Advisory Representative Misappropriates $2.6 Million
Today is the end of the government fiscal year. For the Commission it is also represents the last opportunity to file new cases prior to the year-end tabulation of the number of cases initiated for the fiscal year. While virtually everyone acknowledges that the number of cases filed during a period is not a measure of a good enforcement program or any indication of the quality of the program, the numbers remain significant and are used in a variety of settings.
While ach case filed by the Commission is significant regardless of the time of year, those initiated during the year end rush are frequently microcap fraud actions or those centered on misappropriation or false statements. SEC v. Eakes, Civil Action No. 3:22-cv-01055 (M.D. Fla. Filed September 28, 2022) is typical of these cases.
Named as defendants are: Jared D. Eakes, the owner president and an investment adviser representative of GraySail Advisors, LLC.; and James Daughtry, the operator of a small investment advisory business in Alabama. Over a period of about one year, beginning in January 2019, Defendant Fakes misappropriated over $2.6 million from clients of GraySail. This was done largely by inducing clients to purchase promissory notes that supposedly were issued by Small World Capital, LLC. In fact, that company did not issue the notes.
Several of the clients who purchased the notes had previously been a client of Defendant Daughtry prior to the time he joined \GraySail. Mr. Daughtry did not tell the clients that Mr. Eakes paid him to move his clients to GraySail.
At GraySail Defendant Daughtry expected to continue his existing practice of reviewing transactions in client accounts with them prior to execution by Defendant Eakes. In fact, he did not. Again, the clients were not told.
Defendant Daughtry also recruited new clients for GraySail after he sold his advisory business to Defendant Eakes. The new clients were assured by Defendant Daughtry that he would monitor their accounts. He did not. This facilitated fraud by Defendant Eakes. The complaint alleges violations of Securities Act Sections 17(a)(1) & (3), Exchange Act Section 10(b), and Advisers Act Sections 206(1) & (2). The case is pending. A parallel action was filed by the Alabama Securities Commission against Messrs. Eakes and Daughtry. A bar from the securities business is being sought in that action. See Lit. Rel. No. 25533 (September 28, 2022).