The Securities and Exchange Commission sued a Chicago investment adviser, claiming he accepted $11.4 million from 35 clients but used the money for personal spending, including funding his wife's baby boutique in Chicago's upscale Lincoln Park neighborhood.

In a lawsuit filed Wednesday in U.S. District Court for Northern Illinois, the SEC alleges that the adviser, Neal Goyal, and his firms, including Caldera Advisors L.L.C. and Blue Horizon Asset Management L.L.C., operated in Ponzi scheme fashion, making payments to early investors with money from new investors. Those actions violate federal laws that prohibit fraudulent, deceptive and manipulative practices, the agency said.

Mr. Goyal, 33, raised money over the past eight years for four funds that he said invested in stocks, according to the lawsuit. While he said the funds “significantly outperformed the market, Goyal never invested the vast majority of the money he raised from investors, and the limited trading that Goyal did perform was unsuccessful and resulted in significant losses,” the lawsuit said. The agency also alleges Mr. Goyal sent investors “fictitious account statements grossly overstating his performance.”

“We've been cooperating with the SEC for the past two weeks and we're going to continue to cooperate with the SEC,” said Howard Rosenburg, a Chicago attorney representing Mr. Goyal.

Instead of investing the money, Mr. Goyal allegedly funded his business; bought two homes, including one for $1.4 million; leased luxury cars; purchased expensive artwork, jewelry and vacations; and made investments in startup companies, including Urba Baby, a clothing boutique opened by his wife, Marti, in Lincoln Park in July 2011 and expanded to nearby Wicker Park.

%%BREAK%%

An employee who answered the phone said the Wicker Park location closed Wednesday, and the company plans to expand its online business. Urba Baby announced plans to shutter the Lincoln Park shop on its Twitter account a week ago.

The couple was part of the Chicago social scene, posing for photos at elegant functions, such as an event to raise money for homeless animals that was captured in a photo by Modern Luxury’s monthly social and cultural magazine CS.

Mr. Goyal started raising money for his Blue Horizon funds in 2006, taking money from friends and family while he was in law school. He launched the Caldera fund in 2009 and also began offering consulting services, ostensibly to counsel emerging companies on raising capital, mergers and acquisitions.

He opened his Chicago office in 2010 and as of this month had eight employees, but that was “window dressing,” the SEC said. In reality, Mr. Goyal stopped trading by January 2009, after posting major losses almost immediately following the launch of the funds, the agency alleges.

He purported to charge 1% of assets under management and 20% of investment profits. The SEC this week won court approval for a permanent injunction to stop Mr. Goyal from doing business and an order to freeze his assets. The agency also received authority to have Mr. Goyal return funds gained through the alleged fraud and pay civil penalties.

Lynne Marek writes for Crain’s Chicago Business, a sister publication of Business Insurance.