The US supervisory body alleged that the firm and its promoter collected $42m by selling securities issued by Investors Prime Fund and SBC Portfolio Fund – two mortgage investment funds controlled by them.
Over 400 investors were allured to invest in the fund on the promises that the annual profit yielded by the funds would be 7.5% or more, in reality, Feathers operated a Ponzi-like scheme by paying returns to investors that came partly from fund profits and partly from other investors, SEC claimed.
SEC’s Los Angeles Office Associate Regional Director John McCoy said Feathers raised millions from investors by promising high returns.
"The returns turned out to be too good to be true and were funded in part with new investors’ money," McCoy added.
The SEC charges Feathers for transferring over $6m from the funds to Small Business Capital to pay its expenses from 2009 to early 2012.
The supervisory agency also accused the firm for hiding the investors that in February and March 2012, the defendants sold the mortgages to the other fund at an inflated price, thus generating a "profit" for the selling fund so it could pay Small Business Capital management fees of over $575,000.
It also criticised the firm for dealing the transactions in the funds’ securities without being registered as a broker-dealer with the SEC.
The US District Court for the Northern District of California granted the SEC’s request for a temporary restraining order and asset freeze against Feathers, Small Business Capital, and the funds, and appointed Thomas Seaman as a temporary receiver over Small Business Capital and the funds.
