The Securities and Exchange Commission has charged a Kansas investment advisor with overcharging and defrauding dozens of clients that included some professional athletes, ThinkAdvisor reports.
The SEC obtained a final judgment recently against Douglas E. Elstun, who was accused of breaching his fiduciary duty to clients of his investment advisory firm, Crossroads Financial Management, Inc. According to a complaint filed by the commission in federal court, Elstun “fraudulently overcharged his advisory clients by charging undisclosed fees, including higher advisory fees than clients had agreed to pay, and by applying the advisory fee to non-advisory assets.”
He also was accused of misleading his clients by not disclosing the risks that were involved in purchasing some of the products he was trading in, which included high-risk exchange-traded funds. The SEC said Elstun told clients the products would be a hedge for their portfolios even though they were actually taking on more risk. Furthermore, the SEC said his clients lost millions of dollars as a result of his “unsuitable and risky investments” that were not part of their investment strategy.
Elstun was charged with violating the antifraud provisions of Sections 206(1) and 206(2) of the Advisers Act, or aiding and abetting Crossroads’ violations of those provisions. He was also charged with aiding and abetting Crossroads’ violations of the record-keeping, custody, cash solicitation, and compliance provisions of Sections 204(a) and 206(4) of the Advisers Act and Rules 204-2(a)(10), 206(4)-2, 206(4)-3, and 206(4)-7 thereunder.
Elstun did not admit or deny the findings of the SEC, but did consent to the final judgment that orders him to pay disgorgement of $386,647 along with prejudgment interest of $64,338, and orders him to pay a civil penalty of $390,094. He was also permanently enjoined from violating the charged provisions.
The SEC’s complaint said Elstun had developed a niche as an investment adviser to professional athletes, but did not name any of the athletes he advised.
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