Adviser misused $8 million in client funds: SEC

Settlement requires him to pay more than $500,000

Jul 17, 2014 @ 3:00 pm

By Bruce Kelly

Adviser, broker, fraud, SEC
+ Zoom

An investment adviser in Seattle fraudulently misused more than $8 million of client assets to make loans to himself, buy a luxury vacation home and refinance a vintage automobile, according to the Securities and Exchange Commission.

According to an SEC administrative proceeding released on Thursday, the SEC's investigation found that Dennis H. Daugs Jr. and his firm, Lakeside Capital Management, borrowed $3.1 million from a client without obtaining her consent.

Mr. Daugs also improperly directed an investment fund managed by the firm to make more than $4.5 million in loans and investments to facilitate personal real estate deals as well as fend off claims from unhappy Lakeside Capital clients, according to the SEC. Mr. Daugs diverted more than $500,000 from the fund to pay a settlement with the disgruntled clients.

Mr. Daugs did not return calls to his office on Thursday afternoon.

Lakeside Capital, which had $124 million in assets, and Mr. Daugs, who eventually paid back the diverted funds and personal loans, agreed to settle the SEC's charges and pay more than $340,000 in disgorgement and interest to the client and investment funds. That amount represented the gains Mr. Daugs retained after he paid back the loans, according to the SEC.

He and his firm also agreed to pay a $250,000 penalty and Mr. Daugs will be barred from the securities industry for at least five years. An independent monitor will oversee Lakeside Capital winding down its operations.

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