Updated: Financials details added below
Local investors asking "how much I have lost" in the Small Business Capital Corp. investigation now have at least a partial answer. The court-appointed receiver liquidating assets in the Los Altos-based company's two investment funds mailed checks today, returning approximately 43 percent of each investor's original contribution.
In an interview Thomas Seaman, the receiver, said that more money should be on the way later in the year. He filed a motion last week to sell the funds' loan portfolios, lending license and other assets for eventual distribution to investors. He declined to estimate the value of the license, but said that the unpaid principle in the investment portfolio had a value of approximately $15 million, and that most loans were "good and performing."
Seaman couldn't name a total anticipated return to investors, but said that "we expect to make another very significant distribution once the assets are sold."
The U.S. Small Business Administration, which partnered with SB Capital, has filed a claim asserting it should be paid $24 million or more from those proceeds. Seaman reported to the court that he was "engaged in further discussions with the SBA with the goal of reaching a consensual resolution." He told the Town Crier that the SBA claim, which is based on "contingent liability," would likely be resolved by the sale of the remaining assets.
The Securities and Exchange Commission argued in court that SB Capital and its founder, Los Altos resident Mark Feathers, invested in over-valued properties, some of which later defaulted, and moved money between investment funds to hide losses and pay management fees.
SB Capital managed two investment funds that promised up to 7.5 percent annual return on investment and amassed more than $40 million, much of it from local investors.
U.S. District Judge Edward J. Davila froze SB Capital's accounts in 2012 at the SEC's request, and appointed a receiver to investigate and later dismantle the company. The receiver's work and related attorney fees added up to almost $2.2 million, or approximately 6 percent of the cash recovered during the investigation.
The SEC characterized Feathers' optimistic communication with investors and concurrent depletion of investor funds as a Ponzi-like scheme. Feathers, who defended himself in court, denied the allegations. But in August 2013 Davila entered a summary judgment in the case accepting the SEC's claims, and in November 2013 he ordered Feathers to pay almost $8 million to the court, representing the amount Feathers' company was found to have improperly removed from the investment funds. The SEC also requested that a $300,000 penalty be assessed against Feathers, which Davila modified to $10,000 in his November ruling.
Read more about the case in the Town Crier archive and in the March 26 issue of the Town Crier.
Editor's note: This story has been updated to reflect the fact that investors could see additional returns as the receiver sells off loans and negotiates with the SBA regarding its competing claims.