Small Business Capital’s Mark Feathers Indicted on 29 Counts of Fraud
November 14, 2014
By Bob Coleman
Editor, Coleman Report
Two and a half years after the SEC seized non-bank SBA lender Small Business Capital, the other shoe has dropped with a 29 count federal indictment filed against Mark Feathers.
According to the indictment Feathers is named as the sole defendant in all counts, including 17 counts of securities fraud and 12 counts of mail fraud between 2009 and 2012.
The indictment alleges that Feathers, 51, of Los Altos, Calif. was the founder, CEO, and a director of Small Business Capital Corporation (SBCC), a privately-held California corporation formed in 2004 with its principal place of business in Los Altos. SBCC was the sole manager of three investment funds that were marketed as investing in loans secured by first deeds of trust on commercial and income-producing residential real estate.
According to the indictment, Feathers, raised more than $50 million from over 250 investors through the offer and sale of securities in the form of membership interests in investment funds. The defendant and SBCC represented to prospective investors that the investment funds would pay “Member Returns” of at least 7.5% from profits generated by the investment funds’ mortgage loan portfolios. However, by June 2012, as a result of his fraudulent scheme, Feathers had allegedly booked over $5 million in unsecured loans from the investments funds to his management company, paid returns to investors in excess of net profits of the investment funds, a “Ponzi” scheme in which the returns were partially funded with money from new investors, and in the process, diverted approximately $2 million to his own personal benefit.
According to the indictment, despite owing a fiduciary duty to the investment funds’ investors, the defendant failed to disclose significant conflicts of interest arising from causing the investment funds to transfer over $7 million to SBCC so it could pay its expenses, and recording a majority these transfers as assets of the investment funds. In addition, the defendant sent regular newsletters to investors reassuring them that the funds were making loans secured by first and second deeds of trust and that all loans were performing. However, as alleged in the indictment, the investment funds had unsecured loans to SBCC, these loans were not generating returns, and the investment funds themselves were not generating returns as represented in the Offering Documents or the subsequent account statements transmitted to investors.
And, this just in.
Following is Mark’s email to his investors:
Dear Investors,
I was arrested on Wed. I was only in handcuffs and holding cells for a few hours. Please see the related information at www.markfeathers.com. The government looked to even have me wear an ankle bracelet for the next couple of years, and to post a $250,000 bail. Very fortunately, the Magistrate who heard the hearing is the very same one who dismissed SEC’s request for sanctions against me (because I had been writing investors with the truth about the lawsuit) about a year ago would have none of this, and he would not allow an ankle bracelet, and he only required an unsecured bond for $250,000 which did not require me to post any bail (good thing, as I have very little money). So I was arrested at 9:00 a.m., and I still made it to work by 3:00, believe it or not, to put in a couple of hours with my employer.
As all know, I have protested repeatedly SEC’s use of false financial information in this lawsuit, and its appointment of a receiver they falsely described as a licensed CPA. These protests fall under my 1st Amendment rights – Freedom of Speech, of course.
Now, SEC looks to be extremely punitive due to this. So I was arrested because I have not waivered that it is SEC who has violated the law, numerous times over. The summons, with my initial reading, appears almost identical to the civil lawsuit, except that SEC HAS NOW REMOVED ITS FALSE FINANCIAL ILLUSTRATIONS. Funny the timing of that, since these allowed my assets and yours to be seized, and not only violated the law because they were false, and SEC knew these to be (or should have, as it is the SEC), but this violation now carries forward through this date.
Despite this event of Wednesday, I still filed a motion yesterday which I had been working on for some while now, which is to end the receivership and the injunction, and I encourage you to read this attachment. I’m sure the fact that I still filed this has just further infuriated SEC and other federal agencies.