The owner of a Washington state-based investment advisory firm was recently sanctioned by the SEC for multiple violations of the Investment Advisers Act of 1940, including the fraudulent use of client assets for his own personal use.
According to the SEC, Dennis H. Daugs Jr. and his firm, Lakeside Capital Management LLC used the funds ($3.1 million) of an elderly client without her permission in the form of a personal loan. In addition, Mr. Daugs used assets ($4.5 million) of a private fund his firm managed to make personal real estate transactions and to payoff clients who had threatened legal actions against him and his firm. The conduct apparently occurred during the period of 2008 to 2012. Although Mr. Daugs and his firm have paid back the funds fraudulently diverted from client accounts, they agreed to settle the enforcement matter with the SEC by paying more than $340,000 in disgorgement and interest to such clients, a $250,000 penalty to the SEC and Daugs will be barred from the securities industry for at least five years. The investment advisory firm will systematically cease operations and be dissolved under the monitoring of a third party.
The SEC’s allegations in the matter included violations by Mr. Daugs and his firm of the fraud provisions under both the Securities Exchange Act of 1934 and the Advisers Act, the custody rule, and the requirement to maintain written policies and procedures reasonably designed to prevent violations of the Advisers Act and its regulations.