Updated Sept. 12
In a surprising turn for a onetime rising star in the wine industry, Charles A. Banks walked into a San Antonio courthouse wearing handcuffs Friday after surrendering to authorities. Two days earlier, a federal grand jury had indicted the financial advisor and founder of Terroir Capital—which owns or manages more than a dozen wineries in California, New Zealand, South Africa and Burgundy—on two counts of wire fraud, each of which carries a maximum penalty of 20 years in federal prison. The case stems from allegations made by former NBA star Tim Duncan, a longtime Banks client, who now says he was duped out of millions of dollars in various investments Banks made on his behalf.
Banks first met Duncan in 1998, while he worked as a financial advisor for pro athletes at CSI Capital Management. Wine was a hobby, but in 2000 Banks invested in a new Santa Barbara winery called Jonata. In 2006, he and real-estate developer Stan Kroenke bought Napa Valley's Screaming Eagle.
After Banks left both of those wineries, he founded Terroir Capital, inviting a select group to invest in building a winery company from scratch. He has assembled a portfolio of wine brands that range from legendary Napa winery Mayacamas to Santa Barbara pioneer Qupé—producing a total of 500,000 cases annually—along with smaller stakes in hotels and restaurants.
After Banks left CSI, he offered Duncan a stake in several investments he was putting together, including a sports merchandising company called Gameday Entertainment, for which Banks serves as chairman, and two funds at Terroir.
But in a lawsuit filed last year, Duncan alleged that Banks cost him millions through questionable advising and suspect deals. He says Banks persuaded him to make a $7.5 million loan to Gameday in 2012, which would be repaid over five years at 12 percent interest. His lawsuit alleges that Gameday failed to make all the payments. Duncan also claims Banks collected a 20 percent fee that he never agreed to.
Duncan's suit also alleged "Banks encouraged, promoted, hustled and advised Duncan to invest in several wineries and investment funds that he controls. Banks has used these wineries and funds to secure substantial income for himself, but they have yet to return much, if anything, to Duncan." (The federal indictment does not include any allegations directly connected to Banks' work at Terroir.)
A copy of the federal indictment against Banks, obtained by Wine Spectator, charges that Banks misled Duncan about the Gameday investment several times. First, that when Banks left CSI, he told the firm's new owners that Duncan had requested that Banks continue as the conduit for communications between the basketball player and the firm. Duncan claims he had no idea Banks was no longer officially his advisor.
In October 2012, Gameday needed more capital, and Comerica Bank agreed to loan the company $10 million but required that it would be the first creditor paid off in case Gameday went bankrupt. Duncan's loan had included a provision giving him that first position.
According to the indictment, Banks "arranged for [Duncan] to sign an agreement guaranteeing the new line of credit and subordinating his own security interests." Banks "advised [Duncan] that the agreement that he was entering into was a modification of his earlier $7.5 million loan and effectively reduced his exposure by $1.5 million should Gameday default on the loan." In fact, the new agreement created an additional $6 million liability for Duncan.
The indictment alleges that Banks sent an e-mail to Comerica on June 4, 2013, instructing them to send only the signature pages of the new agreement to Duncan.
Banks told Wine Spectator when the suit was filed that Duncan agreed to certain minimum investment periods but then tried to cash out early. "I knew that Tim was unhappy because he wanted to get out of some of his investments after his divorce," he said. "But we've got some terrific investments and I'm not going to let Tim Duncan or anyone else bully me into changing the fund and possibly hurting other investors."
But within a few months, the FBI began investigating, according to the federal jury's indictment. Also on Friday, the U.S. Securities and Exchange Commission released a federal lawsuit the regulatory agency has filed against Banks in Atlanta, accusing him of defrauding an unnamed investor. The details mirror Duncan's allegations.
Banks left the courthouse, holding hands with his wife, Ali, after posting a $50,000 cash bond, part of $1 million bail that was set during a brief appearance before a federal judge. His criminal defense lawyer, John Murphy, told reporters, “He's a long-term successful businessman, a family man, a church man. We're confident that when all the facts and circumstances come to light, everyone will see there's another side, and that he's innocent of these charges.”
One of Duncan's lawyers, Michael Bernard, spoke to reporters afterwards. “Tim is very grateful for the work of the FBI…,” Bernard said. “He certainly feels vindicated in his claims against Mr. Banks. When the suit was filed, Tim said he was doing it because he wanted to make sure this didn't happen to anybody else or any other athlete.”