The Securities and Exchange Commission (SEC) has banned a California advisor from the RIA industry after he agreed to settle charges that he defrauded clients by steering them into a Ponzi scheme.
On Tuesday, the commission entered an order barring Indian Wells-based Craig Rumbaugh from association with any RIA or broker dealer for at least five years. A few days earlier, Judge Philip Gutierrez of the US District Court for the Central District of California ordered Rumbaugh and his two advisory firms — Rumbaugh Financial and Desert Strategic Equity — to return roughly $814k in ill-gotten gains plus interest.
Rumbaugh, 51, was also personally fined roughly $193k. The settlement averted a jury trial that would have begun in April of 2021.
The SEC first brought charges against Rumbaugh in August of 2019, after the commission claimed that Rumbaugh persuaded eight of his clients to place more than $3m with another investor whom the SEC later found to be running a $26 million real estate investment Ponzi scheme. Rumbaugh was paid 5% commissions on all funds raised from his clients, totaling more than $140,000 over the course of the scheme, the SEC claimed. The agency further claimed that Rumbaugh concealed his intent to profit personally from his clients’ investments.
Between August 2015 and June 2016, Rumbaugh advised clients to invest in promissory notes offered by investor Susan Werth and her firms, Corporate Mystic and Commercial Exchange Solutions, the SEC said. Werth was sentenced to 70 months in prison.
The SEC said that while Rumbaugh didn’t know that Werth was operating a Ponzi scheme, three of his clients lost a total of more than $600,000 when the scheme failed.
Additionally, the agency claimed that although Rumbaugh knew Werth’s companies offered 30% interest or more, he and his companies represented to clients that the rates were in the 5% to 10% range. When Werth’s companies repaid investor funds to Rumbaugh and his companies at the true, higher interest rates, Rumbaugh and his companies repaid clients at the lower rates and pocketed the additional undisclosed interest, the SEC further claimed.
Rumbaugh accepted the SEC’s penalty without admitting or denying the charges against him. You can read the full SEC order here.