May 06, 2010 at 08:05 PM
written by

SpongeTech Exhausts Sponsorship Options; Bigger Worries

As you've undoubtedly heard already if you work in the front office of a major sports team (any major sports team really), SpongeTech's CEO and COO were arrested yesterday and charged with conspiracy to commit securities fraud as well as obstruction of justice.

“Investors were deceived into believing that SpongeTech was a successful business, while SpongeTech and its senior executives were illegally dumping shares into the market,” said Christopher Conte, an associate enforcement director for the Securities and Exchange Commission.

According to the S.E.C. complaint, SpongeTech used “highly visible sponsorship deals with sports teams to create the aura that SpongeTech was a well-known & prosperous business."

The New York Times elaborates:

SpongeTech may never have been a successful business, but it did buy a lot of promotions at sports stadiums and on broadcasts. Last year, the company says, it had deals with at least 30 teams, in baseball, hockey, basketball and football. The S.E.C. says some of those deals were financed through the illegal sales of stock. Some of the teams and stadiums have sued SpongeTech for not living up to its obligations.

Particularly ironic about this story is the fact that SpongeTech built its brand on the back of struggling financial institutions looking for early exits to their sponsorship deals. portrayed the strategy back in September writing "they would approach professional sports teams with the idea of taking over in-stadium advertising space previously used by companies that were either defunct or not interested in taking huge bailout funds and having to answer questions about why they're spending to litter America's backstops."

Ever since last Fall, speculation has risen about the company's accounting practices. Roddy Boyd at The Big Money at the time speculated about how the company may have been using accounting practices to fund its sponsorship spree.

Just last month, SpongeTech sued hedge fund manager Timothy Sykes, as well as journalists and The New York Post, seeking $43 million in damages claiming it was the target of a scheme to manipulate the company's stock price.