A Seattle-based investment advisor and his firm have been charged with fraudulently misusing over $8 million in client assets to purchase a luxury vacation home and refinancing a car by the Securities and Exchange Commission.

A Seattle, WA-based investment advisor and his firm have been charged with fraudulently misusing over $8 million in client assets to purchase a luxury vacation home and refinancing a car by the Securities and Exchange Commission.

Dennis Daugs of Lakeside Capital Management funded a $3.1 million personal loans from the portfolio of a senior advisor without her consent; the loans favored Daugs with no collateral or set pay-off dates and a prime rate of interest.

Lakeside Capital liquidated $2.15 million in securities of the client’s portfolio to “generate the cash to transfer that amount from her IRA account at a custodian broker-dealer directly to an escrow account he used to purchase his ski vacation home, the SEC said in a statement”.

The remaining $950,000 of assets went towards refinancing his purchase of a rare Mercedes model from the 1950s.

Daugs’s actions, which took place over four years from 2008 to 2012, went against the fiduciary duty of an investment advisor as they were not in the client’s best interests and did not disclose conflict of interests.

As well as this, he did not alert Lakeside Capital’s compliance officer of his use of the client’s investments, despite making regular payments into her IRA account. As such, the SEC found that the firm failed to take required compliance and custody measures to safeguard client assets.

He also made over $4.5 million in loans and investment purchases by misdirecting a Lakeside Capital-managed investment fund with the objective of facilitating personal real estate deals and fend off claims from his disgruntled clients. Furthermore, he diverted more than $500,000 from the fund to pay settlements to disgruntled clients according to an SEC statement.

After Lakeside Capital and Daugs repaid the diverted funds and personal loans, they agreed to settle the SEC’s charges. In doing so it paid over $340,000 in disgorgement and prejudgement interest to the individual client and the investment fund to represent Daugs’s ill-gotten gains he retained after the loan repayment.

Daugs will be barred from the securities industry for at least the next five years, and Lakeside Capital will wind down its operations under the watch of an independent monitor.

The SEC’s investigation was conducted by Thomas Eme and supervised by Tracy Davis in the San Francisco office.  The preceding examination of Lakeside Capital was conducted by Cindy Tom, Steven Wolz, John Chee, Matthew O’Toole, and Kenneth Schneider in the San Francisco office.