SEC ACCUSES FORMER PRESIDENT INVESTMENT ADVISORY FIRM WITH STEALING CLIENT FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/15/2015 02:20 PM EDT

The Securities and Exchange Commission announced fraud charges against a Washington D.C.-based investment advisory firm’s former president accused of stealing client funds.  The firm and its chief compliance officer separately agreed to settle charges that they were responsible for compliance failures and other violations.

SFX Financial Advisory Management Enterprises is wholly-owned by Live Nation Entertainment and specializes in providing advisory and financial management services to current and former professional athletes.  The SEC Enforcement Division alleges that SFX’s former president Brian J. Ourand misused his discretionary authority and control over the accounts of several clients to steal approximately $670,000 over a five-year period by writing checks to himself and initiating wires from client accounts for his own benefit.

The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC separately charged SFX and its CCO Eugene S. Mason, finding that the firm failed to supervise Ourand, violated the custody rule, and made a false statement in a Form ADV filing.  The SEC finds that Mason caused some of SFX’s compliance failures by negligently failing to conduct reviews of cash flows in client accounts, which was required by the firm’s compliance policies, and not performing an annual compliance review.  Mason also was responsible for a misstatement in SFX’s Form ADV that client accounts were reviewed several times each week.  SFX and Mason agreed to pay penalties of $150,000 and $25,000 respectively.

“Investment advisers have a fiduciary obligation to safeguard client assets,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “SFX failed to detect an alleged misappropriation for years because it had insufficient internal controls to limit Ourand’s ability to withdraw client funds for personal use.”

The SEC’s continuing investigation is being conducted by Payam Danialypour and C. Dabney O’Riordan, members of the Asset Management Unit in the Los Angeles Regional Office. The Enforcement Division’s litigation against Ourand will be conducted by Mr. Danialypour, Donald Searles, and Lynn Dean.

SEC COMPLAINT ALLEGES FRAUD SCHEME TO MISAPPROPRIATE CLIENT FUNDS

The following excerpt is from the SEC website:
March 22, 2012
The Securities and Exchange Commission (“Commission”) today announced the filing of a complaint alleging fraud charges against Andrew Franz (“Franz”), a resident of Aurora, Ohio. According to the Complaint, Franz operated a fraudulent scheme in which, through forgery and other fraudulent means, he misappropriated approximately $865,969 from clients of Ruby Corporation (“Ruby”), a registered investment adviser with which he was associated, including $779,418 from family members and $86,551 from other clients. The Commission’ complaint also alleges that Franz misappropriated approximately $172,000 from Ruby itself by stealing legitimate client fees payable to Ruby. The complaint also alleges that during this same time period, Franz returned approximately $684,000 to Ruby disguised as client fees to conceal the firm’s dwindling client base and revenues. The complaint alleges that Franz thus kept a net of approximately $354,000 in funds stolen from these sources.

In addition, the complaint alleges that in November 2011, despite no longer having access to Ruby’s client files or systems, Franz was able to successfully obtain a fraudulent distribution from a Ruby client account. The complaint alleges that Franz obtained this distribution check through two phone conversations during which he falsely identified himself to be the broker of record and then the chairman of the client corporation. The complaint also alleges that when Franz attempted to deposit the fraudulently obtained check, Franz’s bank stopped the transaction.

At the SEC’s request for emergency relief, the Hon. Benita Y. Pearson, United States District Court, Northern District of Ohio, issued an emergency injunction against Franz, an order freezing all assets under Franz’s control, and other emergency relief.