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Sunday, December 21, 2014

SEC FILES FRAUD CHARGES AGAINST INVESTMENT ADVISER TO PRO ATHLETES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23155 / December 11, 2014
Securities and Exchange Commission v. Bill C. (Billy) Crafton, Civil Action No. 3:14-cv-02916-DMS-JLB

Yesterday the Securities and Exchange Commission filed fraud charges against a former investment advisor who provided services primarily to professional athletes, alleging that he failed to disclose compensation and kickbacks he received for steering clients to certain investments and financial products. The SEC further alleges that he misappropriated substantial sums from two clients for the benefit of a third.

According to the SEC's complaint filed in the U.S. District Court for the Southern District of California, San Diego resident Bill C. (Billy) Crafton was the sole owner of Martin Kelly Capital Management, through which he provided investment advice and wealth administration services to current and former professional athletes in Major League Baseball, the National Football League, the National Hockey League, and the National Basketball Association. From at least 2006 to 2010, Crafton received more than $1.5 million in undisclosed compensation and brokerage commissions from the principals of certain funds and businesses in exchange for recommending that his clients invest in those enterprises or do business with them. In some instances, Crafton falsely disavowed to his clients that he was receiving such compensation in connection with client transactions.

The SEC further alleges that Crafton knowingly orchestrated a fraudulent scheme in June 2010 when he arranged through forged wire transfer authorizations and other means for two of his clients to purchase a third client's $700,000 position in a fund. Crafton was well aware that the fund had been the subject of an asset freeze obtained by the SEC four days earlier for allegedly operating as a Ponzi-like scheme.

The SEC's complaint alleges that Crafton violated Section 17(a) of the Securities Act of 1933; Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5; and Sections 206(1), 206(2), and 206(3) of the Investment Advisers Act of 1940.

Crafton has agreed to a settlement that is subject to court approval. In settlement papers that Crafton signed in April 2014 which were filed with the court simultaneously with the complaint, Crafton consented to the entry of a final judgment permanently enjoining him against future violations of the Section 17(a) of the Securities Act of 1933; Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5; and Sections 206(1), 206(2), and 206(3) of the Investment Advisers Act of 1940. The final judgment to which Crafton consented would order that he is liable for $1,505,952 in disgorgement plus prejudgment interest of $192,959, for a total of $1,698,911 that he is anticipated to pay as part of his obligations in a parallel criminal case by the U.S. Attorney's Office for the Southern District of California in which he pled guilty to charges of conspiracy to commit wire fraud on October 17, 2014.

Additionally, Crafton consented to the future entry of a Commission order that would bar him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and also bar him from participating in any penny stock offering.

The SEC’s investigation, which is continuing, is being led by Alfred C. Tierney and John P. Lucas and supervised by J. Lee Buck, II. The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation.

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