Firm's principal misused client funds says SEC
Madison Park's Lakeside Capital Management, founded in 1997 and solely owned by portfolio manager Dennis Daugs since 2010, is ceasing its operations as a result of a recent action by the U.S. Securities and Exchange Commission. The SEC, in an order today instituting administrative "cease and desist" proceedings against both the firm and Daugs, states that Daugs "used over $8 million in client advisory assets to conduct undisclosed actions that fraudulently breached his fiduciary duty." (The full text of the SEC order can be found here.)
Daugs, according to a report by Reuters, neither denies nor admits the allegations of the SEC but agreed to be barred from the industry. A separate news report on the website FinancialPlanning.com states that Daugs is paying $590,000 to settle the SEC charges. The website states that Lakeside has paid out almost $15 million in customer settlements over the past nine years (though we could not independently confirm this based on the information the SEC released today).
Lakeside has been a prominent neighborhood business, making real estate investments in this area and elsewhere on behalf of its well-heeled clients. It recently negotiated the sale of the investor-owned Villa Marina apartment building on 43rd Avenue E. at the foot of Madison, which is next door to Lakeside's headquarters (shown above).
According to the SEC, "Daugs breached [his fiduciary] duty beginning in 2008 and 2009,
when he invested a senior citizen Lakeside client in $3.1 million in personal loans to himself. Daugs used the loans to buy a vacation home and refinance his purchase of a rare automobile, and the loans involved a material conflict of interest between Daugs and the client. Yet Daugs did not disclose the loans to the client until early 2010." The auto in question, according to the SEC, is a rare 1955 "Gullwing" Mercedes, similar to the one shown below:
Also, says the SEC, "Daugs used over $5 million from [a Lakeside managed] fund in undisclosed self-dealing." These and other compliance violations, say the feds, constitute willful violation of securities laws by the respondents, Lakeside Captial Management and Dennis Daugs, who have therefore been censured by the SEC for their conduct.
Daugs has six months to wind down Lakeside's operations. The press report by Reuters notes that Daugs, in a recent letter to the firm's investors, states that their investments are not at risk. The SEC reports that Lakeside had approximately $150 million in assets under management on average and served as investment adviser to about 100 individuals and over thirty private real estate funds during the period the alleged violations occurred.
[Gullwing photo from Wikipedia.]