| July 17
July 17 The U.S. Securities and Exchange
Commission has barred a Seattle investment adviser from the
industry for using $8 million of investors' funds to make loans
to himself, including one for a rare Mercedes-Benz model.
Dennis Daugs, Jr., founder of Lakeside Capital Management
LLC, used assets from an elderly client's portfolio to fund $3.1
million in personal loans without her permission. The loans
included $2.1 million from her individual retirement account to
structure a loan so he could buy a ski home, the SEC said on
The conduct, which occurred between 2008 through 2012,
violated Daugs' responsibility to act as a fiduciary, or in
clients' best interests, the SEC said.
He engaged in self-dealing by using client money to
facilitate loans to himself, and on terms that were unfavorable
to the client, the SEC added.
Daugs, 51, agreed to the ban in a settlement with the SEC.
He neither admitted nor denied the findings, according to the
settlement. Daugs can apply for readmission to the industry in
five years. Neither he nor his lawyer returned calls requesting
A spokesman for Daugs and Lakeside declined comment, other
than to direct Reuters to a letter he said Daugs sent to
"It is important for you to know that any investments you
have with Lakeside are intact, and not at any risk from the
issues raised by the SEC," Daugs wrote in the letter.
Lakeside which managed about $150 million in assets, must
hire a monitor to supervise the winding down of its operations,
the SEC said. Daugs was the firm's sole owner, portfolio manager
and chief compliance officer between 2010 and 2012.
Daugs did not disclose millions of dollars in loans to his
elderly client before he borrowed the money in 2008 and 2009,
the SEC said. He repaid the balance when he disclosed them to
the client in 2010. The client left Daugs' firm and threatened
to sue, but later settled with him.
Daugs also made "extensive, undisclosed personal use" of a
private real estate fund his firm managed, which had about $19
million in assets during the period. He borrowed roughly $5.2
million to buy real estate and pay more than $500,000 to
disgruntled clients who had threatened to sue him, according to
the SEC settlement. In one instance, he returned the money only
after outside accountants discovered it was missing.
The loans Daugs orchestrated were unfavorable to the
investors, the SEC said. They had no pay-off dates and paid low
interest rates. What is more, he provided no collateral.
The SEC found, among other things, that Daugs and Lakeside
violated a rule for holding money. He was supposed to maintain
separate accounts for each client at a type of brokerage firm
that holds clients' funds for advisers. Instead, he routinely
held cash for his various private fund clients in three bank
accounts established in the names of law firms he employed, the
(Reporting by Suzanne Barlyn. Editing by Andre Grenon)