The Securities and Exchange Commission has charged a Texas financial advisor with misappropriating more than $120,000 in funds from investment funds that were managed by him and his firm.
The agency said last week that Oscar Haynes Morris Jr. and his Dallas firm, Lakeside Capital Partners, took $55,184 from a private oil and gas partnership that Lakeside was advising, known as the 974 Oil & Gas Exploration Partnership. These monies were used to cover the expenses of a separate company, ACH Management, owned by the 66-year-old Morris. Morris and Lakeside also misappropriated $65,000 in investment returns from a second investment fund, the ACH/2012 Buckingham, that Lakeside also advised. The latter monies Morris used for personal expenses—paying off his car, club dues and credit cards, the SEC said.
The agency says that Morris and Lakeside’s misappropriations, carried on between May 2017 and March 2019, ran afoul of the anti-fraud provisions of the Investment Advisers Act of 1940. The agency wants Morris to disgorge the money and also asks for civil judgments and interest.
“As investment advisors, Morris and Lakeside owed fiduciary duties to their clients, including the obligations to exercise the utmost good faith in dealing with their clients, to disclose to their clients all material facts, to employ reasonable care to avoid misleading their clients, and to disclose conflicts of interest between the advisor and the client,” said the SEC in its complaint, filed in the U.S. District Court For The Northern District Of Texas Dallas Division.
“When Morris and Lakeside misappropriated client assets, they breached their fiduciary duties and violated the law,” the agency added.
Lakeside advised 22 private investment funds from March 2016 to May; according to its May Form ADV filing, those funds collectively totaled more than $47.5 million in gross asset values. The funds are constructed as general or limited partnerships with fewer than a hundred investors.
The oil and gas Exploration Fund was formed in 2016 for three investors to take a piece of an East Texas oil and gas well, said the SEC in its complaint. The agency said Morris failed to open a separate bank account for this fund despite prompting from his bookkeeper, thus more than $55,000 in investment returns fell into Morris’s company ACH Management, a firm with which the exploration fund had no legal relationship. Communications show that Morris knew or was reckless in not knowing that investors’ funds were not segregated.
The Buckingham Fund was formed in 2013 to pool the drilling interests in multiple oil and gas wells. The SEC says Morris took $65,000 out of this fund in December 2018 to put first in ACH's account and then his own personal account. He used this money to pay personal expenditures, such as car payments and club dues. He told the bookkeeper that the money was a personal loan from an investor who had previously loaned the fund money for a recapitalization (and who held a promissory note). The agency says the investor would have had no authority to loan Buckingham fund assets, and investors should have been notified. In any event, the bookkeeper tried to double check with the investor, who, according to the SEC complaint, was unaware the $65,000 had been taken.