The Securities and Exchange Commission obtained an emergency court order today to halt an alleged Ponzi-like scheme operated by California-based Small Business Capital Corp. (SBC) and its founder that raised $42 million by selling securities issued by two mortgage investment funds they actually controlled.

The SEC alleges that more than 400 investors were attracted to the funds by promises that profits from mortgage investments would yield annual returns of 7.5 percent or more. In reality, SBC founder and CEO Mark Feathers, 48, of Los Altos, Calif., operated a Ponzi-like scheme by paying returns to investors that came partly from fund profits and partly from other investors.

The securities were issued by Investors Prime Fund LLC and SBC Portfolio Fund LLC -- two mortgage investment funds that Small Business Capital Corp. under Feathers controlled.

"Feathers raised millions from investors by promising high returns," said John McCoy, associate regional director of the SEC's Los Angeles Office. "The returns turned out to be too good to be true and were funded in part with new investors' money."

The SEC alleges that from 2009 to early 2012, Feathers improperly transferred more than $6 million from the funds to SBC to pay its expenses, including substantial payments made to himself. The SEC also claims that the defendants had the funds account for the transfers in a way that disguised the depletion of fund assets, and did not tell investors that Small Business Capital's ability to repay was uncertain and that it was only able to make the interest payments owed to the funds by borrowing more from them.

In addition, the SEC alleges that investors were not told in February and March this year that the defendants caused one fund to sell mortgages to the other fund at an inflated price, thus generating a "profit" for the selling fund so it could pay SBC management fees of more than $575,000.

The SEC has also charged Feathers and SBC for conducting transactions in the funds' securities without being registered as a broker-dealer with the SEC.

U.S. District Court Judge Edward J. Davila granted the SEC's request for a temporary restraining order and asset freeze against Feathers, SBC, and the funds, and appointed Thomas A. Seaman as a temporary receiver over Small Business Capital and the funds. Davila has scheduled a court hearing for July 10 on the SEC's motion for a preliminary injunction.