U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23579 / June 21, 2016
Securities and Exchange Commission v. Ash Narayan, The Ticket Reserve Inc. a/k/a Forward Market Media, Inc., Richard M. Harmon, and John A. Kaptrosky, Civil Action No. 16-CV-1417-M (N.D. Tx.)
SEC Halts Scheme Defrauding Pro Athletes
The Securities and Exchange Commission today announced fraud charges and emergency relief against an investment adviser accused of secretly siphoning millions of dollars from accounts he managed for professional athletes and investing their earnings in a cash-starved online sports and entertainment ticket business for which he has served on the Board of Directors.
The Commission filed its action on May 24, 2016, and on the same day obtained a court order to freeze the assets of the adviser, Ash Narayan of Newport Coast, California, as well as The Ticket Reserve Inc., its CEO Richard M. Harmon, and its Chief Operating Officer John A. Kaptrosky, all of whom are charged in the SEC's complaint unsealed today in federal court in Dallas. The SEC also obtained appointment of a receiver over The Ticket Reserve.
The SEC alleges that Narayan has transferred over $33 million from clients' accounts to The Ticket Reserve, typically without their knowledge or consent and often using forged or unauthorized signatures. The Ticket Reserve became dependent upon the fraudulent cash infusions from Narayan's unsuspecting clients to stay in business. In exchange, Narayan received nearly $2 million in hidden compensation from the struggling company. Most of this money is directly traceable to his clients' stolen funds.
According to the SEC's complaint, The Ticket Reserve also made Ponzi-like payments to existing investors using money from new investors. Since being fired from the investment firm where he worked and losing access to the clients' accounts, Narayan has been redirecting to The Ticket Reserve's coffers the sham fees he received out of the money misappropriated from client accounts. The SEC successfully secured the court-ordered asset freeze before Narayan could make a planned financial transaction on May 31.
According to the SEC's complaint:
- Narayan was a managing director in the California office of Dallas-based investment advisory firm RGT Capital Management. His involvement in the scheme began at least as early 2010.
- Narayan's clients, including several professional athletes, trusted and relied upon Narayan to pursue safe, conservative investments that would not put their principal at risk. They realized as professional athletes with injury risks, that their earnings might occur within a short window.
- Besides failing to disclose the bulk of The Ticket Reserve investments to his clients and the fees he was receiving in exchange for investing their money, Narayan also failed to disclose other key conflicts of interest-including that he was a member of The Ticket Reserve's Board of Directors and owned more than three million shares of company stock. Narayan also falsely claimed to be a CPA.
- Harmon and Kaptrosky participated in the scheme by making undisclosed finder's fee payments to Narayan out of his clients' funds and covertly describing them as "director's fees" and "loans" in various TTR documents.
- Harmon and Kaptrosky also approved and executed Ponzi-like payments, falsified and backdated documents, and created sham promissory notes between The Ticket Reserve and Narayan in attempts to further conceal the scheme.
The Honorable Barbara M. Lynn for the U.S. District Court for the Northern District of Texas granted the SEC's request for a temporary restraining order and asset freeze against Narayan, The Ticket Reserve, Harman, and Kaptrosky, and appointed Michael Napoli, of Dykema Cox Smith, as a temporary receiver over the company.
The SEC's complaint alleges that Narayan, The Ticket Reserve, Harmon, and Kaptrosky violated Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. The complaint also alleges that Narayan violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC seeks disgorgement of ill-gotten gains plus interest and penalties as well as preliminary and permanent injunctions.
The SEC's investigation was conducted by Michael A. Umayam, Keith J. Hunter, and Carol J. Hahn, and the case was supervised by David L. Peavler, Jessica B. Magee, and Eric R. Werner in the SEC's Fort Worth office. The SEC's litigation will be led by Christopher A. Davis and Ms. Magee. The SEC appreciates the assistance of the Lake Forest Police Department in serving the Court's Orders on the Defendants and other relevant parties.