SEC Charges Advisory Firm to Sports Figures and Officers With Fraud

The SEC filed two actions centered on an advisory firm that serves on high net worth individuals, primarily current and former professional athletes. The actions are based on the theft of client funds and a failure to supervise by the firm. In the Matter of SFX Financial Advisory Management Enterprises, Inc., Adm. Proc. File No 3-16591 (June 15, 2015); In the Matter of Brian J. Ourand, Adm. Proc File No. 3-16590 (June 15, 2015).

Respondents in the first action are SFX Financial, is a registered investment adviser, based in the District of Columbia and Eugene Mason, the firm’s CCO since 2004. Brian Ourand, the firm’s vice president from 2003 to 2007, and President until August 2011 when he was terminated, is the Respondent in the second proceeding.

SFX had several clients for whom it had authority to withdraw and deposit assets from bank and brokerage accounts. Mr. Ourand had discretionary authority to trade in client accounts. He also had authority over client bank accounts to pay bills, transfer money and deposit checks.

From 2006 through 2011 Mr. Ourand misappropriated at least $670,000 from client accounts over a period of time, according to the Orders. He did this by writing unauthorized checks and wiring funds to his accounts for his personal use.

SFX had compliance policies and procedures in view of the significant risks that individuals could misappropriate client funds. Those policies included a review of cash flows from client accounts. The firm’s Form ADV, Part 2 specified, in part, that client cash accounts used for paying bills were reviewed several times each week by senior management for accuracy and appropriateness. In fact the firm’s procedures were inadequate and the disclosure in its Form ADV was inaccurate:

• The procedures were not reasonably designed to prevent circumvention of secondary review;

• Neither the firm nor Mr. Mason effectively implemented the policy regarding the review of cash flows;

• No one other that Mr. Ourand reviewed the bill-paying accounts over which he had signing authority; and

• SFX failed to conduct its annual compliance review in 2011 in the midst of an internal investigation following the discovery of the misappropriation.

The Order alleges violations of Advisers Act Sections 206(2), 203(e)(6) and 206(4).

SFX and Mr. Mason resolved the proceeding. SFX consented to the entry of a cease and desist order based on Advisers Act Sections 206(2), 206(4) and 207 and to a censure. In addition, the firm agreed to pay a penalty of $150,000. Mr. Mason consented to the entry of a cease and desist order based on Advisers Sections 206(4) and 207. He also agreed to pay a penalty of $25,000.

The Order as to Mr. Ourand alleges violations of Advisers Act Sections 206(1) and 206(2). It will be set for hearing.