The SEC has charged two investment advisors with fraud, including one who is accused of stealing $2.6 million from his clients.
The civil complaint, filed in the U.S. District Court for the Middle District of Florida, Jacksonville Division, listed four counts of fraud against Jared Eakes, 31, of Jacksonville, Fla., and one fraud count jointly against Eakes and James Blake Daughtry, 50, of Dothan, Ala.
The SEC said Daughtry didn't have a direct role in Eakes's fraud, but he is accused of selling his practice to Eakes without conducting appropriate due diligence and thereby exposing his clients to Eakes's scheme, the agency’s complaint said.
Neither Eakes nor Daughtry could be reached for comment by press time.
Between January and December in 2019, Eakes misappropriated more than $2.6 million from clients of his firm, GraySail Advisors, according to the complaint. He allegedly did this primarily by selling some of those clients fake promissory notes, but with other clients, he allegedly just transfered assets from their accounts to his, the SEC said.
Eakes allegedly used the misappropriated client assets in various ways. In one instance, the SEC said, he transferred $1.6 million to his personal brokerage accounts, where made a $540,000 profit in one month, only to lose everything through subsequent trading. In another, he allegedly transferred $116,000 to a Las Vegas casino and then withdrew an additional $276,000 in cash while in the city. The SEC said Eakes used client money to pay off some debts, including more than $293,000 to Daughtry, $37,000 for student loans, $50,000 for a business loan and $80,500 for three other GraySail clients from whom he had allegedly stolen a total of $93,000.
Prior to founding GraySail in October 2018, Eakes had worked as a registered broker of Merrill Lynch in Jacksonville, Fla., and held Series 7 and 63 licenses, according to BrokerCheck. He became dually registered in 2017, and had registered GraySail with the SEC in February 2019, only to withdraw that registration in September 2019 when it looked like the SEC was going to conduct an exam of the firm, the SEC’s AdvisorInfo site said.
While the SEC said Daughtry did not play a direct role in Eakes' alleged fraud, the agency said that the experienced advisor failed in his fiduciary duty to his clients by not conducting enough due diligence when choosing Eakes as a buyer for his practice and by not investigating complaints by his clients after the sale that their accounts might be being mismanaged.
In March 2019, Daughtry sold his entire advisory and brokerage business, consisting of 130 to 140 households and assets under management of about $45 million, to GraySail. The agreement stipulated that Daughtry would continue to serve as investment advisor for his clients, who moved over for at least three years. In exchange, he would receive $1 million payable over three years, $100,000 for the purchase of two personal vehicles, a monthly “royalty" for the remainder of his life and the life of his then current wife, and $1.5 million in stock options to be used in a future IPO or liquidity event, the complaint said.
The SEC said that Daughtry did not tell his clients that he had sold his practice to GraySail. He also stopped his practice of reviewing transactions with clients prior to execution, but didn’t tell them that “even when several clients raised questions about certain investments that had been made in their accounts with GraySail,” the SEC said.