Investment Adviser Douglas Elstun, Lenexa, KS charged with Defrauding Clients
According to a press announcement on March 30, the Securities and Exchange Commission announced charges against Douglas E. Elstun of Lenexa, Kansas, an investment adviser, for allegedly repeatedly defrauding and breaching his fiduciary duty to advisory clients through his formerly registered investment adviser Crossroads Financial Management, Inc. (CFM).
Between 2015 and 2018, Elstun, who was reportedly advising several pro athletes through Crossroads Financial Management, allegedly overcharged with undisclosed fees, including higher advisory fees than clients had agreed to pay, and by fraudulently applying the advisory fee to non-advisory assets, including bank account balances, equity in homes and other real estate, and the value of vehicles, which increased the fees charged to those accounts.
The SEC’s complaint alleges that Elstun also invested his clients funds in high risk, daily leveraged and/or inverse exchange-traded funds (ETFs) and neglected to disclose the substantial risks of buying and holding these products. He reportedly misled his clients by telling them that the products functioned as “insurance” or a “hedge” for their portfolios when his trading strategy for these products actually created significant risk for clients.
Elstun purportedly made unsuitable and risky investments in daily leveraged and/or inverse ETFs, such as ProShares Short VIX Short-Term Futures ETF and UVXY, that were inconsistent with Elstun’s clients’ investment objectives and risk tolerances, according to the SEC. As alleged in the complaint, as a result of Elstun’s ETF trading, those clients lost millions.
Elstun has reportedly been registered with Frontier Wealth Management, in Kansas City, Missouri since 2019. According to the SEC, he launched the now defunct Crossroads Financial Management in 2006, and as a former basketball player was able to recruit athletes as advisory clients. The SEC says at one time he had $125 million in client assets.
As fiduciaries, investment advisers are required to act in the best interest of their clients and not place their own interests ahead of their clients.
When investment advisers violate securities laws, such as making false and misleading statements, or violating their fiduciary duty, the investment adviser firm they are working with may be liable for investment losses.
Investment adviser firms that fail to monitor the business activities of their employees may be liable for investment losses due to negligent supervision for the misconduct of their employees.
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