A Seattle advisory firm that has paid out almost $14.5 million in customer settlements in the past nine years, according to regulatory filings, is now paying another $590,000 to settle SEC charges.
Dennis Daugs Jr. and Lakeside Capital Management of Seattle used assets from the portfolio of a senior citizen client "to fund $3.1 million in personal loans without telling her or obtaining her consent," the SEC said in a statement.
Daugs fraudulently misused client assets "to make loans to himself to buy a luxury vacation home and refinance a rare vintage automobile," according to the SEC.
The loans, the SEC said, were "not in the best interest of the client and significantly favored Daugs, who provided no collateral, had no set pay-off dates, and paid most of the interest at the prime rate."
Daugs, who was the firm's managing director, did not return a call seeking comment. Disclosure documents on the SEC website show previous settlements totaling more than $14 million, with the latest dated as recently as July 15.
Daugs also "improperly directed an investment fund managed by his firm to make more than $4.5 million in loans and investment purchases to facilitate personal real estate deals and fend off claims from disgruntled Lakeside Capital clients," according to the commission's statement.
In addition, Daugs "diverted more than $500,000 from the fund to pay settlements to disgruntled clients," according to the SEC.
Lakeside Capital and Daugs eventually paid back the diverted funds and personal loans, the SEC said, and agreed to settle the charges and pay more than $340,000 in disgorgement and prejudgment interest to the individual client and the investment fund.
Daugs and his firm also agreed to pay a $250,000 penalty, and Daugs will be barred from the securities industry for at least five years. Lakeside Capital will wind down its operations with oversight from an independent monitor.
Daugs and Lakeside Capital agreed to the settlement without admitting or denying the findings.
Investment advisers have a fiduciary duty to act in the best interest of advisory clients and disclose all material conflicts of interests, Jina Choi, director of the SECs San Francisco Regional Office, said in a statement. Daugs instead took advantage of his clients and misused more than $8 million of their assets for his own personal gain.