The owner of a Seattle-based investment advisory firm has agreed to pay more than $590,000 to settle administrative charges by the SEC that alleged he misused $8 million in client assets to make loans to himself to buy a luxury vacation home and refinance a rare vintage automobile, the SEC announced today.
Dennis H. Daugs Jr. and Lakeside Capital Management LLC used assets from the portfolio of a senior citizen client to fund $3.1 million in personal loans without telling her or obtaining her consent, according to the SEC charges. In addition to the loans, the SEC says Daugs improperly directed an investment fund managed by his firm to make more than $4.5 million in loans and investment purchases to facilitate personal real estate deals and fend off claims from disgruntled Lakeside Capital clients.
For four years starting in 2008, Daugs managed a large investment portfolio for the senior citizen client and members of her family, according to the SEC. Daugs, a registered investment advisor, used the money he obtained to purchase a vacation home and refinance his purchase of a rare 1955 Mercedes Gullwing automobile, the SEC says.
Lakeside Capital and 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 prejudgment interest to the client. The money represents ill-gotten gains that Daugs retained even after he paid back the loans, the SEC says. Daugs and his firm also agreed to pay a $250,000 penalty, and Daugs will be barred from the securities industry for at least five years, according to the SEC, which added that Lakeside Capital will wind down its operations under the oversight of an independent monitor.
“Investment advisors have a fiduciary duty to act in the best interest of advisory clients and disclose all material conflicts of interests,” says Jina L. Choi, director of the SEC’s San Francisco regional office. “Daugs instead took advantage of his clients and misused more than $8 million of their assets for his own personal gain.”