On March 29, 2021, the Securities and Exchange Commission (“SEC”), represented by Zachary T. Carlyle, attorney at the SEC’s regional office in Denver, filed a civil enforcement action against Douglas E. Elstun (“Elstun” or “Defendant”), seeking declaratory and injunctive reliefs in addition to disgorgement with prejudgment interests and civil money penalties for allegedly acting in violation of his fiduciary duties to act in best interests of the clients and to fully disclose all material facts to them, thereby defrauding his advisory clients in ways as alleged in the complaint. This case was filed in U.S. District Court in the Western District of Missouri with Judge Brian C. Wimes presiding.
In its complaint, the SEC alleged that Elstun, an investment adviser and formerly the owner of the investment advisory firm Crossroads Financial Management, Inc. (“CFM”), defrauded his advisory clients in three primary ways: i) he charged improper fees on the client assets he managed and further defrauded certain clients by charging advisory fees on assets that were not covered by their agreements; ii) he misled advisory clients about his trading in high-risk, daily leveraged and inverse Exchange Traded Funds (“ETFs”). He never explained to clients the substantial risks of these ETFs or discussed the impact of his unconventional trading strategy. Moreover, Elstun described these daily leveraged and inverse ETFs as “insurance” or a “hedge” for these clients’ investment portfolios when, in reality, by holding these investments for long periods, the investments created significant risk for clients; iii) made unsuitable and risky investments in daily leveraged and inverse ETFs that were inconsistent with certain clients’ investment objectives and risk tolerances.
The SEC further alleged that “Elstun violated and, unless restrained and enjoined, will continue to violate Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (the “Advisers Act”) [15 U.S.C. §§ 80b-6(1) and 80b-6(2)]. In the alternative, Elstun aided and abetted CFM’s violations of Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)]. Elstun also aided and abetted CFM’s violations of the recordkeeping, custody, cash solicitation, and compliance provisions of the Advisers Act as set forth in Sections 204(a) and 206(4) of the Advisers Act [15 U.S.C. §§ 80b-4(a) and 80b-6(4)] and Rules 204-2(a)(10), 206(4)-2, 206(4)-3, and 206(4)-7 thereunder [17 C.F.R. §§ 275.204- 2(a)(10), 275.206(4)-2, 275.206(4)-3, and 275.206(4)-7]. Unless restrained and enjoined, Elstun will continue to aid and abet violations of these provisions.”
There are seven claims for relief laid down by the SEC, for fraud by an investment advisor in violation of Section 206(1) of the Advisers Act [15 U.S.C. § 80b-6(1)], Section 206(2) of the Advisers Act [15 U.S.C. § 80b-6(2)], Aiding and Abetting Fraud and Recordkeeping by an Investment Adviser in violation of Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. § 80b-6(1)], Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder, Section 206(4) of the Advisers Act and Rule 206(4)-3 thereunder and Section 204(a) of the Advisers Act [15 U.S.C. § 80b-4(a)], Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder and Rule 204-2(a)(10) thereunder [17 C.F.R. §§ 275.204-2(a)(10)].
In its prayer for relief the Plaintiff has requested the court to pass an order for declaratory and injunctive reliefs in addition to disgorgement with prejudgement interests and civil money penalties.
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Pending - Other Pending
Brian C. Wimes
U.S. Securities and Exchange Commission
Douglas E. Elstun
Zachary T Carlyle
Attorney at Securities and Exchange Commission
1961 Stout Street, Ste 1700
Denver, CO 80294-1961
John A Picerno
Attorney at John Anthony Picerno, Attorney at Law
1301 Oak St, Ste 605
Kansas City, MO 64106
Civil Cover Sheet
MAP General Order
Docket(#5) ANSWER to #1 Complaint, with Jury Demand on behalf of Douglas E. Elstun.(Picerno, John) (Entered: 05/12/2021)Read MoreRead Less
Docket(#4) RETURN OF WAIVER OF SERVICE filed by U.S. Securities and Exchange Commission. Waiver sent to Douglas E. Elstun on 4/13/2021, answer due 6/14/2021. (Carlyle, Zachary) (Entered: 04/14/2021)Read MoreRead Less
Docket(#3) NOTICE of appearance by John A Picerno on behalf of Douglas E. Elstun (Attorney John A Picerno added to party Douglas E. Elstun(pty:dft))(Picerno, John) (Entered: 04/01/2021)Read MoreRead Less
DocketSUMMONS ISSUED as to Douglas E. Elstun. (Woods, Gloria) (Entered: 03/31/2021)Read MoreRead Less
Docket(#2) NOTICE OF INCLUSION FOR MEDIATION AND ASSESSMENT PROGRAM (MAP). REVIEW NOTICE AND MAP GENERAL ORDER CAREFULLY FOR IMPORTANT CHANGES, DEADLINES AND REQUIREMENTS.Notice of MAP assignment to an outside mediator. (Attachments: #1 MAP General Order)(Woods, Gloria) (Entered: 03/30/2021)Read MoreRead Less
Docket(#1) COMPLAINT against Douglas E. Elstun filed by Zachary T Carlyle on behalf of U.S. Securities and Exchange Commission. Filing fee waived. Service due by 6/28/2021 unless otherwise directed by the court. (Attachments: #1 Civil Cover Sheet)(Carlyle, Zachary) (Entered: 03/29/2021)Read MoreRead Less