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SB Capital Update – Feathers’ Minor Children Bought Defaulted Loans

It’s been a while since we’ve covered what is happening in Northern California and the SEC takeover of Mark Feather’s SB Capital lending company.

First, the next hearing is set for February 22nd, where the judge will rule on a number of motions Feathers has filed to reverse the SEC restraining order.

In the meantime more sordid details continue to come out of the woodwork. The receiver puts the loss to the investors to date at around $12 million.

One investor believes the loss to the investors will be 58%.

And the SEC continues to hammer Feathers through their forensic accountant, writing in a report filed January 15th,

“Self dealing.

“The Receiver has identified several examples where Mr. Feathers appears to have engaged in self-dealing. As discussed in the Receiver’s Fourth Interim Report, SB Capital assumed the role of the borrower for the defaulted Sweet Fingers loan. Despite the fact that the Sweet Fingers loan was in monetary default, IPF advanced an additional $260,000 to SB Capital as borrower. One of the advances was made on March 31, 2009, for $50,000. The next day, Mr. Feathers took $50,000 from SB Capital, which SB Capital otherwise did not have, and accounted for it as a stock repurchase by the company.

“Another example of potential self-dealing involved the purchase of a portion of a defaulted loan to Lipari by the IRA accounts of Mr. Feathers’ minor children. Each child purchased a portion of the defaulted loan for $15,000 in June 2010. In August 2010, when SPF foreclosed on the property (which transaction included a $110,000 settlement payment to the borrower), SPF bought the children’s interests in the loan for $20,000 each, thereby paying them a profit of $5,000 each, representing a 33% return in less than two months.

“The company credit card statements reflect payment of some personal expenses, including numerous charges at restaurants and travel expenses for two trips to Hawaii taken by Mr. Feathers and his family. The credit cards also reflect tuition payments and a variety of other personal expenses. It is not clear at this point if Mr. Feathers reimbursed the company for these charges.

“The forensic accounting will shed further light on these transactions.

“VII. PRELIMINARY CONCLUSIONS

“As discussed above, SB Capital’s operating expenses vastly exceeded the cash generated by the Funds’ lending activities. The Receivership Entities used the revenue from the Funds’ lending activities to pay SB Capital’s operating expenses, and therefore did not have sufficient income to make promised payments to members. The Receivership Entities used the facilitating transactions described above to move monies from Fund to Fund in order to make promised payments to members. In reality, member principal was being used to pay member returns.

“This resulted in a dissipation of member equity of $12 million.”

Attachments

RECEIVER’S PRELIMINARY FORENSIC ACCOUNTING REPORT AND PETITION FOR INSTRUCTION

RECEIVER’S FOURTH INTERIM REPORT

SB Capital Communications

 

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