# UNITED STATES OF AMERICA

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URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A3f37f6a394a519ca

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 9326 / May 29, 2012

INVESTMENT ADVISERS ACT OF 1940
Release No. 3408 / May 29, 2012
INVESTMENT COMPANY ACT OF 1940
Release No. 30085 / May 29, 2012

ADMINISTRATIVE PROCEEDING
File No. 3-14893
ORDER INSTITUTING
ADMINISTRATIVE AND CEASE-ANDDESIST PROCEEDINGS PURSUANT
TO SECTION 8A OF THE
SECURITIES ACT OF 1933, SECTIONS
203(e), 203(f), AND 203(k) OF THE
INVESTMENT ADVISERS ACT OF
1940, AND SECTION 9(b) OF THE
INVESTMENT COMPANY ACT OF
1940, MAKING FINDINGS, AND
IMPOSING REMEDIAL SANCTIONS
AND CEASE-AND-DESIST ORDERS

In the Matter of

QUANTEK ASSET MANAGEMENT, LLC,
BULLTICK CAPITAL MARKETS
HOLDINGS, LP, JAVIER GUERRA, and
RALPH PATINO,

Respondents.

I.
The Securities and Exchange Commission (“Commission”) deems it appropriate and in
the public interest that public administrative and cease-and-desist proceedings be, and hereby
are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Sections
203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 (“Advisers Act”), and
Section 9(b) of the Investment Company Act of 1940 (“Investment Company Act”) against
Quantek Asset Management, LLC (“Quantek”), Bulltick Capital Markets Holdings, LP
(“Bulltick”), Javier Guerra (“Guerra”), and Ralph Patino (“Patino”) (collectively
“Respondents”).

II.
In anticipation of the institution of these proceedings, Respondents have submitted
Offers of Settlement (the “Offers”) which the Commission has determined to accept. Solely for
the purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the
findings herein, except as to the Commission’s jurisdiction over them and the subject matter of
these proceedings, which are admitted, Respondents consent to the entry of this Order
Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the
Securities Act of 1933, Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of
1940, and Section 9(b) of the Investment Company Act of 1940, Making Findings, and
Imposing Remedial Sanctions and Cease-and-Desist Orders (“Order”), as set forth below.
III.
On the basis of this Order and Respondents’ Offers, the Commission finds 1 that:
Summary
This case involves a prominent Latin American-focused hedge fund adviser named
Quantek that misled investors about three important attributes of funds that it managed:
management “skin in the game,” the funds’ investment process, and certain related-party
transactions. At its peak, Quantek managed over $1 billion in assets, primarily through the
Quantek Master Fund, SPC Ltd. and its two feeder funds, Quantek Opportunity Fund, L.P. and
Quantek Opportunity Fund, Ltd. (collectively the “Opportunity Funds”).
First, from 2006 through 2008, Quantek made various representations to the effect that
its principals had “skin in the game” along with investors in the Opportunity Funds. “Skin in
the game,” in the managed fund context, means that the adviser or its principals invest their own
money in the fund. Many fund investors consider this an important way to align the adviser’s
interests with their own, resulting in stronger discipline and risk management. In fact,
Quantek’s principals never invested their own capital in the Opportunity Funds. Quantek made
these misstatements in due diligence questionnaires and in side letter agreements executed with
certain institutional investors.
Second, from 2007 through 2008, Quantek misled investors about the rigor of the
Opportunity Funds’ investment process. The funds used an asset-based lending strategy, with a
focus on industrial and real estate ventures in Latin America. Because the funds’ loans were
complex and illiquid, investors carefully evaluated Quantek’s process for making investments.
Quantek told investors that all of the funds’ investments required approval by a committee of
Quantek principals, and that the committee reviewed formal memoranda explaining each
proposed investment before it was made. Quantek also told its largest investor that committee
1

The findings herein are made pursuant to Respondents’ Offers of Settlement and are not
binding on any other person or entity in this or any other proceeding.

