It appears that I was off base when I suggested the Securities Exchange Commission (SEC) might not understand the business model for Small Business Capital. In July, I wrote, “If you understand the structure of SBA loans, the two SBC funds conceptually make sense. The SEC alleges the returns on the Prime Fund that likely received the sales proceeds from SBA guarantee sales were “too good to be true,” but the market for SBA guarantees is indeed 115%, which is very high,” said Michael D. Sneden, Executive Vice President of ValueXpress. “Perhaps SBC is culpable, but I wonder if the SEC is not following how the business works; we shall see as the investigation unfolds.” Click here to read that post.
Well, the receiver charged with recovering assets on behalf of investors is estimating losses of $12 million. The receiver notes many “grey area” business practices, including failure of documenting his $650,000 equity injection, excessive compensation, patronage and using company assets for personal use. Compensation included $15,000 per month for Mr. Feathers and $15,000 per month for his wife. In addition, Mr. Feathers received $232,000 in consulting fees, and his children and their caregiver were on company payroll. Company records include payments for “expensive” cars and credit card charges for personal use. The receiver goes on to list other “improper” expenditures.
“It appears that this situation has nothing to do with the origination and selling of SBA guarantees and the distribution of profits,” said Sneden, “so I am quietly going to watch the outcome, as the situation does not appear to be good for Mr. Feathers.”