SEC Charges Mutual Fund Adviser With Fraud

October 18, 2011

The SEC charged David B. Welliver, who resides in Buffalo, Minnesota, and his investment advisory firm, Dblaine Capital, LLC, with fraud and numerous other violations of the federal securities laws in connection with their management of a mutual fund, the Dblaine Fund.

The SEC alleges that Welliver and Dblaine Capital obtained $4 million in loans pursuant to an improper, undisclosed quid pro quo agreement entered into in breach of their fiduciary duties to the Dblaine Fund. Specifically, in exchange for the loans, Welliver and Dblaine Capital committed to invest the fund’s assets in certain “alternative investment” securities recommended by the lender. Welliver and Dblaine Capital then caused the fund to violate various investment restrictions and policies by investing the fund’s assets in a private placement offering that was affiliated with the lender.

The SEC also alleges that Welliver and Dblaine further defrauded the Dblaine Fund by providing an inaccurate valuation for the private placement holding. As a result, Welliver and Dblaine Capital caused the Fund to offer, sell, and redeem shares at an inflated net asset value. When Welliver and Dblaine Capital ultimately discovered that the private placement was worthless, they continued their fraud by failing to disclose this to the Fund’s shareholders.

In connection with the fraudulent conduct, the SEC stated that Welliver and Dblaine Capital made false and misleading statements in various reports and filings with the SEC; engaged in certain prohibited affiliated transactions; and aided and abetted the fund’s violations of various provisions of the Investment Company Act of 1940.

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Enforcement Actions, Investment Advisers, Investment Companies