The SEC charged Tomislav Vukota and two investment advisers he controls, Vukota Capital Management, LLC (VCM) and VCM Global Asset Management Ltd. (VGAM), for breaching their fiduciary duties and making material misrepresentations to private funds that they managed and fund investors. According to the SEC’s complaint, over a 6-year period, the defendants engaged in three distinct types of what the SEC characterized in its litigation release as “negligent” misconduct involving material conflicts of interest that resulted in more than $6.9 million in ill-gotten proceeds. First, the SEC's complaint alleged that Vukota and VCM caused various real estate private funds they advised to make short-term loans to VCM at below-market rates to, among other things, cover cash shortfalls at other private funds, creating undisclosed conflicts of interest. Second, Vukota and VCM sent misleading letters to the investors in four private funds holding some of the best-performing properties in connection with Vukota’s attempt to buy the investors’ interests. The letters omitted material information or made material misstatements related to the following: (1) Vukota was the buyer, noting instead that the general partner was selling LP interests to a new investor group; (2) pending refinancing transactions; (3) certain financial metrics; and (4) third-party value indicators. Finally, Vukota and VGAM made material misstatements in marketing and offering materials for one fund concerning fund investments, the existence of an auditor, the amount of assets under management, and the adviser's filing status as an exempt reporting adviser. The SEC complaint specifically noted that the private funds did not have Boards of Directors or Trustees to evaluate potential conflicts related to such activities, and because Vukota and VCM were conflicted, they could not give consent on behalf of the private funds. Rather, they were required, but failed, to disclose and obtain consent from the limited partners in the funds. The case is noteworthy because it represents the SEC’s first enforcement action charging a negligence-based Rule 206(4)-8 violation, which prohibits false or misleading statements to investors in a fund. Moreover, it reiterates an important point for private fund managers: when transactions or activities involve a conflict of interest between the adviser or its related persons and the funds or their investors, it is not sufficient for the general partner to simply exercise its discretion or authority. Rather, the adviser must disclose all material facts and seek consent from limited partners or from a limited partner advisory board or other independent board or committee acting on their behalf.