2

members documented their approval by signing the memoranda. In reality, Quantek failed to
prepare investment committee memos for numerous transactions. In 2007, the funds’ largest
investor requested copies of the investment committee memos. Quantek responded by creating,
backdating, and signing the missing memos, giving this investor – and others later – the
misimpression that Quantek had been following its purportedly robust process all along.
Third, from 2007 through 2010, Quantek provided investors with inaccurate information
about certain related-party transactions by the funds. Because the Opportunity Funds permitted
related-party transactions with Quantek’s parent company, Bulltick, and other affiliates,
investors were wary of transactions that were not properly disclosed. In 2006 and 2007, the
funds made related-party loans to an affiliate of their portfolio manager, Javier Guerra, and to
Bulltick entities that were not properly documented or secured. Subsequently, Quantek and
Bulltick employees prepared and backdated the missing loan documents. Quantek employees
also created investment memos designed to appear as if they were drafted before the funds
made the loans. These materials inaccurately described key terms of the related-party loans and
gave the impression that the loans had been sufficiently documented and secured at all times.
Quantek provided these misleading documents, or their substance, to the funds’ investors in
various ways.
By its actions, Quantek violated certain antifraud, compliance, and recordkeeping
provisions of the Advisers Act and Securities Act. Quantek’s managing principal, Guerra, and
its former operations director, Ralph Patino, were responsible for making various
misrepresentations on Quantek’s behalf. Bulltick was responsible for aiding and abetting and
causing some of Quantek’s violations.
Respondents
Quantek Asset Management, LLC is a Delaware limited liability company with its
principal place of business in Miami, Florida. At all relevant times it was the investment
adviser for the Opportunity Funds. Quantek was a wholly owned subsidiary of Bulltick from
November 2006 until January 2009, and is now owned primarily by Javier Guerra. Quantek has
been registered as an investment adviser since June 2007.
Bulltick Capital Markets Holdings, LP is a Delaware limited partnership and the
successor to Bulltick Capital Markets, LP, a Scottish limited partnership founded by Javier
Guerra and his associates. Bulltick Capital Markets, LP was the Bulltick entity in existence at
the time of the events described herein. It was the parent company of Quantek and two
Commission registered broker-dealers.
Javier Guerra, age 41, resides in Miami, Florida. At all relevant times, Guerra was the
lead principal of Quantek and the portfolio manager for the Opportunity Funds. Guerra was a
partner and managing director of Bulltick from 2000 until January 2009, when Bulltick and
Quantek separated. From at least 2006 through January 2009, an entity controlled by Guerra
owned approximately 30% of Bulltick.

3

Ralph Patino, age 46, resides in Miramar, Florida. At all relevant times, Patino was
Quantek’s director of operations. Patino was also Quantek’s head of compliance from
December 2006 through approximately spring 2007, when the firm began preparations to
register.
Other Relevant Entity
The Opportunity Funds are hedge funds created in July 2005. The funds have a
master-feeder structure comprised of Quantek Master Fund, SPC Ltd. (offshore) and two feeder
funds, Quantek Opportunity Fund, L.P. (onshore) and Quantek Opportunity Fund, Ltd.,
(offshore). Quantek served as investment adviser to the funds from December 2006 until
September 2011. Prior to December 2006, the funds’ adviser was Quantek Financial (Cayman),
Ltd. At its peak in July 2008, the Opportunity Funds had over $1 billion in assets.
Facts
A.

Background

Bulltick and Guerra formed Quantek in 2006 to serve as investment adviser to the
Opportunity Funds. The Opportunity Funds’ main investment strategy was asset-based
lending to finance various Latin American industrial and real estate ventures. The
Opportunity Funds grew quickly and, by mid-2008, had over $1 billion in assets and about
seventy investors, many of which were institutional.
Quantek and Bulltick failed to implement strong compliance practices at Quantek to
keep pace with the funds’ rapid growth. Quantek lacked a dedicated adviser compliance
function until spring 2008, almost a year after registering as an investment adviser. Between
June 2007, when Quantek registered, and spring 2008, Bulltick’s chief compliance officer and
Bulltick’s broker-dealer subsidiary compliance personnel were given responsibility for
Quantek’s compliance, even though they had virtually no experience or training concerning
registered investment advisers. They also lacked adequate time to perform all of their
additional compliance responsibilities including a review of Quantek’s due diligence
questionnaires and other correspondence with investors.
B.

Misstatements Concerning “Skin in the Game”

From December 2006 through at least June 2008, Quantek made representations to
prospective investors that its principals had invested their own money in the Opportunity
Funds. Quantek made these representations in due diligence questionnaire responses and side
letter agreements with sought-after institutional investors. 2 In fact, none of Quantek’s
principals or affiliates had ever invested their own wealth in the Opportunity Funds.
These misrepresentations provided Quantek with a significant marketing benefit.
“Skin in the game,” also known as principal co-investment, refers to an adviser’s investment
2

Quantek did make accurate disclosures to other investors on the subject of principal co-investment.

