U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22131 / October 18, 2011
Securities and Exchange Commission v. David B. Welliver and Dblaine Capital, LLC, Civil Action No. 0:11cv3076 (RHK/SER) in the United States District Court for the District of Minnesota.
SEC CHARGES DAVID B. WELLIVER AND DBLAINE CAPITAL, LLC, WITH FRAUD AND OTHER VIOLATIONS
On October 18, 2011, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Minnesota against David B. Welliver and his investment advisory firm, Dblaine Capital, LLC, for fraud and numerous other violations of the federal securities laws in connection with the offer, sale, and management of a mutual fund, the Dblaine Fund.
The SEC’s complaint 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 complaint also alleges that Welliver and Dblaine further defrauded the 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.
The complaint also alleges that, in connection with the fraudulent conduct described above, Welliver and Dblaine Capital made false and misleading statements in various reports and filings with the Commission; engaged in certain prohibited affiliated transactions; and aided and abetted the fund’s violations of various provisions of the Investment Company Act of 1940.
The SEC complaint alleges that, as a result of their misconduct, Welliver and Dblaine Capital violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, Sections 17(a)(2), 17(e)(1), 22(e), and 34(b) of the Investment Company Act of 1940, and Rules 22c-1 and 38a-1 thereunder.
The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, including prejudgment interest, and civil penalties.
The staff’s investigation is continuing.