The SEC has charged a financial advisor with misleading about 40 students and clients into investing $6.5 million in high-yield promissory notes. He failed to disclose the true use of the proceeds of these investments — paying his franchise’s overdue bills.
The advisor, Thomas J. Caufield, allegedly said that the money would be used to operate a Dallas-based franchise he had purchased in 2011 (the name of the franchise was not released in the SEC complaint), which offered investment education programs, according to the regulator. Instead, the investments went toward repaying prior investors, and paying overdue bills for the business.
As a result, the SEC charged Caufield over $900,000 in disgorgement, prejudgment interest and penalties. He is prohibited from issuing, purchasing, offering or selling securities apart from his personal account.
Caufield declined to comment on the accusations.
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The advisor allegedly sold $13 million worth of high-risk securities without disclosing that she earned commissions of up to 18%.
September 14 -
The firm allegedly encouraged clients to use an affiliated investment advisor, and benefitted from the fees it charged them.
September 10 -
Joel N. Burstein allegedly helped his father-in-law defraud foreign investors hoping to immigrate to the U.S.
September 7
Students at the franchise as well as clients at his fee-based firm, DAT Capital Advisors, invested in notes he offered that promised 10% to 18% in annual returns. Caufield told the investors the notes would be lucrative and safe, according to the SEC.
They weren’t.
The franchise routinely failed to meet current financial obligations, and the notes were not secured by business assets, as claimed, according to the SEC complaint. Additionally, the notes were not registered with the SEC, as required.
But Caufield marketed them to investors as a good offering, even providing unaudited financial materials that did not disclose important information regarding the franchise’s liabilities, according to the regulator. The financial statements did not disclose millions of dollars in notes payable from the offering.
The franchise was regularly late in payments to the franchisor, violating terms of the agreement and jeopardizing Caufield’s ownership, according to the complaint.
From around 2013 to 2017, Caufield coordinated the promissory notes to raise capital, says the SEC complaint.
Caufield told investors they would be repaid from the franchise’s revenues, not mentioning the business's bleak financial condition. Additionally, he facilitated the transfer of funds himself and did not take steps to verify whether the investors were accredited, the SEC asserts.
Caufield returned a little more than $6.1 million of the investments, leaving a shortfall of nearly $615,000.
After the SEC investigation had begun, the Dallas franchise was sold earlier in 2018, which resulted in a distribution of more than $1.3 million to the franchise’s student investors.
This money from the sale satisfied the SEC’s disgorgement and prejudgment interest charges, which is about $740,000.
Caufield is still required to pay a $160,000 civil penalty.
DAT Capital Advisors, which is no longer registered as an investment advisor as of 2015, managed approximately $13 million in client assets during the relevant time period.
