President Trump’s favored Senate candidate in Alabama, Tommy Tuberville, is known for his career as a college football coach.
But he also had a brief stint as co-owner of a hedge fund. It did not go well.
A little more than a decade ago, after departing from Auburn University where he was head coach, Mr. Tuberville entered into a 50-50 partnership with a former Lehman Brothers broker named John David Stroud. Their ventures, which included TS Capital Management and TS Capital Partners — T for Tuberville and S for Stroud — turned out to be a financial fraud. Mr. Stroud was sentenced to 10 years in prison, and Mr. Tuberville was sued by investors, who accused him of fraud and violating his fiduciary duty to take care of their investments; he reached a private settlement in 2013.
The episode has been seldom discussed in Mr. Tuberville’s Republican primary campaign for the Senate, in which his opponent in the July 14 runoff is Jeff Sessions, the former senator and attorney general who became an object of Mr. Trump’s ire after recusing himself from the Russia inquiry. The winner will face Doug Jones, considered perhaps the most vulnerable Democrat in the battle for control of the Senate.
Asked about the hedge fund venture on the campaign trail in February, Mr. Tuberville described himself as “an investor like the rest of them,” much as he had in media reports at the time of the accusations.
“They sued me because I invested in it, and he used my name to get other people to put money in,” he said. “There was nothing ever implicated by anybody that I’d done anything wrong. I felt bad that he used my name.”
But a review of public court records shows that he had a broader role. While he was not picking stocks, or even a frequent presence in the office, Mr. Tuberville made introductions to potential investors, had business cards identifying himself as managing partner, and leased a BMW and got his health insurance through the company. Its offices in Auburn were filled with his coaching memorabilia. In 2010, he traveled to New York with Mr. Stroud to meet potential brokers for the fund, and was kept in the loop on decisions about hiring, according to email traffic.
In a statement, Mr. Tuberville’s lawyer and campaign chairman, Stan McDonald, said his client’s involvement in the company “was a big mistake, and he’s paid for it.”
“Coach Tuberville was as surprised as anyone to learn Stroud had lost all the money, including Coach’s. He never received a dime; it was a dead loss for him and his family,” Mr. McDonald said. “The Lord humbles us on many occasions, and this was such a moment for Coach.”
While the terms of the settlement have not been made public, Mr. Tuberville’s losses from the venture are estimated to have exceeded $2 million, including his legal bills, $450,000 in investment losses and the settlement payout, according to a person with knowledge of the details.
The plaintiffs who were reached declined to comment, as did their lawyers. The New York Times asked the Tuberville campaign to release the plaintiffs from the settlement’s confidentiality agreement, but it did not agree to do so. Mr. Stroud, who has been released from prison, did not respond to messages.
The runoff will test the endorsement power of Mr. Trump, who met with Mr. Tuberville last month on Air Force One and said recently that he would campaign with him in Mobile, Mr. Sessions’s hometown. (“He is a REAL LEADER who will never let MAGA/KAG, or our Country, down!” Mr. Trump tweeted about Mr. Tuberville in March. He later berated Mr. Sessions, “Jeff, you had your chance & you blew it.”)
While Mr. Sessions is trying to reclaim the Senate seat he held for 20 years before becoming attorney general, Mr. Tuberville is a first-time candidate whose main selling points are his football history and his fealty to the president. A recent poll showed him with a commanding lead over Mr. Sessions, though primary polling is often unreliable; both men lead Mr. Jones to varying degrees, depending on the pollster.
Mr. Tuberville may not be a football god on the order of Nick Saban, the coach of Auburn’s archrival, the University of Alabama. Still, he did lead Auburn to six straight victories over Alabama, and at the pinnacle of his 10 seasons there, in 2004, his team went undefeated, though it was not selected for the national championship game. That controversial outcome was among the factors that eventually led to the creation of a playoff system. Mr. Tuberville was less successful in his subsequent tenures at Texas Tech and the University of Cincinnati.
Court records provide a detailed account of what happened with the investment fund.
Mr. Tuberville and Mr. Stroud were introduced in 2008 by a fund-raiser for the Auburn athletic department, and they became friends. Mr. Stroud accompanied Mr. Tuberville and other friends and family on a trip to Jamaica. The next year, after Mr. Tuberville left Auburn, he was investing money with Mr. Stroud. Soon after, they started the fund.
