Shawn R Merriman is accused of fraudulently obtaining between $17 million and $20 million from investors in three US states through his company Market Street Advisors.
Clients were allegedly told that their money would be invested in stocks and options, and Mr Merriman reported "impressive and consistent" annual returns.
However, the SEC contests that he did not trade stocks and options after his first year of operation, during which time Mr Merriman is said to have incurred trading losses.
Instead, between 1994 and 2009, he is accused of starting new funds to bring in more money, which he then used to fund a lavish lifestyle and pay out withdrawals.
Donald Hoerl of the SEC's Denver office said: "Our complaint alleges that Merriman repeatedly deceived investors, many of whom considered him a personal friend, by sending them fictitious account statements showing annual rates of return of seven to 20 percent."
The SEC is seeking an immediate freeze on Mr Merriman's assets.