U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20002 / February 13, 2007
SEC v. Ravi V. Kothare, Sterling Capital Planners, Inc., S.F. Advisors, LLC d/b/a Affinity Club Network, LLC and Players Choice Club, 07 Civ. 954 (LTS) (S.D.N.Y.)
SEC Charges Investment Advisor Ravi V. Kothare and His Companies, Sterling Capital Planners and Players Choice With Fraud and Misappropriation of Client Funds
The United States Securities and Exchange Commission filed an emergency enforcement action on February 9, 2007 against an investment adviser, Sterling Capital Planners, Inc., its principal, Ravi V. Kothare, Players Choice Club, a web-based sports club that Kothare controls, and S.F. Advisors , LLC d/d/a Affinity Club Network, LLC ("Affinity"), the entity that owns Players Choice (collectively the Defendants). The complaint charges that defendants committed fraud by misappropriating client assets for use in Kothare's Players Choice venture, among other things, without disclosing the risks of the investment or Kothare's conflict of interest. In many instances, Kothare did not inform the client that he had made the investment in Players Choice.
The Commission obtained an order temporarily restraining all of the Defendants from violating the antifraud provisions of the federal securities laws, and Kothare and Sterling from violating the custody, books and records and registration provisions of the Investment Advisers Act of 1940 ("Advisers Act"). The Court froze the assets of all of the defendants and appointed a temporary receiver for Sterling and Players Choice. The Court also ordered the defendants to promptly provide sworn accountings, ordered that discovery be accelerated and that the defendants be prohibited from destroying documents, and ordered that a hearing be held on March 8, 2007 to determine if the interim relief should be continued.
The Commission's complaint charges the following individuals and entities:
The complaint charges that the defendants misappropriated at least $1.75 million from 18 Sterling investment advisory clients and invested the money in Players Choice, a now apparently insolvent entity that Kothare controls. In breach of his fiduciary duty, Kothare transferred Sterling clients' funds to Players Choice without obtaining the clients' written consent and without disclosing significant conflicts of interest. At some point, Kothare disclosed the "investments" in Players Choice on the clients' Sterling account statements, but he failed to disclose that he controlled Players Choice. The account statements also reflected a "market value" for the Players Choice investment, even though the investment was illiquid and had no market value. The market value that Kothare disclosed in the account statements was set by Kothare with no reasonable basis and falsely portrayed the investment as having maintained or even increased in value, when, in fact, Players Choice had become essentially worthless. The Commission's complaint alleges that Kothare failed to disclose to investors that Players Choice lost its most significant asset a two-year license from the Major League Baseball Players Association that was critical to its business. Having lost its license, Players Choice has no saleable assets or revenues.
In addition to the Players Choice scheme, the Commission's complaint alleges that Kothare breached his fiduciary duty to at least one other investment advisory client by transferring assets from the client's custodial brokerage account to Kothare related entities after the client's death.
The Commission's Complaint charges all Defendants with fraud in violation of Section 17(a) of the Securities Act of 1933 (the "Securities Act") and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (the "Exchange Act") and Kothare and Sterling with violations of Sections 204, 206(1), 206(2), 206(4) and 207 of the Advisers Act. The Commission's complaint seeks disgorgement of the defendants' ill-gotten gains, civil penalties, and permanent injunctions from future violations of the antifraud provisions of the federal securities laws.