Age Before Bonus…

In a saga more than four years in the making, the Washington Nationals are suing Westchester Fire Insurance Company in an effort to recover $1 million of the signing bonus they gave to a fraudulent Dominican prospect Carlos David Alvarez Lugo – aka Simley Gonzalez. The implications/effects of this suit are far reaching and potentially will change the way that many MLB teams sign foreign talent.

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In 2006, the Nationals signed 16-year-old shortstop Smiley Gonzalez with a $1.4 million signing bonus. Gonzalez’s story is murky, involving his own impoverished past and the way lives can change with a sum as great as $1.4 million, the largest bonus the Nationals have ever granted a Latin American prospect. However, in 2009 it was discovered that Gonzalez had actually lied about his true identity. Gonzalez was in fact 20-years-old and thus his value as a baseball player was greatly diminished. The Nationals ultimately fired General Manager Jim Bowden and his special assistant in charge of Latin America, Jose Rijo in the wake of the scandal.  In 2008, Bowden and Rijo acknowledged speaking with the FBI about the matter as part of a federal probe into baseball’s Latin American scouting practices. Indeed, the practice of changing personal information is so common that it is an assumed part of the landscape in the Dominican Republic.

The Nationals are now trying to recoup the money they spent signing Gonzalez/Lugo, who, incredibly, has played this season in the team’s Gulf Coast League, the lowest rung of the minors. In their complaint against Westchester Fire Insurance Company, the Nationals make a claim that validates a long-speculated belief: the player once known as Smiley kicked back part of his signing bonus to Rijo. To bolster its claim, the Nationals had Lugo/Gonzalez  executed an affidavit detailing his fraud, including that “he kicked back $300,000 of his bonus to Jose Rijo.” In January 2011, Rijo told the Washington Post that he had not received any payment from Alvarez.

“Nobody ever said that I took money from him or that I changed his [expletive] age,” Rijo then said “Nobody can ever do that, because it never happened. It never happened. I don’t even know that kid.”

(Note: It was later discovered that the facility where Lugo/Gonzalez honed his skills after signing with the Nationals is owned by Rijo). To make matter worse, in July 2012, Rijo, the 1990 World Series MVP, was charged in the Dominican Republic with money laundering for a suspected drug trafficker.

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The Nationals, who are represented in the case by D.C. law firm Williams & Connolly, claim Westchester “denied the claim without reasonable basis and only after dragging its feet and delaying its investigation for months.” The Nationals claim that this is an incident of “employee theft and fraud” following the revelation that Lugo/Gonzalez had faked his age and identity. “Had they known Lugo’s true age and identity at the time, more likely than not, the Nationals would have paid Lugo no bonus at all,” the suit reads.

“The $1.4 million signing bonus thus represented a complete loss resulting from the employee dishonesty, theft, and fraud of Rijo, Jose Baez and Lugo.”

The Nationals are not the first team to be suckered into paying a huge signing bonuses for a prospect whose value is greatly inflated due to fraudulent age assertions. However, like any savvy business organization the Nationals implemented a safety net that protected their investment in an asset. While the Nationals due diligence is less than desirable, their ability to effectively have a viable contingency plan in place is a great lesson for any aspiring business owner – preventative measure are always worth their time and money. For the Nationals, it is now time to see how effective of an insurance plan they actually negotiated.