A South Bay investment manager has been indicted by a federal grand jury in San Jose on 29 counts of fraud. Mark Feathers, 51, of Los Altos, was the founder and chief executive of Small Business Capital Corp., or SBCC, which managed three funds that sold investments in mortgage portfolios. He was indicted on Oct. 29 on 17 counts of securities fraud and 12 counts of mail fraud allegedly carried out between 2009 and 2012.
The indictment was unsealed Wednesday after Feathers’ arraignment before U.S. Magistrate Paul Grewal in San Jose. Feathers pleaded not guilty and was freed on bail of $250,000. His next court appearance is a status conference before Grewal on Nov. 19. The indictment alleges that Feathers raised more than $50 million from more than 250 investors and improperly transferred more than $7 million from the funds to SBCC for operating expenses in the form of management fees and unsecured loans to that company.
It alleges that as of June 2012, SBCC held $5.5 million in unsecured loans owed to the three funds and that Feathers had diverted $2 million to his own benefit. The indictment also contends that some returns paid to early investors were funded with money provided by new investors, in a process known as a Ponzi scheme. It alleges that Feather misled investors by telling them that loans made by the funds were secured by mortgage deeds and that the funds’ loans were providing returns that would pay investors at least 7.5 percent interest each year. The U.S. Securities and Exchange Commission filed a civil lawsuit against Feathers and SBCC in federal court in San Jose in 2012, alleging violations of securities laws. A federal judge placed the company in receivership later that year.
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