During a deposition in the civil litigation, Mr. Tuberville was asked if he had done “anything to check out” Mr. Stroud’s background before embarking on their business venture. He said he had not. “I just got to know him more as a guy hanging around, going out with us,” he said, adding that he had not even Googled him.
He had assumed that Auburn had vetted Mr. Stroud as a potential donor. Jerry Smith, a local fund-raising consultant who has worked with the athletic department, met with Mr. Stroud, but was dubious.
“I couldn’t tell whether the guy was for real or not — he talked a good game,” Mr. Smith said in an interview. “I just didn’t believe some of the stories he was telling.”
The investors in the fund included friends of Mr. Tuberville, some of whom had connections to the football programs at Auburn and Texas Tech. Old clients of Mr. Stroud also invested, as well as employees of the small firm. One couple, a bookkeeper and a retired teacher, invested more than $800,000.
Things seemed to go smoothly for a time, and the two men even made a cameo appearance in the 2009 football movie “The Blind Side.” But trouble began in 2011, when Mr. Tuberville got a call from Mr. Stroud’s chief operating officer, Baron Lowe, whom he had not met.
“Coach, he is not paying his bills,” Mr. Lowe, who would later become a plaintiff in the civil suit against Mr. Tuberville, said, according to the court records. Mr. Tuberville called Mr. Stroud, who said, “I am a little behind.” Mr. Tuberville told Mr. Stroud to talk with Mr. Lowe, adding, “I am coaching and I don’t have enough time to mess with your business and mine at the same time.”
Mr. Lowe, who said at the time that the situation had “the optics of a Ponzi scheme,” according to the court records, testified that Mr. Tuberville assured him all investments would be repaid. They were not. Glen Williams, another investor and employee of the company, said Mr. Tuberville stopped returning his calls by October of that year, records show.
Mr. Tuberville testified that he told Mr. Stroud to repay everyone, but he clearly grew alarmed. In one text message, he told Mr. Stroud: “I hear the state securities commission is coming to investigate. I hope you have everything in order. Call me.”
Things went downhill from there. In March 2012, the Commodity Futures Trading Commission filed a complaint against Mr. Stroud, saying he had defrauded nearly $5 million from at least 17 investors in his own Stroud Capital Fund and in one of his ventures with Mr. Tuberville, TS Capital Fund. Not only had he racked up trading losses of nearly $1.2 million, he had misappropriated nearly $2.3 million, the complaint said, using it for “car payments, travel expenses, entertainment and retail purchases.” He also issued false accounting statements and tax records. Two months later, Mr. Stroud was indicted on 21 counts by a grand jury in Lee County, in a criminal case brought by the Alabama Securities Commission. He pleaded guilty to a felony fraud charge the next year.
“David was the one with the knowledge, and he is the more culpable of the two,” said Jason M. Folmar, a high school classmate of Mr. Stroud who briefly served as his lawyer. But “Tuberville knew what was going on.”
“We’re a huge football state, everything revolves around college football in Alabama,” Mr. Folmar said. “I just think because he was a football coach they didn’t charge him.”
State and federal investigators didn’t see it that way, saying Mr. Tuberville had been among those who were duped. “It appears from our investigation of the case that Mr. Tuberville was one of the largest victims in the Stroud theft, and that Mr. Tuberville did not do any actual trading himself,” said Joseph Borg, director of the Alabama Securities Commission. The Washington-based Commodity Futures Trading Commission, which is not known to favor Auburn football, also did not pursue a case against Mr. Tuberville.
Victor L. Hayslip, who represented Mr. Tuberville at the time, emphasized that his client had been a victim.
“It was bad judgment in that he got in bed with a guy who was a crook,” he said. “Being naïve is not a crime.”
Mr. Tuberville was not in the clear, however. Because he co-owned one of the main funds involved, he was sued by eight investors, who sought more than $1.7 million.
“He was the only deep pocket left standing,” Mr. Hayslip said.
Lawyers for the plaintiffs, in public court filings, called it a “sad irony that one of the escorts that Stroud frequented performed more due diligence on Stroud than Tuberville did,” adding, “She asked for references, confirmed contact numbers and websites, and refused to meet him until he provided the information she required.”
The suit progressed for more than a year and a half and was headed for court when Mr. Tuberville decided to settle, averting a trial that would have taken place during the football season. In a deposition, he said that the last time he had spoken to Mr. Stroud was in late 2011, two days before his Texas Tech team upset the University of Oklahoma.
“I lied to you,” he recalled Mr. Stroud telling him. “I have spent it all.”