SEC settles with RIA involved in $3 million Ponzi scheme

A California federal court has entered final judgments against Craig Rumbaugh and two companies he owns and controls in a case involving their role in a Ponzi scheme.

Without admitting or denying allegations brought in a complaint by the Securities and Exchange Commission, Rumbaugh and his two firms — Rumbaugh Financial, a California-registered investment adviser, and Desert Strategic Equity — agreed to pay $676,000 in disgorgement, with $137,808 in prejudgment interest. Rumbaugh consented to pay a civil penalty of $192,768.

In a related administrative proceeding, Rumbaugh also consented to an order that bars him from the securities business.

The SEC’s complaint, filed in August 2019, alleged that Rumbaugh advised RFI's clients to invest in promissory notes offered by Susan Werth, who claimed to provide short-term high-interest rate-loans to real estate developers but, unbeknownst to Rumbaugh, was actually operating a Ponzi scheme.

According to the complaint, from August 2015 to June 2016, Rumbaugh persuaded eight clients to invest a total of more than $3 million with Werth's companies. Three of those clients lost a total of more than $650,000 when Werth's Ponzi scheme collapsed.

The complaint alleged that Rumbaugh and his entities concealed commissions totaling $140,000 that Werth paid Rumbaugh on funds raised from his clients. Rumbaugh and his companies also allegedly misrepresented the interest rates Werth's promissory notes offered, and retained the difference when the notes repaid interest at a higher rate.

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