A Washington State advisor will pay more than $1.2 million to settle charges that he took hundreds of thousands of client money to live rent-free, buy cars, pay personal taxes and travel the world.

Ronald A. Fossum Jr., of Snohomish, Wash., agreed to settle fraud charges brought by the U.S. Securities and Exchange Commission alleging that he had misappropriated investor funds through unregistered securities offerings.

In doing so, Fossum will pay a $320,000 civil penalty and disgorge $840,729 of funds he allegedly took from his clients with $110,823 in interest.

In a complaint filed in U.S. District Court for the Western District of Washington in December, the SEC alleged that Fossum raised $20 million from more than 100 investors through unregistered securities offerings of three funds he controlled and owned: Accelerated Asset Group, Smart Money Secured Income Fund, and Turnkey Investment Fund, collectively known as the SMFG Funds.

Fossum and an accomplice solicited investments into the SMFG funds through the sale of promissory notes, often promising 8 percent to 12 percent annual returns, purportedly through investing in distressed debt, oil and natural gas concerns, real estate, domain names and websites, stocks, bonds, options and other derivative investments.

Fossum also allegedly commingled the assets in SMFG funds to satisfy each fund’s liquidity needs. In June 2015, Fossum allegedly graduated into the ranks of Ponzi schemers. As his investors sought redemptions, the SEC alleges that the advisor continued to raise new funds while failing to disclose the liquidity crisis, in part to pay off redeeming investors.

In June 2016, each of the SMFG funds filed for bankruptcy. Today, the funds are being liquidated by a trustee, but in its complaint the SEC stated that it is “not probable” that there will be sufficient assets for any meaningful repayment of the $20 million raised in the alleged scheme.

According to the SEC, Fossum used the proceeds of his alleged scheme to live rent-free in a home purchased by a SMFG fund, make more than $40,000 in mortgage payments and pay $150,000 of his personal taxes.

Fossum also allegedly used client funds for travels to places like Fiji, Africa, Hawaii and Mexico, for $45,000 in automobile purchases and repairs, to pay $83,000 worth of "certain membership fees," buy $33,000 worth of exercise equipment and parts and to eliminate $38,000 worth of credit card debt.

Fossum also later rented out the home owned by the SMFG fund and allegedly pocketed $15,000 worth of rent payments.

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