On October 8, 2026, a federal judge in the Southern District of New York handed four private funds to a court-appointed receiver and barred their manager’s founder from the industry. The settled action, SEC v. Jeremiah Silkowski and SQN Capital Management LLC, No. 1:26-cv-08162 (S.D.N.Y.) (Litigation Release No. 26671), is the SEC’s third case against the same adviser. The first two were administrative proceedings over late audits. This one took the keys.
The missing audits were never just a custody rule technicality. They were the reason nobody caught NAVs that hadn’t moved in years—and that is what ultimately ended this firm.
Background
According to the complaint, from at least 2019 through 2025, SQN Capital and Silkowski—who was simultaneously the firm’s President, CEO, CCO, and majority owner—breached their fiduciary duties to four funds by ignoring the funds’ governing documents and inflating their net asset values. The SEC alleges:
- No audits, and no GAAP financials either. The firm never engaged an accountant to audit the funds’ annual financial statements, and did not even prepare unaudited GAAP-compliant statements, despite fund documents requiring both.
- “Independent” valuations that weren’t. Investors were told an independent valuation expert valued fund assets. In fact, Silkowski prepared every valuation himself.
- Frozen NAVs. Rather than applying fair value principles as the fund documents required, Silkowski allegedly left NAVs unchanged for years—regardless of cash flow projections, market conditions, asset performance, or whether the fund still held the asset at all.
- A liquidation that never arrived. Silkowski repeatedly told investors the liquidation would wrap up soon, without disclosing that market conditions prevented sales and that the firm lacked the resources to finish the job. The wind-down ran well past the periods set in the governing documents, leaving investors without access to their capital.
The history matters. The SEC settled custody rule (Rule 206(4)-2) and compliance rule (Rule 206(4)-7) charges against SQN Capital in 2020 and again in 2023, both over the failure to deliver audited financials—and named Silkowski personally as an aider and abettor the second time. The violations allegedly continued anyway.
This time, both defendants were charged under Sections 206(1) and 206(2) of the Advisers Act, with SQN Capital also charged under Section 206(4) and the custody and compliance rules. Without admitting or denying the allegations, they consented to permanent injunctions, a receivership to liquidate the funds and distribute proceeds, a $200,000 civil penalty against Silkowski, and a permanent industry bar (with a narrow carve-out to assist the receiver).
Key Takeaways
- The SEC’s patience with repeat custody rule violators has a limit. Two settled administrative proceedings didn’t fix the problem, so the Commission went to federal court, pleaded fraud, and displaced the manager. Expect recidivism to be treated as an aggravating factor that changes the remedy, not just the penalty size.
- An audit failure is a valuation failure waiting to be discovered. The audit is the only routine third-party test of your marks. Remove it, and a stale NAV can sit unchallenged for half a decade.
- The fund documents are the standard. Nearly every allegation here traces back to a gap between what the LPA promised—audits, GAAP financials, fair value, a liquidation timeline—and what the manager actually did.
- A one-person control environment is not a control environment. When the CEO, owner, valuation agent, and CCO are the same person, there is no one positioned to escalate.
Lessons for Private Equity Fund Managers
Most private fund advisers will never come close to SQN’s facts. But several of the pressure points here are ones we see regularly in small and mid-sized PE shops.
Tail-end funds are where this risk lives. Late-life funds with a few hard-to-exit assets, a thinning deal team, and fees that no longer cover the audit bill are exactly where audits slip, marks go stale, and investor updates get optimistic. If a fund is past its term, document the extension authority you’re relying on, and make sure investor communications about exit timing have a reasonable basis and disclose what’s actually standing in the way. “We expect to complete the liquidation shortly,” repeated for years, is how a disclosure problem becomes a fraud case.
“Unchanged” is a valuation decision. Holding a mark flat quarter after quarter is not a neutral act; it requires the same support as a write-down. Your valuation file should show why the value held—not just that nobody revisited it.
Say “independent” only if you mean it. If your PPM, DDQ responses, or quarterly letters describe third-party valuation involvement, confirm that it actually happens, on the stated scope and cadence. Investors and examiners both read those descriptions as representations of fact.
Don’t misread the regulatory backdrop. The Fifth Circuit’s 2024 vacatur of the Private Fund Adviser Rules eliminated the standalone private fund audit rule, but it did not touch the custody rule. If you rely on the audit approach under Rule 206(4)-2, the 120-day delivery deadline (180 days for funds of funds) still applies—and so does whatever your LPA independently requires.
Give the CCO real separation. Rule 206(4)-7 doesn’t prohibit a dual-hatted CCO, and many smaller managers have one. But if your CCO also runs the business or sets the marks, you need a structural check—outside compliance support, a valuation committee with an independent voice, or both. Otherwise, the annual review is the person who made the decision grading their own work.
How Trillium Can Help
Trillium’s annual compliance reviews for PE advisers specifically test what SQN skipped: we reconcile audit delivery dates against the custody rule and each fund’s LPA, and we trace investor-facing valuation and liquidation statements back to the underlying file. For managers with dual-hatted CCOs or late-life funds, our outsourced compliance support provides the independent check that a lean team can’t provide for itself—including review of valuation policies, extension documentation, and wind-down communications before they go to LPs.
Contact Trillium Today
If you have a fund approaching—or past—the end of its term, or haven’t stress-tested your valuation and audit processes recently, contact Trillium today to schedule a conversation.