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Regulation and Compliance > Federal Regulation > SEC

Advisor Barred, Coughs Up $1M for Misleading Clients

By Jeff Berman

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A California advisor has agreed to be barred from the industry and pay a total of $1 million to settle claims that he misled clients about the terms of their investments with him and his firms by concealing conflicts of interest, according to the Securities and Exchange Commission.

In a complaint filed Aug. 14, 2019, in U.S. District Court for the Central District of California, the SEC had claimed Craig Rumbaugh advised clients of his RIA Rumbaugh Financial to invest in promissory notes offered by Susan Werth, who claimed to provide short-term high interest rate loans to real estate developers.

However, “unbeknownst to Rumbaugh,” Werth was operating a Ponzi scheme, the SEC alleged. Rumbaugh did not immediately respond to a request for comment Wednesday.

According to the complaint, from August 2015 to June 2016, Rumbaugh persuaded eight clients to invest a total of more than $3 million with Werth’s companies. Three of those clients lost a total of more than $650,000 as Werth’s Ponzi scheme collapsed, the SEC claimed.

The complaint alleged Rumbaugh and his entities concealed commissions totaling $140,000 that Werth paid Rumbaugh on funds raised from his clients.

Rumbaugh and his firms also allegedly misrepresented the interest rates Werth’s promissory notes offered, and retained the difference when the notes repaid interest at a higher rate.

Without admitting or denying the allegations in the complaint, Rumbaugh and his firms agreed to pay $676,000 in disgorgement and $137,808 in prejudgment interest on a joint-and-several basis, while Rumbaugh consented to pay a civil penalty of $192,768, the SEC said Nov. 24.

The judgments also permanently enjoined the defendants from violating the antifraud provisions of the Investment Advisers Act of 1940, the Securities Act of 1933 and the Securities Exchange Act of 1934, and further enjoined Rumbaugh and RFI from violating the securities registration provisions of Sections 5(a) and (c) of the Securities Act.

“In a related administrative proceeding, Rumbaugh consented to the entry of an order that bars him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and bars him from participating in any offering of a penny stock,” the SEC added.

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Jeff Berman

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