Criminal charges were filed Thursday against a former financial advisor at UBS Financial Services whom the Securities and Exchange Commission charged with siphoning $3.3 million from investors to pay for luxury cars, prostitutes and gambling debts.

The criminal action was taken by the U.S. Attorney’s Office for the Northern District of California against Steven T. Kobayashi, who worked at a UBS office in Walnut Creek, Calif., and resigned from the firm in September 2009.

The SEC charged that Kobayashi created a fund called Life Settlement Partners, which invested in life settlement policies. In such settlements, the owner of multiple life insurance policies can sell an unneeded policy to a third party for more than its cash value and less than its face value.

Kobayashi raised several million dollars from UBS customers for the fund. But, the SEC said, Kobayashi started in 2006 to use the fund’s bank accounts “as his personal piggy bank, spending at least $1.4 million in investor funds on expensive cars, prostitutes, and large gambling debts.”

“Investors count on their brokers to safeguard their investments,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “It’s difficult to imagine a more flagrant abuse of that trust than the manner in which Kobayashi pocketed his customers’ money and used it to feed his own habits.”

The SEC alleges that Kobayashi induced several of his other UBS customers to liquidate securities in their UBS accounts and transfer the proceeds of those sales to entities that he controlled. In this manner, he stole an additional $1.9 million from these investors.

Kobayashi, who lives in Livermore, Calif., agreed to settle the SEC’s charges against him without admitting or denying the allegations.

Kobayashi could not be reached for comment Thursday.

The SEC said the former UBS advisor agreed to a permanent injunction from further violations of the antifraud and other provisions of the federal securities laws, and consented to the institution of public administrative proceedings against him in which he will be permanently barred from associating with entities in the securities industry.

Kobayashi’s scheme apparently collapsed when he was unable to pay the premiums on LSP's life settlement policies. Later, investors began making demands for returns on their investments.

In Fall 2008, Kobayashi convinced several customers to liquidate holdings in their corporate 401k accounts and to send the proceeds to another bank account that he controlled.

In September 2009, one of Kobayashi's customers complained to UBS, according to the SEC’s complaint. The customer alleged that Kobayashi had stolen hundreds of thousands of dollars from her account, her son's account, and other client accounts. She claimed that Kobayashi had solicited loans from her and other customers, forged wire transfer documents and lied to customers about what he intended to do with their money.

Early the next morning, Kobayashi tendered his resignation to UBS. UBS subsequently reported his misconduct to the commission.