July 2, 2013
Editor, Coleman Report
One year ago, the SEC seized Mark Feather’s Small Business Capital, a nonbank SBA lender.
The SEC called SBC a “ponzi-like” scheme and said investor payments could only be made from new investor capital.
During the past year, Feathers has contested the SEC action, going so far as to calling himself “The honeybadger.”
Yesterday, we ran the SEC receiver’s forensic accounting report that said SBC investors have lost $13 million in capital investments and investor funds have been used to cover SBC’s operating expenses.
Here is Mark Feather’s response about the report, which we are publishing in full.
“The Receiver’s “forensic accounting report” shows its own undoing with minimal examination required by the Court or interested parties. As a starting point, it is established that the defendant mortgage investment funds were capitalized at approximately $45M. On the date of the injunction, these funds held cash balances of some $10M, and another $4.5M due within thirty days from scheduled mortgage note sales. Cash and near cash constituted some 1/3 of assets at injunction, which is confirmed by the Receiver’s own reports to the Court. Average cash position of the funds is well documented at high levels for all years of operations of the funds. These matters are simple and straightforward to confirm from the funds federal tax returns and checking statements. Yet, the Receiver states in his report “the funds were chronically short of cash”, all while nothing could be further from the truth in this matter. It does not take twelve months of forensic analysis to demonstrate this, it only take sixty minutes of reviewing fund tax returns and checking account statements to confirm this matter. The remainder of the year has been taken by the Receiver and SEC to confer together on how to present a picture to the Court which builds the story necessary to support the false pretense which initiated this lawsuit, which was SEC’s knowing employment of false financial formulas in its Complaint (see Court Docket 187).
“With investor consent, the funds engaged on a major operational change in 2010 with acquisition of a federal SBA non-bank lending license. Following this, they financed $100M in new loans within twenty four months, which placed them into the top ten percent of all SBA lenders within a very short period, and fund revenues quadrupled over this same period. The Receiver’s report is a “liquidation” analysis, which is small wonder, as he essentially fired all employees, and canceled $50M of loans in process upon his arrival. The report and its pro forma outcome is predicated upon a write off of all fund intangible assets, and the Receiver’s and SEC’s acts created a self-fulfilling prophecy. Even so, on a pro forma basis, remaining tangible assets constitute eighty percent of fund capitalization, which is a level of capitalization that exceeds the performance of the country’s most successful SBA lenders after a similar twenty four month period, all while creating millions of dollars in annual revenue stream to the funds at the present time, which the Receiver’s own reports confirm.
“On the whole the Receiver’s forensic accounting report is written, which is clear, with one goal, which is to support the pre-conceived notions of the Receiver’s referral source, which is SEC, and the pre-conceived notions which they would ask the Court to continue to believe. The format employed by the Receiver throughout his report is unorthodox. The style matches SEC’s own unorthodox tables from its Complaint, in fact, which have already been disproven to have any validity or reliability. The Receiver’s report is a study in application methods customized to fit the need of the Receiver and SEC, who sleep together in the same bed, apparently. The report is unreliable, including all drawn conclusions of Thomas Seaman Company. It is highly unlikely that SEC will ever be able to secure a credible outside expert witness, such as an actual forensic CPA, or an expert witness with a mortgage investment fund background, who would be willing to compromise their name and reputation by offering a reliability opinion as to the receiver’s report and its conclusions.”