Jeremiah Silkowski's SQN Capital Management Settles SEC Complaint and Exits Advisory Business

SQN Capital Management's Exit From the Advisory Business

Recently, SQN Capital Management, LLC, and its primary partner, Jeremiah Silkowski, have reached a resolution with the U.S. Securities and Exchange Commission (SEC) regarding a complaint against their advisory practices. This development marks a significant transition for the firm, which has faced operational challenges exacerbated by the economic fallout from the COVID-19 pandemic.

The settlement allows SQN to exit the investment advisory industry as they agree to wind down their remaining equipment leasing funds. Notably, the agreement came without any acknowledgment of misconduct, which is a crucial point for Silkowski and the firm.

For years, SQN had been managing funds that invested in portfolios dedicated to equipment leases, loans backed by equipment, and various asset financing strategies. Throughout their operation, investors received regular cash payouts, with returns on investments in their largest funds reaching between 51% and 65% of the original capital. However, most remaining assets have been illiquid, particularly focusing on marine vessels that offer minimal cash flow until either sold or refinanced.

The timeline leading to this settlement is crucial. Delays in liquidations were notably influenced by the COVID-19 crisis, which severely impacted cash flows from core investments. SQN had to subsidize fund operations throughout this period as cash shortages became a frequent issue. Following prolonged discussions with the SEC, it became apparent that maintaining both compliance with regulation and operational efforts was untenable under the circumstances, leading to the decision for SQN to prioritize the fund's interests.

The SEC's allegations focused on SQN's potential overstatement of the funds' investment values during the pandemic. The firm continued to maintain these values, believing in the promise of numerous exit strategies, none of which materialized as anticipated. They did, however, manage to complete a distribution in 2020 totaling nearly $20 million to investors. This first phase of liquidation showed initial efforts to comply and return some funds to their backers.

Further attempts to facilitate the liquidation of assets included a roll-up transaction aimed at sourcing a group of investors for over $200 million, although this plan fell through due to several market dynamics. Trade negotiations were hindered, and investors withdrew as circumstances shifted.

SQN continued to market its portfolios actively, attempting exits similar to successful transactions achieved in previous funds. Despite these efforts, cash for redemptions during this period was primarily provided by SQN itself as a subsidization measure. Noteworthy challenges emerged, with some investors facing significant hardships that intensified during this time, including loss of employment, illness in families, and related emergencies, leading to redemptions being paid out to help those in need.

Jeremiah Silkowski has publicly acknowledged the significant responsibilities the SEC carries out and expressed regret that the firm lacked the resources necessary to fully address all of the SEC's concerns during inquiries. He argues that many conclusions drawn could have been clarified if circumstances permitted a more thorough examination. Silkowski emphasized that like their investors, they want the funds liquidated efficiently, and this settlement represents a path towards achieving that goal.

As a next step post-settlement, liquidations of the funds will be transferred to a court-appointed receiver. SQN intends to write off any outstanding amounts owed to and from the funds and will cooperate fully with the receiver to ensure a smooth closure process. This transition symbolizes a new chapter for both SQN Capital Management and its partner Jeremiah Silkowski, marking the end of an era characterized by both operational challenges and regulatory scrutiny.