In a complaint filed in Texas, the SEC said the adviser, Ash Narayan who worked for Dallas-based RGT Capital Management, had transferred more than $33m (£22.5m, €29.2m) from clients’ accounts to a company called The Ticket Reserve Inc.
The transfers were typically made without the clients knowledge or consent and often used forged or unauthorised signatures.
The Ticket Reserve (TTR) was a company which sold tickets to high-profile sporting events.
According to the SEC’s complaint, TTR became dependent on the fraudulent cash infusions from Narayan’s unsuspecting clients to stay in business and, in exchange, Narayan received nearly $2m in hidden compensation from the company, most of it directly traceable to funds stolen from his clients.
The SEC said that in addition TTR made Ponzi-like payments to existing investors using money from new investors.
“We allege that Narayan exploited athletes and other clients who trusted him to manage their finances. He fraudulently funnelled their savings into a money-losing business and his own pocket,” said Shamoil Shipchandler, director of the SEC’s Fort Worth regional office.
One of the victims, Major League Baseball player Roy Oswalt, who originally agreed to invest $200,000 in TTR, ended up losing $7m.
In a declaration made to the court, Oswalt said Narayan had not told him that he was receiving funds for directing investments into TTR; had not disclosed he was on TTR board of directors; had not mentioned he owned millions of shares in TTR; had not told him TTR was in a poor financial condition; and had not mentioned that TTR’s auditors had expressed concern about the company ability to stay in business.
The SEC has since secured a court-ordered freeze of Narayan’s assets. It has also charged TTR’s chief executive Richard M. Harmon, and its chief operating officer John A. Kaptrosky with participating in the scheme
“Harmon and Kaptrosky approved and executed Ponzi-like payments, falsified and backdated documents, and created sham promissory notes between The Ticket Reserve and Narayan in attempts to further conceal the scheme,” the SEC said in a statement on Tuesday.