The SEC is charging Dblaine Capital, LLC and owner David B. Welliver with securities fraud. According to its complaint, Welliver and the investment advisory firm got $4m in loans as a result of a quid pro quo deal that was undisclosed, improper, and violated their responsibilities to the fund. In return, DBlaine Capital and Welliver allegedly agreed to put the funds ‘assets in specific “alternative investment” securities. By placing the fund’s assets in a private placement offering connected to the lender, this caused the fund to violate a number of policies and investment restrictions.
Per the Commission, Dblaine Capital and Welliver placed their own financial interests first and that the two of them also defrauded the Fund by giving an inaccurate valuation for the private placement holding. This caused the shares of the fund to be offered, sold, and redeemed at an inflated net asset value.
Upon discovering that that the private placement had no value, Welliver and DBlaine Capital allegedly kept this information from shareholders. They are also accused of making misleading and false statements in filings and reports submitted to the SEC, participating in prohibited affiliated transactions, and violating a number of policies and restrictions governing the Fund and its investments that were explicitly included in offering materials.
Per Fund polices, the private placement should have been at fair value, yet the Commission says that between December 2010 and July 2011, DBlaine Capital and Welliver did not attempt to figure out that was and chose to value the private placement at acquisition cost. Also, per the SEC, Welliver used $500,000 of the $4 million in loans that DBlaine Capital obtained to cover his personal expenses, including a motor vehicle, expensive purchases, his son’s college education, back taxes, home improvements, and a vacation.
The SEC wants disgorgement of ill-gotten gains, permanent injunction, prejudgment interest, and civil penalties. It is accusing both Dblaine Capital and Welliver of violating the:
• Securities Act of 1933 • Securities Exchange Act of 1934 • Investment Advisers Act of 1940 • Investment Company Act of 1940
Unfortunately, securities fraud committed by broker-dealers and investment advisers can cause investors, shareholders, and others to suffer financial losses. Not only can this be grounds for civil action by regulators, but also victims of this type of fraud may be able to file their own claim seeking to recover what they’ve lost.
Results show that retaining the services of an experienced securities fraud attorney rather than attempting to file your claim on your own increases your chances of recouping your losses. The securities arbitration system can be a complex area to navigate and there is no reason why you should have to do this alone.
SEC Charges IA Arrangement Illegal, BNA Securities Law Daily, October 27, 2011
SEC CHARGES DAVID B. WELLIVER AND DBLAINE CAPITAL, LLC, WITH FRAUD AND OTHER VIOLATIONS, SEC, October 18, 2011
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Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investors Securities Blog, October 20, 2011
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