SEC Charges Investment Advisory Firm and Its Representatives for Failing to Disclose Conflicts and Fees
May 23, 2022
File No. 3-20869
May 23, 2022 -The Securities and Exchange Commission today charged Arizona-registered investment adviser, Virtua Capital Management, LLC ("VCM") and its founder and principal, Quynh Palomino, Chief Strategy Officer, Jack D. Rose, and former president, Derek Uldricks, (collectively, "Respondents"), with failing to disclose conflicts of interest and associated fees, and breaching their fiduciary duty to multiple private investment funds.
From at least early 2017 through November 2019, Respondents directed investments for certain funds they managed primarily to affiliated-real estate investments that they also managed, without adequately disclosing the conflicts of interest arising from such investments. Even though the investments were generally the type of investments that were consistent with the Funds' investment objectives, the practice of investing nearly exclusively in affiliate projects presented conflicts of interest and should have been adequately disclosed but were not. In addition, Respondents disclosed some, but not all, of the fees that Virtua affiliates would charge to the projects in which the funds invested. As a result, Respondents' disclosures were misleading and Respondents breached their fiduciary duty to the Funds.
The SEC's order finds that Respondents violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Without admitting or denying the findings in the SEC's order, Respondents agreed to a cease-and-desist order, and censures. In addition, VCM agreed to pay disgorgement and prejudgment interest of $1,543,735 and $170,354, respectively, and a penalty of $150,000, Palomino agreed to pay a penalty of $100,000, Rose agreed to pay a penalty of $75,000, and Uldricks agreed to pay a penalty of $60,000, all of which will go into a Fair Fund for distribution to investors.
The SEC's investigation was conducted by Kelly Rock and Sarra Cho of the Complex Financial Instruments Unit with assistance from Kam Lee and David Mendel and supervised by Armita Cohen of the Complex Financial Instruments Unit. The investigative team appreciates the assistance of Louis Boyarsky, Mshyka Davis-Smith, and Lesley Ward of the Division of Examinations and Adrienne Hyat of the Office of Market Intelligence.