The final break with Collins occurred Jan. 31, 1986, with the lawsuit filed almost six months later.

THE STORY CONTINUES . . . Landmark to Liability

The Balboa Inn in Newport Beach left its owners owing $5.7 million and headed for bankruptcy. Story, Page 4.

Shattered Confidence

Business manager Thomas Collins stands accused of costing his clients millions of dollars. Story, Page 5.

Suspicious Minds Kareem Abdul-Jabbar’s former girlfriend says she never trusted Thomas M. Collins. Story, Page 5.