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Tuesday
Jun212016

SEC: Pro Athletes Duped Out Of Over $30 Million In 'Ponzi-Like' Scheme

The Securities and Exchange Commission filed an emergency enforcement action against a California investment adviser halting what it called a "Ponzi-like" scheme that allegedly defrauded several high-profile professional athletes out of tens of millions of dollars.  The sealed complaint filed in a Dallas federal court just before Memorial Day named Ash Narayan, of Newport Coast, California, along with The Ticket Reserve Inc. a/k/a Forward Market Media, Inc. ("Ticket Reserve"), Richard M. Harmon, and John A. Kaptrosky as defendants.  The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, pre-judgment interest, and the imposition of civil monetary penalties.  In addition, the Commission requested the appointment of a receiver over Ticket Reserve.

Narayan was an investment advisor and Managing Partner in the California office of RGT Capital Management, Inc. ("RGT"), a Dallas-based firm.  In addition, and often without disclosure to relevant parties, Narayan (i) was a member of Ticket Reserve's board of directors, (ii) owned millions of shares of Ticket Reserve stock, and (iii) was secretly compensated for steering client funds to Ticket Reserve.  Narayan also touted himself as a devout Christian who also was a Certified Public Accountant ("CPA").  Narayan advised over 50 clients while employed at RGT, including many high net worth professional athletes.  According to the Associated Press, these clients included Major League Baseball pitchers Jake Peavy and Roy Oswalt as well as National Football League quarterback Mark Sanchez.

Ticket Reserve was founded in 2002, with its CEO likening its business model of allowing fans to reserve tickets to future high-profile sporting events as "monetizing anticipation."  Narayan not only served on Ticket Reserve's board of directors but also owned millions of shares and acted as the company's primary fundraiser.  

While his clients believed that he was implementing a conservative low-risk strategy to preserve their earnings, the Commission alleges that Narayan caused more than $33 million of client funds to be transferred to Ticket Reserve.  According to the Commission, a majority of these transfers were made without Narayan's clients' authorization or knowledge through forged or faked authorization documents.  Additionally, Narayan's clients were not told that (i) Narayan was a director and majority shareholder of Ticket Reserve, (ii) Narayan received millions of dollars in "finder's fees" for directing client funds to Ticket Reserve, (iii) Ticket Reserve was not a conservative investment and was actually in dire financial straits, and (iv) Narayan was, in fact, not licensed as a CPA.  According to the Associated Press, Peavy alone invested more than $15 million while both Sanchez and Oswalt each invested nearly $8 million.  Each of the athletes is said to have thought they were investing a much smaller amount in Ticket Reserve, with at least one having no idea he was invested in the company.

In addition to Narayan's role, the Commission also accused Ticket Reserve's CEO, Harmon, and COO, Kaptrosky, of participating in the fraudulent scheme.  The Complaint alleges that the men carefully orchestrated the payment of finder's fees to Narayan, seeking to keep the fees under 10% of the investment amounts to appear "kosher."  These fees were structured as "director's fees" and "loans" in an effort to both conceal the purpose of the payments as well as to assist Narayan in avoiding taxes.  Yet Narayan made no effort to repay these "loans" until he was fired from RGT in early 2016 and learned that the Commission had opened an investigation.  Narayan entered into an agreement to repay the loans and had repaid approximately $350,000 to date.  Yet, according to the Commission, these payments are not being used to repay Ticket Reserve's investors but rather are being used to pay the company's ongoing expenses.

The Commission alleges that Ticket Reserve also used investor funds to make payments to other investors - a classic hallmark of a Ponzi scheme.  

The Complaint requests the appointment of a receiver over Ticket Reserve.  A receiver is tasked with securing and marshaling company assets for the benefit of defrauded victims.  In addition, the receiver is vested with authority to initiate actions on behalf of the company, including fraudulent transfer actions seeking to recover unauthorized or unlawful fraudulent transfers to company insiders or agents.  Upon securing assets, it is likely the receiver will seek court approval for implementation of a claims process to make payments to investors with approved claims.

A copy of the Commission's Complaint is below:

comp-pr2016-124 by jmaglich1

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