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Advisor to Pay $841K for Charging Hidden Fees to Pro Athletes

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What You Need to Know

  • Douglas E. Elstun charged higher fees than clients had agreed to and applied advisory fees to non-advisory assets, the SEC says.
  • Elstun, a former college basketball player, served pro athletes and other retail clients, 401(k) plans and charitable endowments.
  • He has not been a registered broker or advisor since leaving Sigma Financial in 2012.

A formerly registered broker and RIA who the Securities and Exchange Commission charged with fraudulently overcharging clients including professional athletes has been ordered to pay a total of $841,079, the SEC said Wednesday.

In a final judgment against Douglas E. Elstun of Lenexa, Kansas, delivered Tuesday by Judge Brian C. Wimes in U.S. District Court for the Western District of Missouri, Elstun was ordered to pay disgorgement of $386,647 with prejudgment interest of $64,338 and a civil penalty of $390,094.

Without admitting or denying the SEC’s allegations, Elstun consented to the entry of the final judgment that also permanently enjoins him from violating the charged provisions.

Elstun did not immediately respond to a request for comment Friday. He has not been a registered broker or advisor since leaving Sigma Financial in 2012, according to his report on the Financial Industry Regulatory Authority’s BrokerCheck website.

Before joining Sigma in 2002, he was a rep and broker for FSC Securities 1996-2002 and G. R. Phelps & Co. 1993-1996.

More Details

Elstun was charged with repeatedly defrauding and breaching his fiduciary duty to advisory clients of his investment advisory firm, Crossroads Financial Management.

The SEC’s complaint, filed March 29, alleged that, from 2015 through 2018, Elstun fraudulently overcharged clients via undisclosed fees, including higher advisory fees than clients had agreed to pay and by applying the advisory fee to non-advisory assets.

The complaint alleged Elstun also traded in high-risk, daily leveraged and/or inverse exchange-traded funds and misled advisory clients by failing to disclose the substantial risks of buying and holding those products, and by inaccurately representing that the products functioned as “insurance” or a “hedge” for their portfolios even though his trading of the products actually created significant risk for clients.

The complaint further alleged that Elstun made unsuitable and risky investments that were inconsistent with his clients’ investment objectives and risk tolerances. As a result of Elstun’s ETF trading, Elstun’s clients lost millions of dollars, the SEC alleged.

The SEC’s complaint charged Elstun with violating the antifraud provisions of the Advisers Act and aiding and abetting Crossroads’ violations of the record-keeping, custody, cash solicitation, and compliance provisions of the Advisers Act.

Through Crossroads, Elstun “developed a niche serving as an investment adviser to professional athletes,” the complaint said, noting he played college basketball. He recruited athletes as advisory clients and managed their money on a discretionary basis. “Elstun also managed funds on a discretionary basis for dozens of other retail clients, a handful of companies’ 401(k) programs, and a few charitable institutions with endowments,” according to the complaint.

The complaint didn’t name any of his athlete clients. But Federalcrime.us reported he told the Kansas City Star in 2016 that his clients included Will Shields, a former guard for the Kansas City Chiefs; Paul George of the Los Angeles Clippers; and Darren Sproles, a former running back for the Philadelphia Eagles.

Elstun’s LinkedIn profile says he is an owner of Larmer & Elstun Investment Advisors. However, the complaint said Crossroads was the successor to the investment advisory business Larmer & Elstun that was the successor to the investment advisory business William B. Larmer & Associates.

(Photo: Thinkstock)