## Facts

- Reginald (“Reggie”) Williams, a young National Basketball Association player, and his wife, Kathy Williams, sought financial and tax advice after he signed his first major professional contract; the court found them inexperienced in finance and business.
- The Williamses were introduced to Waymon Hunt, a financial planner, and Hunt’s company, CWI, Inc., and agreed that Hunt would provide financial and tax advice, including preparing their tax returns.
- Hunt presented an investment opportunity involving “atmospheric reverse refrigeration heating units,” describing both investment returns and tax advantages.
- Williams agreed to purchase $1 million worth of units through a Hunt-affiliated company and paid Hunt a $50,000 deposit toward the transaction.
- The written arrangement contemplated that Hunt’s side would obtain financing for the remaining amount and required that the $50,000 deposit be returned if the contemplated purchase could not be completed.
- Upon receiving the $50,000, Hunt did not apply it to the unit purchase or related financing efforts; instead, he used the money for personal purposes.
- Hunt repeatedly reassured Williams that the investment was safe and proceeding as promised, even though the units were never purchased and the financing was never obtained.
- When Williams demanded repayment, Hunt initially claimed he was entitled to keep the $50,000 as a “finder’s fee,” but later admitted he owed Williams the money.
- Hunt prepared tax returns treating the $50,000 as if it had been invested; after the Williamses learned the investment never occurred, they retained others to prepare amended federal and California returns and incurred penalties, interest, and related costs.
- Clara Neeley, who had connections to Hunt and helped connect the Williamses to him, was also sued, but the court found the evidence did not show her participation in the conduct that caused the loss.

## Issues

1. Whether Hunt and CWI, Inc. were liable for failing to return the $50,000 deposit after Hunt diverted it and the contemplated transaction was not completed as agreed.
2. Whether the Williamses could recover consequential damages tied to Hunt’s tax-related conduct, including costs of amended returns and tax penalties and interest.
3. Whether the evidence supported holding Clara Neeley liable for the Williamses’ loss.
4. Whether Hunt’s conduct justified punitive damages.

## Decision

- After a bench trial, the court found for the Williamses against Hunt and the responsible corporate defendant(s), including CWI, Inc., based on Hunt’s diversion of the deposit and failure to return it.
- The court awarded restitution of the $50,000 deposit.
- The court awarded additional compensatory damages for losses linked to the erroneous tax reporting and the steps required to correct it, including penalties, interest, and costs of preparing amended returns.
- The court dismissed Neeley because the Williamses did not carry their burden to prove she was involved in the misconduct that deprived them of the $50,000.
- The court awarded punitive damages against Hunt due to intentional wrongdoing involving misuse of entrusted funds and related misrepresentations.

## Legal Principles

- When a financial adviser receives client funds for a specified transaction subject to an express refund obligation, diversion of those funds supports liability for restitution and related damages.
- A client may recover consequential damages that are a foreseeable result of the adviser’s wrongful conduct, including costs and liabilities caused by false or unsupported tax return positions prepared by the adviser.
- Civil liability for an associate requires proof of participation or responsibility for the misconduct; an employment relationship or introduction to the wrongdoer, without more, is insufficient.
- Punitive damages may be awarded where the defendant’s conduct is intentional, dishonest, and sufficiently blameworthy to warrant punishment beyond compensatory relief.

## Conclusion

In *Williams v. CWI, Inc.*, the district court concluded that Hunt, acting as Williams’s financial and tax adviser, took a $50,000 investment deposit for a promised heating-units transaction, used the money for himself, and misrepresented the status of the investment while also preparing tax returns treating the deposit as invested; the court ordered repayment of the deposit, granted tax-related consequential damages, imposed punitive damages against Hunt, and dismissed the claim against Neeley for lack of proof tying her to the wrongful acts.


Williams v. CWI, Inc., 777 F. Supp. 1006 (1991)