SEC charges California RIA with defrauding clients
Craig Rumbaugh and his firms secretly received 5% commission on $3 million invested by clients.
The Securities and Exchange Commission has charged investment adviser Craig C. Rumbaugh and his firms, Rumbaugh Financial and Desert Strategic Equity, with defrauding clients by deceiving them about the terms of their investments and concealing his intent to profit personally from those investments.
[More: SEC charges Massachusetts RIA with fraud]
The SEC alleges that Mr. Rumbaugh, whose firms are based in Palm Desert, Calif., advised clients to invest in promissory notes offered by Susan Werth and her companies, Corporate Mystic and Commercial Exchange Solutions Inc., against whom the SEC filed an emergency, civil injunctive relief action in October 2018 for operating a fraudulent securities scheme.
[More: SEC charges Wells Fargo adviser with defrauding clients out of $1 million]
According to the SEC’s complaint, from August 2015 to June 2016, Mr. Rumbaugh persuaded eight clients to invest a total of over $3 million with Ms. Werth’s companies. Three of those clients lost over $600,000 in principal when Ms. Werth failed to repay them. When recommending those investments, Mr. Rumbaugh and his companies failed to disclose that Mr. Rumbaugh was receiving 5% commissions on all of the funds raised from his clients for Ms. Werth.
[More: Former N.J. broker gets prison time for $3.1 million fraud]
In addition, the SEC said that in some instances, Mr. Rumbaugh and his companies misled clients about the interest rates Ms. Werth’s companies would pay on the proposed investments. In those cases, when the companies repaid investor funds to Mr. Rumbaugh and his companies at the higher interest rates, Mr. Rumbaugh and his companies repaid clients at the lower rates and secretly kept the difference.
The SEC is seeking injunctive relief, disgorgement of allegedly ill-gotten gains plus interest, and civil penalties.
Learn more about reprints and licensing for this article.
