The Securities and Exchange Commission today announced that it has obtained a court order freezing the assets of an investment advisor it has charged with secretly siphoning millions of dollars from accounts he managed for professional athletes and investing them in a struggling online sports and entertainment ticket business on whose board he served.
In a complaint filed on May 24 and unsealed today in federal court in Dallas, the SEC charged the advisor, Ash Narayan, of Newport Coast, California, along with The Ticket Reserve Inc., CEO Richard M. Harmon, and chief operating officer John A. Kaptrosky. The SEC obtained a court order on May 24 to freeze the assets of the defendants and the court appointed a receiver over The Ticket Reserve.
The SEC’s complaint alleges that Narayan transferred more than $33 million from clients’ accounts to The Ticket Reserve, typically without their knowledge or consent and often using forged or unauthorized signatures. According to the complaint, the Ticket Reserve became dependent on the fraudulent cash infusions from Narayan’s unsuspecting clients to stay in business and in exchange, Narayan received nearly $2 million in hidden compensation from the company, most of it directly traceable to funds stolen from his clients.
According to the SEC’s complaint, The Ticket Reserve also made Ponzi-like payments to existing investors using money from new investors. Since being fired from the investment firm where he worked and losing access to the clients’ accounts, Narayan is alleged to have been redirecting to The Ticket Reserve the sham fees he received out of the money taken from client accounts. The SEC secured the court-ordered asset freeze before Narayan could make a planned financial transaction on May 31.
“We allege that Narayan exploited athletes and other clients who trusted him to manage their finances. He fraudulently funneled their savings into a money-losing business and his own pocket,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office. “The asset freeze stops the uncontrolled spending of investor assets within The Ticket Reserve until the case is resolved, preserving money that rightfully belongs to Narayan’s clients.”
According to the SEC’s complaint:
- Narayan was a managing director in the California office of Dallas-based investment advisory firm RGT Capital Management.
- Narayan’s clients trusted and relied upon Narayan to pursue safe, conservative investments that would not put their principal at risk, realizing that as professional athletes with injury risks, their earnings might occur within a short window.
- Besides failing to disclose the bulk of The Ticket Reserve investments to his clients and the fees he was receiving in exchange for investing their money, Narayan failed to disclose other key conflicts of interest—including that he was a member of The Ticket Reserve’s board of directors and owned more than three million shares of company stock. Narayan also falsely claimed to be a CPA.
- Harmon and Kaptrosky participated in the scheme by making undisclosed finder’s fee payments to Narayan out of his clients’ funds and covertly describing them as “director's fees” and “loans” in various company documents.
- 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’s complaint alleges that Narayan, The Ticket Reserve, Harmon, and Kaptrosky violated antifraud provisions of the federal securities laws and a related SEC antifraud rule, and charges Narayan with violating the antifraud provisions of the Investment Advisers Act of 1940. The SEC seeks disgorgement of ill-gotten gains plus interest and penalties as well as preliminary and permanent injunctions.
The SEC’s investigation was conducted by Michael A. Umayam, Keith J. Hunter, and Carol J. Hahn, and the case was supervised by David L. Peavler, Jessica B. Magee, and Eric R. Werner in the SEC’s Fort Worth office. The SEC’s litigation will be led by Christopher A. Davis and Ms. Magee.