A former Colorado-based real estate investment adviser and his firms will pay $9.7 million to resolve allegations from the U.S. Securities and Exchange Commission (SEC) that they misled investors. The settlement addresses claims that the adviser purchased shares from investors at low prices while concealing positive financial information about the properties.
Tom Vukota, founder of Vukota Capital Management and VCM Global Asset Management, and his companies reached the agreement without admitting or denying the SEC's findings. The federal agency accused them of violating investment adviser and securities laws through a series of actions, including a buyout offer that allegedly omitted crucial details.
Key Takeaways
- Tom Vukota and his real estate firms agreed to a $9.7 million settlement with the SEC.
- The SEC alleged Vukota misled investors by concealing his identity as the buyer of their shares and hiding upcoming profits.
- The settlement resolves accusations that Vukota gained $5.6 million from purchasing investor interests at undervalued prices.
- Vukota and his firms did not admit to any wrongdoing as part of the settlement agreement.
Details of the SEC Settlement
The U.S. Securities and Exchange Commission announced the settlement after filing a lawsuit against Tom Vukota and his Greenwood Village-based firms. The agreement requires a payment of $9.7 million to the government to resolve the allegations leveled against them.
According to the SEC, the case centers on actions taken in 2021 related to funds managing several apartment complexes. While the lawsuit was filed, it was done concurrently with the settlement agreement, indicating a resolution had been reached between both parties prior to the public filing. A crucial component of this type of civil settlement is that the defendants, Vukota and his companies, do not formally admit to the SEC's allegations.
Who Are the Parties Involved?
Tom Vukota, age 52, is the founder of Vukota Capital Management (VCM), which he established in 2010. Formerly a resident of Centennial, Colorado, he now resides in the Bahamas. His firms specialized in acquiring and managing apartment buildings and hotels, structuring each property as a separate investment fund for investors.
The Colorado Springs Buyout Scheme
The SEC's primary allegations focus on a buyout offer made to investors in early 2021. The offer targeted four specific funds that owned apartment buildings in Colorado Springs. These properties were reportedly among the best-performing assets in the company's portfolio.
Allegations of Omitted Information
In February and March 2021, letters were sent to investors in these funds with an offer to purchase their shares. The SEC claimed these letters were misleading because they allegedly failed to disclose critical information that would have allowed investors to make an informed decision.
The commission stated that Vukota did not reveal several material facts, including:
- The Buyer's Identity: The letters allegedly did not disclose that Tom Vukota himself was the individual purchasing the investor interests.
- Impending Profits: Investors were not informed that each of the four funds was on the verge of receiving millions of dollars in profits.
- Property Performance: The SEC claims the communications falsely suggested the apartment buildings were losing money.
- Withheld Appraisals: Positive appraisals that highlighted the strong value of the properties were not shared with the investors receiving the buyout offers.
Financial Impact of the Alleged Scheme
According to the SEC's findings, by purchasing investors' interests at artificially low prices based on incomplete information, Vukota obtained approximately $5.6 million in ill-gotten proceeds.
Broader Allegations and Company Operations
Beyond the buyout scheme, the SEC's investigation uncovered other alleged issues with the firm's management practices. The commission claimed that Vukota directed the investment funds to lend money to his management company, VCM, at interest rates that were below market value. This practice was allegedly not disclosed to the investors whose capital was being used.
Furthermore, the SEC accused Vukota of falsely claiming that his funds had undergone financial audits, a standard practice for ensuring transparency and accuracy in financial reporting. These additional claims contributed to the SEC's assertion that the firms violated federal securities laws designed to protect investors.
Vukota's Real Estate Portfolio
Since its founding in 2010, Vukota Capital Management built a substantial real estate portfolio consisting of dozens of apartment buildings and hotels. The company's model involved creating a separate investment fund for each property. By 2021, VCM managed 14 such funds, each tied to a single apartment building.
Among its holdings were notable Denver properties like the Miramar Apartments and the Stratford at Lowry buildings. However, the properties central to the SEC's case were located in Colorado Springs:
- The Villages at Woodmen
- The Chestnut Springs Apartments
- Wind River Place
- Residence at Austin Bluffs
The strong performance of these four properties allegedly motivated the decision to buy out external investors. The SEC's action underscores the regulatory scrutiny placed on investment advisers to ensure they provide complete and accurate information to their clients. Sam Lieberman, an attorney representing Vukota, declined to provide a comment on the settlement.
