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SEC Charges Investment Adviser and Its CEO with Recidivist Custody Rule and Related Violations

Sept. 1, 2023

FILE NO. 3-21600

September 1, 2023 - The Securities and Exchange Commission today announced settled charges against New York City-based investment advisory firm SQN Capital Management, LLC ("SQN Capital") and Jeremiah Silkowski, its President, Chief Executive Officer and Chief Compliance Officer since 2012, for recidivist violations of Commission rules designed to protect advisory clients from the misuse or misappropriation of their assets.

Registered investment advisers that have custody of client assets are subject to the "custody rule," which requires the advisers to undergo an annual surprise examination to verify the existence of assets or, where permissible, to distribute to investors, within 120 days of each fiscal year's end, annual audited financial statements for the fund prepared in accordance with generally accepted accounting principles. In September 2020, the Commission issued an order finding that SQN Capital had violated the custody rule from 2012 through 2019 with respect to two private funds it managed, and that it also violated the "compliance rule" by failing to adopt and implement written policies and procedures reasonably designed to prevent custody rule violations.

The Commission's order finds that notwithstanding the prior order, SQN Capital and Silkowski failed to take corrective action and the firm continued to violate the custody and compliance rules. While SQN Capital purports to comply with the custody rule by obtaining an annual audit of its funds' financial statements and then delivering those audited financial statements to the funds' investors, SQN Capital failed to even retain an accounting firm to audit the financial statements of the same two private funds that were the subject of the prior action for each fiscal year from 2020 through 2022 and for two public funds that it advised for each fiscal year from 2019 through 2022. SQN Capital also failed to adopt and implement written policies and procedures reasonably designed to prevent custody rule violations. Moreover, the two public funds failed to file with the Commission required annual and quarterly periodic reports during the period from 2019 through the present.

The SEC's order finds that SQN Capital violated Section 206(4) of the Advisers Act and Rules 206(4)-2 and 206(4)-7, and also aided and abetted and caused the public funds' violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13, and that Silkowski aided and abetted and caused SQN Capital's violations of the Advisers Act and the public funds' violations of the Exchange Act. Without admitting or denying the findings, SQN Capital and Silkowski consented to cease-and-desist orders and censures; SQN Capital agreed to pay a $200,000 penalty and Silkowski agreed to pay a $100,000 penalty; and both respondents agreed to comply with undertakings requiring the retention of an independent compliance consultant to conduct a review of SQN Capital's compliance policies and procedures relating to the custody rule.

The SEC's investigation was conducted by Christopher M. Castano and George N. Stepaniuk in the New York Regional Office, and was supervised by Tejal D. Shah. The examination that led to the investigation was conducted by Raymond Slezak, Karen Karakaya, Dave Miller, Mary Beth Lynch, and Merryl Hoffman.

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