SEC Settles With Alabama Adviser Over Failed Oversight in $2.6M GraySail Fraud

A federal court entered a final consent judgment against James Blake Daughtry, a former Dothan, Ala.-based investment adviser, resolving U.S. Securities and Exchange Commission allegations that he breached his fiduciary duties to clients by failing to oversee their accounts after selling his advisory practice to a firm whose principal later misappropriated more than $2.6 million from those clients.

Without admitting or denying the SEC’s allegations, Daughtry consented to a permanent injunction against future violations of Section 206(2) of the Investment Advisers Act of 1940 and agreed to pay a $50,000 civil penalty, according to the final judgment entered in the U.S. District Court for the Middle District of Florida.

The SEC’s complaint, filed in September 2022, alleged that Daughtry sold his advisory business – about $43 million in assets under management across roughly 150 clients – to GraySail Advisors, LLC in March 2019. The buyer was Jared D. Eakes, a Jacksonville-based adviser who the SEC alleged began defrauding GraySail clients shortly after the sale closed. Eakes, according to the complaint, created forged promissory notes purportedly issued by a company called Small World Capital, LLC, transferred client retirement account funds to a Small World bank account, and used the proceeds for personal purposes, including trading in his own brokerage accounts, repaying personal and business loans, and casino withdrawals.

The SEC alleged Daughtry was not a participant in the fraud but breached his fiduciary duties in two respects. First, when negotiating the sale of his practice, Daughtry did not disclose to his clients that he had sold all of their accounts to GraySail in exchange for $1 million payable over three years, $100,000 toward personal vehicles, a monthly stipend for life, and future stock options — describing the transaction to clients as a merger. Second, Daughtry had told both existing clients he moved to GraySail and new clients he recruited for the firm that he would continue to review proposed investments with them before trades were executed. He did not do so, and never informed clients that he had discontinued this practice.

The complaint detailed multiple instances in which clients raised concerns about GraySail account activity that Daughtry failed to investigate adequately. When one client showed him a statement reflecting a $231,752 investment in a Small World promissory note, Daughtry accepted Eakes’ explanation that the investment was a private equity fund position placed in the wrong account and did not investigate further or determine whether other clients had been placed in similar positions. When another client complained about unauthorized transactions, Daughtry repeated Eakes’ explanation without independent verification.

The SEC charged Daughtry under Section 206(2) of the Advisers Act, which applies to investment advisers who engage in transactions or practices that operate as a fraud or deceit on clients – a negligence standard that does not require intent to defraud. The civil case against Eakes, charged with more extensive violations including Securities Act and Exchange Act antifraud provisions, remains pending.

In a parallel criminal matter, Eakes pleaded guilty in September 2025 to wire fraud and bank fraud charges in Florida, stemming from both the GraySail client scheme and a separate scheme to defraud the federal government of about $4.7 million in pandemic relief funds. As part of that plea, Eakes agreed to forfeit fraud proceeds and make full restitution to victims.

The SEC’s decision to charge Daughtry, despite his lack of knowledge of the underlying fraud, illustrates the scope of the Section 206(2) negligence standard as applied to practice acquisitions. Advisers who sell client relationships, collect compensation for the transition, make representations about continued oversight, and then fail to act on client complaints and account irregularities face liability even where the primary misconduct belongs to another party.

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