Last updateWed, 18 Oct 2017 10am


Investigator fees approach $400K in Ponzi case

Photo By: Ellie Van Houtte/Town Crier
Photo Ellie Van Houtte/Town Crier

CEO Mark Feathers of the Los Altos-based SB Capital continues to fight SEC allegations that he operated a Ponzi-like scheme.

Investigation into an allegedly Ponzi-like Los Altos company has cost investors, but the court-appointed receiver reports a net benefit from his work.

Thomas A. Seaman, the receiver appointed to analyze and administer the seized Small Business Capital Corp., with his attorney reported a combined $377,791 in fees and expenses. Four hundred investors, many from Los Altos, had sunk $42 million into the funds managed by SB Capital. Assets from that business must cover the receiver’s costs. A U.S. District Court hearing on his initial application for compensation is scheduled Feb. 22.

When the Securities and Exchange Commission froze accounts and seized files at SB Capital’s San Antonio Road office in June, its investigators claimed that CEO Mark Feathers had orchestrated a Ponzi-like scheme in which investors were paid returns in excess of profits.

Feathers vigorously denies the charges and claims the investigation has caused substantial loss to investors.

SB Capital and two associated funds, Investors Prime Fund and SBC Portfolio Fund, specialized in mortgage lending in partnership with the Small Business Association.

Recouping losses

Seaman reported that investors might recoup $11 million in liquid assets and $25.45 million from loans. He claimed to have increased cash by nearly $1 million and to have boosted monthly profits for the seized companies. He chose not to commit the more than $10 million in planned investments.

“Rather than continuing to speculate with investor funds, the goal of the receivership is to preserve and protect receivership estate assets,” Seaman wrote.

Feathers and the court-appointed receiver presented very different financial pictures of the company. Seaman asserts that monthly distributions of $301,500 were promised, although gross interest and income was only $196,500 per month. Feathers contests that is an unrealistically bleak picture of the accounting.

“Defendants, as demonstrated, had no need, at any time, for ‘new member capital’ to make distributions,” Feathers wrote in his motion.

He claimed that accountant-prepared tax returns demonstrate the funds’ success during the period in question.

Seaman said his Jan. 15 report would include a forensic accounting of SB Capital’s activity prior to seizure.

Due process

Feathers has no constitutionally protected right to an attorney because the case involves civil, not criminal, court.

After Judge Edward Davila rejected Feathers’ request to draw legal fees from his company’s seized assets, Feathers released his lawyer, citing lack of funds. Feathers himself drafted and filed defense motions to dismiss the receiver and the prosecution’s case.

“It’s helping me discover skills I didn’t have before,” he told the Town Crier.

Feathers cited the First, Fourth and Fifth Amendments to the U.S. Constitution in objecting to the SEC’s seizing his business and describing him as the architect of a Ponzi scheme. In a motion, he contended that the use of the term “Ponzi” “tainted normal matters of due process.”

“Feathers has never looked for recognition for his accomplishments, and his notoriety at present, caused by plaintiff’s lawsuit, is entirely unwarranted,” Feathers wrote on his own behalf. “Twice within the past 12 months, Feathers has pulled the keys out of the ignition of vehicles running, in gear, with unconscious or deceased drivers, at risk of explosion, and at peril to his own life. ... wrestled with a bank robber and earned awards of distinction from the military.”

The SEC filed opposition to Feathers’ motions, saying that his objections amounted to dispute over evidence and rejecting the constitutional issues he raised as meritless.

To read the court documents in full, visit www.losaltosonline.com.

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