The Securities and Exchange Commission is suing two Colorado Springs investment firms and three partners of those firms, charging them with fraud and complicity in fraud in a series of related transactions.
The lawsuit alleges that SkiHawk Capital Partners, The Convergence Group, Clement Borkowski, Sean Hawkins and Joseph Schiff failed to tell investors of the funds they managed that those funds invested much of their money in companies owned by the three men. The federal agency filed the lawsuit last month in Denver federal district court and seeks reimbursement of all profits, as well as fines and interest.
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The agency also alleges that the companies and partners lied to investors by telling them the bonds they were selling were backed by collateral. The lawsuit says the companies and partners overstated the assets of the funds they were selling through a related entity they also controlled, ASI Capital. ASI and its investment funds sought protection from creditors under Chapter 11 of the federal bankruptcy laws last year, but the case was dismissed in April.
Paul Vorndran, a Denver attorney representing the companies and partners, said in an email statement Thursday that they “intend to vigorously defend themselves against all charges contained in the SEC complaint. After years of collecting of documents and testimony, the SEC filed its lawsuit without seeking any preliminary relief that might prevent my clients from continuing to manage the funds as they have for years.
“Notably, the disclosure documents provided to investors revealed the various common ownership issues contrary to the allegations. Claims of overvaluation are also misleading as these same valuations had already been reviewed and approved by a leading accounting firm. Also, the allegation that these values were exaggerated to allow my clients to charge higher fees is patently false because at the time of the allegations, the fees were fixed and did not depend on the value of the funds,” says this communicated.
The agency alleges in the lawsuit that the firms and partners repeatedly “defrauded three private funds they advise and the investors in those funds.” The transactions between the funds and the companies owned by the three men represented a conflict of interest and “resulted in millions of dollars in additional compensation for Borkowski and Hawkins,” the lawsuit says.
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The lawsuit further alleges that the companies and partners overstated two major investments in funds they managed “by millions of dollars, making the funds appear to be performing better than they were and allowing them to to charge higher fees. Borkowski and Hawkins own SkiHawk and the three men own The Converge Group, a Puerto Rican company with administrative offices in Colorado Springs that manages ASI Capital and its three investment funds.
ASI Healthcare Capital Partners has raised $30 million from 80 investors, while ASI Capital has raised at least $13 million from at least 80 investors and ASI Capital Income Fund has raised at least $32 million from at least 100 investors, according to the lawsuit. The funds have reportedly promised annual returns of 6% to 10%, with two of the funds saying investors could make additional equity gains depending on the fund’s performance.
The lawsuit alleges the three men had the healthcare fund invested in companies they owned that operated a hospital in El Paso, Texas, and planned to develop hospitals and related medical facilities in Las Cruces, NM. , and Derby, Kan. The fund told investors that a health care fund advisory board would review investments for conflicts of interest, but the advisory board never reviewed the transaction and stopped meeting in 2019, the lawsuit alleges. .
Colorado Springs company agrees to stop selling promissory notes and will pay a fine
The companies and three partners also overvalued ASI Capital’s ratings to a Colorado Springs appliance store and a loan to a Colorado mining company, but never wrote down those assets in their financial statements after that the appliance store and the mining company defaulted, according to the lawsuit.
SiHawk, Borkowski and Hawkins agreed to a 2017 settlement with the Colorado Division of Securities to stop selling unregistered promissory notes and pay the agency $50,000 for allegedly selling more than $12.5 million. of securities to 130 investors. The settlement also required ASI, Borkowski and Hawkins to offer to repurchase the securities from investors.