The Securities and Exchange Commission has barred adviser Craig Rumbaugh for recommending that eight of his clients invest more than $3 million in a Ponzi scheme.
According to an SEC complaint, Rumbaugh and two companies he owns, Rumbaugh Financial Inc., a registered investment adviser, and Desert Strategic Equity, defrauded advisory clients by misleading them about the terms of their investments. The SEC claims that he failed to disclose his “self-dealing and receipt of commissions in connection with those investments.”
The SEC claims that Rumbaugh advised clients to invest in promissory notes offered by Susan Werth who, unbeknownst to him, was operating a Ponzi scheme. In 2018, the SEC brought an an emergency civil injunctive action against Werth, who later pled guilty in a federal case to wire fraud and other charges. She was sentenced to 70 months in prison and ordered to pay nearly $6.3 million in restitution.
From August 2015 to June 2016, Rumbaugh persuaded eight clients to invest more than $3 million in Werth’s companies, three of whom lost a total of more than $350,000 when her Ponzi scheme failed, the SEC said.
Werth paid Rumbaugh a 5 percent commission, or more than $140,000, on all funds he raised from clients. The SEC alleges that Rumbaugh and his firm failed to disclose those commissions to clients.
The SEC also said that he misled clients “many times” about the interest rates Werth’s companies were willing to pay, claiming that the companies offered rates in the 5 percent to 10 percent range when they actually offered 30 percent interest or more.
In those instances, when Werth’s companies repaid investor funds in full at the true, higher interest rates, Rumbaugh repaid his clients at the lower rates and kept the difference.
According to his BrokerCheck profile, Rumbaugh was affiliated with ING Financial Partners from 2007 to 2013, and roughly one year at Hornor, Townsend & Kent and 1st Global Capital Corp.