A former Colorado-based investment adviser and his real estate firms have agreed to a $9.7 million settlement with the U.S. Securities and Exchange Commission (SEC). The agreement resolves allegations that the adviser, Tom Vukota, misled investors in multiple real estate funds.
Vukota and his companies, Vukota Capital Management and VCM Global Asset Management, did not admit to or deny the SEC's findings as part of the settlement. The case centered on accusations of concealing crucial financial information from investors during a buyout offer for several high-performing properties.
Key Takeaways
- Tom Vukota and his firms will pay $9.7 million to settle SEC charges.
- The SEC alleged investors were misled during a 2021 buyout of shares in apartment building funds.
- Allegations include hiding the buyer's identity, concealing upcoming profits, and misrepresenting property performance.
- Vukota allegedly gained $5.6 million personally from purchasing shares at undervalued prices.
- The settlement was reached without an admission of wrongdoing by Vukota or his companies.
SEC Outlines Allegations Against Adviser
The U.S. Securities and Exchange Commission detailed its case against Tom Vukota, 52, and his Greenwood Village-based firms. The federal agency filed a lawsuit alleging violations of investment adviser and securities laws. The lawsuit and the settlement were announced concurrently.
According to the SEC, the core of the case involves a scheme to buy out investors' interests in four profitable apartment funds at unfairly low prices. Vukota, who founded his companies in 2010, specialized in acquiring apartment buildings and hotels, placing each property into a separate fund, and selling shares to investors.
By 2021, Vukota Capital Management (VCM) managed 14 such funds. The SEC's investigation focused on four funds that owned properties in Colorado Springs, which were identified as being among the best-performing assets in the company's portfolio.
Background on the Companies
Founded in 2010 by Tom Vukota, Vukota Capital Management and VCM Global Asset Management built a portfolio of dozens of apartment buildings and hotels. Notable properties included the Miramar Apartments and Stratford at Lowry buildings in Denver. The business model involved creating individual investment funds for each property.
The Colorado Springs Buyout Scheme
In early 2021, the SEC claims Vukota initiated a plan to purchase investors' shares in four successful funds. These funds controlled apartment complexes in Colorado Springs: the Villages at Woodmen, the Chestnut Springs Apartments, Wind River Place, and the Residence at Austin Bluffs.
Misleading Buyout Letters
The SEC stated that buyout letters sent to investors in February and March 2021 were misleading because they omitted critical information. These omissions prevented investors from making fully informed decisions about selling their shares.
Specifically, the agency alleged that Vukota failed to disclose that he was the person purchasing their interests. The letters also allegedly concealed that the funds were on the verge of realizing millions of dollars in profits and did not provide investors with recent, positive property appraisals.
“The buyout letters were misleading because they negligently omitted material facts, failing to provide a complete picture of the Colorado Springs funds,” the SEC stated in its filing.
Furthermore, the SEC accused Vukota of falsely claiming that the apartment buildings were losing money, directly contradicting their strong performance and favorable appraisals.
Financial Impact of the Alleged Scheme
The SEC calculated that by purchasing investors' interests at artificially low prices based on this incomplete information, Vukota personally obtained approximately $5.6 million in ill-gotten proceeds.
Additional Allegations and Settlement Details
The SEC's complaint extended beyond the buyout scheme. It also alleged that Vukota engaged in other improper financial activities that were not disclosed to investors.
These additional accusations include:
- Causing the investment funds to lend money to his management company, VCM, at interest rates below market value.
- Falsely claiming to investors that the funds had undergone a formal audit.
Terms of the $9.7 Million Agreement
Under the terms of the settlement, Vukota and his firms have agreed to pay a total of $9.7 million. This amount is intended to cover the disgorgement of the alleged ill-gotten gains plus interest and civil penalties.
The settlement resolves the SEC's lawsuit. As is common in such agreements, Vukota and his companies neither admitted nor denied the allegations. Vukota, who previously resided in Centennial, Colorado, now lives in the Bahamas.
A lawyer representing Vukota, Sam Lieberman of the New York-based firm Sadis & Goldberg, declined to provide a comment on the matter. The settlement brings an end to the federal investigation into the firms' practices concerning their real estate investment funds.
