Dblaine Capital LLC and David B. Welliver, Dblaine Capital’s owner, have been charged by the Securities and Exchange Commission (SEC) with securities fraud. Welliver and his firm allegedly received loans that amounted to $4 million in a “quid pro quo” deal that was said to be undisclosed, in violation of their responsibilities and improper.
Allegedly, Dblaine Capital agreed to put these assets in “alternative investment” securities, and in doing so they caused the funds to be in violation of multiple investment restrictions and policies. According to the SEC, Dblaine Capital and Welliver defrauded the fund, provided an inaccurate valuation and put their financial interests above that of the fund. The fund’s shares were sold and redeemed at a net asset value that was inflated. According to the allegations against Dblaine Capital and Welliver, when this was discovered, the information was kept from shareholders and false and/or misleading statements were submitted to the SEC. In addition, according to the SEC, $500,000 of the loan money received was used by Welliver for personal expenses, such as college tuition, a vacation, a motor vehicle, home improvements and back taxes. According to the SEC, from December 2010 to July 2011, Welliver and his firm did not attempt to establish what fair value for the private placement was and instead valued it at acquisition cost, despite the fund’s policies.
The SEC has charged the firm and Welliver with violating the Securities Exchange Act of 1934, the Securities Act of 1933, the Investment Advisers Act of 1940 and the Investment Company Act of 1940. They are seeking permanent injunction, civil penalties, prejudgment interest and disgorgement of ill-gotten gains.
Unfortunately, the misconduct of Welliver and Dblaine Capital may have financial repercussions to shareholders, as is often the case with broker fraud, and the SEC’s investigation will continue. The civil injunctive action was filed on October 18, 2011 in the United States District Court for the District of Minnesota.