Adviser Misappropriates About $1.7 Million From Elderly Clients
Offering fraud actions have long been a staple of SEC enforcement, are frequently one of the largest groups of cases filed each year and come in many forms and varieties. In some instances, the cases are based on schemes such as selling tickets to Broadway shows or representations by a market professional that he or she has a trading bot that is so good it always rewards with great results. In these and other similar cases, investors often dash in with money to invest only to discover later that there were no Broadway tickets or the trading bot does not actually exist.
Another group of cases in this space is tied to relationships. Many of these cases involve a market professional who has developed a relationship with clients over time. The clients in these matters have trust and confidence in the market profession and rely on him or her based on a years long relationship. Then things change and the adviser fleeces his long-time clients, putting them into bad investments, running up unnecessary fees or misappropriating portions of their cash. The Commission’s latest case in this area appears to be based on this model, SEC v. McKelvey, Civil Action No. 4:23-cv-564 (N.D. Tx. Filed June 6, 2023).
Defendant Douglas McKelvey was a registered representative and investment adviser at the Southlake, Texas branch of a large investment firm. He began at the firm in 2008 and remained until he was terminated in April 2022 after the underlying facts in this matter were uncovered.
Mr. McKelvey is alleged to have misappropriated over $1.7 million for accounts of two elderly relatives during the period when he served as their financial adviser using a variety of methods. Beginning in 2013, for example, Defendant typically caused unauthorized checks to be issued from Customer A’s account at Financial Institution. The checks were used to make credit card payments on his accounts.
In 2015 Defendant changed his approach. He continued to make credit card payments on his accounts but now by initiating unauthorized ACH transactions through credit card companies that withdrew the funds from the customer account. In some instances, Mr. McKelvey first initiated fraudulent internal journals at Financial Institution from the customers’ accounts to a trust account he controlled. The funds were then used to make credit card payments via ACH transactions.
At other times, Defendant McKelvey sold securities in the customers’ accounts just prior to making a fraudulent transfer to make the credit card payments. On some occasions Defendant caused checks to be issued from Customer A’s loan account that was used to collateralize that customer’s brokerage account. The complaint alleges violations of Exchange Act Section 10(b). In a parallel action the U.S. Attorney’s Office for the Eastern District of Texas announced criminal charges against Mr. McKelvey who pleaded guilty to the charges. See Lit. Rel. No. 25743 (June 7, 2023).
Adviser Misappropriates About $1.7 Million From Elderly Clients
Offering fraud actions have long been a staple of SEC enforcement, are frequently one of the largest groups of cases filed each year and come in many forms and varieties. In some instances, the cases are based on schemes such as selling tickets to Broadway shows or representations by a market professional that he or she has a trading bot that is so good it always rewards with great results. In these and other similar cases, investors often dash in with money to invest only to discover later that there were no Broadway tickets or the trading bot does not actually exist.
Another group of cases in this space is tied to relationships. Many of these cases involve a market professional who has developed a relationship with clients over time. The clients in these matters have trust and confidence in the market profession and rely on him or her based on a years long relationship. Then things change and the adviser fleeces his long-time clients, putting them into bad investments, running up unnecessary fees or misappropriating portions of their cash. The Commission’s latest case in this area appears to be based on this model, SEC v. McKelvey, Civil Action No. 4:23-cv-564 (N.D. Tx. Filed June 6, 2023).
Defendant Douglas McKelvey was a registered representative and investment adviser at the Southlake, Texas branch of a large investment firm. He began at the firm in 2008 and remained until he was terminated in April 2022 after the underlying facts in this matter were uncovered.
Mr. McKelvey is alleged to have misappropriated over $1.7 million for accounts of two elderly relatives during the period when he served as their financial adviser using a variety of methods. Beginning in 2013, for example, Defendant typically caused unauthorized checks to be issued from Customer A’s account at Financial Institution. The checks were used to make credit card payments on his accounts.
In 2015 Defendant changed his approach. He continued to make credit card payments on his accounts but now by initiating unauthorized ACH transactions through credit card companies that withdrew the funds from the customer account. In some instances, Mr. McKelvey first initiated fraudulent internal journals at Financial Institution from the customers’ accounts to a trust account he controlled. The funds were then used to make credit card payments via ACH transactions.
At other times, Defendant McKelvey sold securities in the customers’ accounts just prior to making a fraudulent transfer to make the credit card payments. On some occasions Defendant caused checks to be issued from Customer A’s loan account that was used to collateralize that customer’s brokerage account. The complaint alleges violations of Exchange Act Section 10(b). In a parallel action the U.S. Attorney’s Office for the Eastern District of Texas announced criminal charges against Mr. McKelvey who pleaded guilty to the charges. See Lit. Rel. No. 25743 (June 7, 2023).