Investment Adviser Indicted for Defrauding Investors of More Than $1.2 Million
The United States Attorney’s Office for the District of Minnesota announced the indictment of DAVID BLAINE WELLIVER, 55, for defrauding investors in the Dblaine Fund, a mutual fund for which WELLIVER acted as investment adviser, of at least $1.2 million. The defendant is scheduled to make an initial appearance on September 3, 2015, in U.S. District Court in St. Paul, Minn.
According to the indictment, throughout most of 2010, the Dblaine Fund had only a small number of individual investors. In March 2010, in order to increase the Dblaine Fund’s net assets, WELLIVER entered into an agreement in which, in exchange for a payment of approximately $100,000 to another investment adviser, the Dblaine Fund would acquire the assets of two other mutual funds, the Bryce Capital Growth Fund and the Bryce Capital Value Fund (Bryce Funds).
According to the indictment, because WELLIVER’s investment advisory business had never generated substantial revenues, it lacked the capital to finance the merger between the Dblaine Fund and the Bryce Funds. As of June 30, 2010, WELLIVER’s investment advisory company, Dblaine Capital, had less than $200 in liquid assets. During the same time period, WELLIVER had less than $2,000 in his personal bank accounts, and WELLIVER personally owed millions of dollars in civil judgments, federal income taxes, and other debts. Through his company Dblaine Capital, WELLIVER borrowed money from Lazy Deuce Capital Company, LLC (Lazy Deuce), a limited liability company based in Burnsville, Minn., to finance the merger between the Dblaine Fund and the Bryce Funds. On or about December 8, 2010, WELLIVER used funds borrowed from Lazy Deuce to make a $95,000 payment to the Bryce Funds’ investment adviser, and thereafter the merger was completed. As a result of the merger, the Dblaine Fund’s assets under management increased from approximately $500,000 to over $9 million.
According to the indictment, as part of the scheme to defraud investors in the Dblaine Fund, WELLIVER, in 27 separate transactions between October 2010 and May 2011, borrowed a total of $4 million from Lazy Deuce. Aside from the $95,000 payment to acquire the assets of the Bryce Funds, WELLIVER did not use any of the other proceeds of the Lazy Deuce loans to acquire mutual funds as he had represented to Lazy Deuce. Instead, WELLIVER diverted over $500,000 in proceeds from the Lazy Deuce loans to his own personal use, including for landscaping and interior decorating at his personal residence, to purchase land adjacent to his personal residence, to buy a personal vehicle, and to pay for his son’s college tuition.
According to the indictment, in exchange for Lazy Deuce’s agreement to lend funds to Dblaine Capital, WELLIVER agreed to use his position as investment adviser to the Dblaine Fund to cause Dblaine Fund investors’ money to be invested back into Lazy Deuce. In exchange for Lazy Deuce’s agreement to lend funds to Dblaine Capital, WELLIVER agreed to invest money from the Dblaine Fund back in Lazy Deuce. However, in order to conceal the nature of this transaction from the Dblaine Fund’s investors, its Board of Trustees, and its other service providers, WELLIVER made these investments into a shell company formed by several Lazy Deuce principals, called Semita Partners LLC (Semita).
According to the indictment and documents filed in court, between December 16, 2010, and April 15, 2011, WELLIVER caused $1.725 million in Dblaine Fund investors’ money to be invested in Semita. At the time WELLIVER made the investments in Semita, he knew that Semita was a shell company formed by principals of Lazy Deuce—the same company from which Dblaine Capital had borrowed money—and that Semita had no operations. On December 31, 2010, in order to meet a series of redemptions in the Dblaine Fund, Welliver liquidated nearly all of the stocks held by the Dblaine Fund. Following this liquidation, the Dblaine Fund’s only holdings consisted of worthless Semita shares and cash held in a money market account.
This case is the result of an investigation conducted by the United States Postal Inspection Service, the Federal Bureau of Investigation, and the Internal Revenue Service—Criminal Investigation.
This case is being prosecuted by Assistant United States Attorneys Kimberly A. Svendsen and Benjamin F. Langner.
DAVID BLAINE WELLIVER, 55
- Wire fraud, five counts
- Mail fraud, four counts
- Money laundering, five counts