Jeremiah Silkowski and SQN Capital Management voluntarily reconcile with SEC and withdraw from the investment advisory business
After years of operating relying on subsidies, these funds will be handed over to the receivers designated by the court. The settlement does not acknowledge any improper conduct and provides a way forward for the long-delayed closure of the funds.
New York, October 12th / PRNewswire / -- SQN Capital Management, LLC (“SQN”) and its only remaining partner, Jeremiah Silkowski, have reached a settlement regarding a complaint from the U.S. Securities and Exchange Commission (SEC) and will be withdrawing from the investment advisory business. According to the agreement, the company's remaining equipment leasing fund will enter liquidation proceedings. Silkowski voluntarily proposed to withdraw from the investment advisory business, and this proposal was accepted as part of the settlement. The complaint resolved by this settlement does not allege misappropriation of investor funds, nor does it allege any personal gain from any alleged violations of regulations.
The funds under SQN invest in equipment leasing, loans secured by equipment, and asset financing arrangements. During the operation of each fund, investors receive regular cash distributions. Including early liquidation distributions, investors of the two largest SQN funds have recovered between 51% and 65% of their initial capital. After these distributions, the remaining investments are mainly residual interests in assets such as ships, which have poor liquidity and are not expected to generate net cash flows before sale or refinancing.
Due to the outbreak of the COVID-19 pandemic, the liquidation was postponed and continued to be delayed for over five years. During this period, since most of the remaining investments, including the fund's largest assets, had no cash flow, SQN has been providing subsidies for the operation of the remaining fund. After more than a year of contact with SEC, SQN no longer has the resources to support both the ongoing management of the fund and the regulatory compliance required to maintain a good status.
The accusations regarding SEC are based on the view that SQN did not adjust the book value of the fund shares after the outbreak of the pandemic, thereby overstating the investment value. SQN, however, insists that these values were maintained based on a series of potential exit opportunities, which did not materialize for various reasons. Relevant efforts can be seen in a number of actions taken, including distributing nearly 20 million US dollars to investors in the first phase of the planned liquidation in 2020.
Following that allocation, as evidence of further efforts, SQN invested a significant amount of time and own resources to facilitate an integration transaction, clearly listing SQN assets as the subject of sale to a group of investors composed of overseas premium investment advisors representing over $200 million in funds. After the integration investment vehicle was registered and partially financed, the completion of the transaction was delayed due to market dynamics and other factors, followed by the withdrawal of those investors. SQN continued to make efforts to promote and sell these portfolios to insurance companies; this was the exit strategy adopted by the first two funds of SQN, which brought an internal rate of return of over 10% for the investors ( IRR ).
Regarding the concerns raised by SEC, if investors are adversely affected during the period when valuations are not adjusted due to fund redemptions, it should be noted that the cash used to pay for these redemptions is mainly provided as a subsidy by SQN. SQN itself has very limited resources. These redemptions primarily go to investors who are facing extreme difficulties, including those who have become unemployed, lost their rights to redeem collateral, are dealing with serious illnesses of their children, cancer treatments, bereavements of spouses, Alzheimer's disease, and other tragic life events such as elderly care.
During the relevant period, investors were unable to enter or exit an active market regarding the SQN fund units. The fund lacked liquidity at all times; there was no secondary market for these fund units, and no investors suffered any substantial adverse effects as a result of relying on the information provided by SQN.
Jeremiah Silkowski indicates that: 'The staff of SEC are very capable individuals who are performing an important public function. The staff of SEC demonstrated diligence and professionalism in handling SQN matters.' He added, 'Unfortunately, SQN did not have sufficient resources to fully respond to all of SEC's inquiries, which led to unfavorable conclusions; if SQN had had adequate resources, these conclusions could have been corrected or proven to be incorrect. We decided to put the funds and investors first, using limited resources to cover the operational costs of the funds and to distribute the K-1 to investors. Like the investors, SQN also hopes that these funds will be liquidated, and this settlement provides a path to achieve that goal.'
SEC refers to the regulatory fines incurred by SQN prior to this as a history of repeated violations, which originated from a dispute with a service provider. This service provider was led by a former partner of SQN and retained the fund's books and records. SQN and Silkowski neither had the resources to continue subsidizing the fund's operations and liquidation nor the means to engage in costly legal disputes to force the service provider to hand over the records. This matter is still ongoing.
After the settlement, the liquidation of the fund will be handed over to the receiver designated by the court. SQN Capital Management will cancel all amounts due to it from the fund and those it has invested into the fund, and will cooperate with the receiver to facilitate the closure of the fund.
Media contact:
Ali V. Mirghahari
Friedman Sklar PLLC
[ email protected ]