4

in the fund or otherwise alongside fund investors and is widely viewed as an important way to
align a manager’s interests with its investors. Many fund investors consider principal coinvestment to be an important check on the manager, resulting in stronger investment
discipline and risk management practices. Prospective investors frequently inquire about
principal co-investment during their due diligence process, and many require it in their fund
selection.
Due Diligence Questionnaires
Quantek made misstatements concerning its principals’ investment in the Opportunity
Funds on due diligence questionnaires published by the Alternative Investment Management
Association (“AIMA”).
AIMA is an international non-profit trade association for the hedge fund industry.
Among the many publications it provides to members is a form due diligence questionnaire
titled, “Illustrative Questionnaire for Due Diligence Review of Hedge Fund Managers”
(“AIMA DDQ”). This questionnaire is commonly used throughout the industry. It is
designed to be completed by hedge fund managers and distributed to prospective investors.
The first page of the AIMA DDQ states that the form’s purpose is to “serve as a guide to
investors in their relations with hedge fund managers.”
From December 2006 through June 2009, Quantek completed several AIMA DDQs
and provided them to prospective investors in the Opportunity Funds.
The AIMA DDQs used by Quantek included a section titled “Management Team’s
Co-Investment” that contained the following questions:
What is the total amount invested by the principals/management in the
fund and other investment vehicles managed pari passu with the fund?
Has the management reduced its personal investment?
•
•
•

Date:
Amount:
Reasons:

Quantek’s operations director and then head of compliance, Patino, was responsible for
preparing Quantek’s AIMA DDQ to be issued in December 2006. Patino answered the first
question for Quantek by writing “$13 million.” He wrote “no” in response to the second
question concerning management reduction of personal investment. In fact, Quantek principals
and management had never invested in the Opportunity Funds or in any vehicle managed pari
passu with the Opportunity Funds. 3 Accordingly, Patino and Quantek’s “$13 million” answer
was incorrect. The correct response was “zero.”
3

The term pari passu is commonly used in the hedge fund industry. Its literal meaning is “of equal
step.” Quantek investors generally understood pari passu, in this context, to capture other investment vehicles

5

At the time he answered the AIMA DDQ Management Team Co-Investment questions,
Patino did not know the meaning of the term pari passu and spent very little time researching its
definition. Under an erroneous belief, Patino improperly counted certain unrelated investments
as if they were investments made pari passu with the Opportunity Funds. Patino sent the
completed draft AIMA DDQ answers to others at Quantek, including Guerra, for review and
comment. Later, Guerra sent Quantek’s AIMA DDQ responses to a prospective investor. That
prospective investor subsequently invested approximately $2 million in the Opportunity Funds.
Following the template set by Patino, Quantek and its third-party marketers provided
prospective investors with the incorrect AIMA DDQ responses from December 2006 through
June 2008. During that time, Patino and others at Quantek reduced the amount of Quantek’s
purported principal/management investment that was reported on AIMA DDQs from $13
million to $10 million in June 2007, and then to $7 million in December 2007. The correct
answer, however, was always “zero.” Furthermore, even though Quantek reduced the amount
of its purported principal co-investment, it consistently answered “No” to the question asking if
Quantek management had reduced their personal investment.
The Opportunity Funds’ investors who received AIMA DDQs continued to believe that
Quantek’s principals had a co-investment in the funds.
After Quantek registered as an investment adviser in June 2007, nearly a year passed
before anyone reviewed the firm’s AIMA DDQ responses for accuracy. During that period,
Quantek did not have its own compliance staff. Bulltick and Guerra undertook to provide
compliance resources to Quantek so it could meet its regulatory compliance obligations.
Therefore, from June 2007 through spring 2008, Quantek and Bulltick shared compliance
department employees, including a chief compliance officer. However, these shared employees
had virtually no registered investment adviser compliance experience and were not properly
trained in investment adviser regulatory issues. The employees also lacked sufficient time to
review the AIMA DDQs because they were responsible for all compliance work at two Bulltick
owned broker-dealers and Quantek, which by December 2007 was managing two separate
hedge funds and almost $1 billion in assets.
Eventually, in May 2008, Quantek hired a senior compliance manager with investment
adviser compliance experience. He reviewed its AIMA DDQ responses and concluded that
they should be changed. Accordingly, in an updated AIMA DDQ response dated June 2008,
Quantek changed its principal/management investment answer to “N/A.” In June 2009,
Quantek changed this response again to “Zero.” Quantek similarly changed its answer to the
second part, concerning management reduction of personal investment, from “No” to “N/A.”
Quantek also provided a prospective investor with misleading information about
principal co-investment in the Opportunity Funds on another type of due diligence
utilizing the same strategy and style as the Opportunity Funds so that their value rose or fell in unison with the
Opportunity Funds.

6

questionnaire. In December 2006, a prospective Opportunity Funds investor asked Quantek
to complete a separate due diligence questionnaire titled, “Operational Due Diligence
Questionnaire for Prospective Managers” (“Operational DDQ”). The Operational DDQ stated
in capital letters on its first page:
THIS QUESTIONNAIRE IS AN INTEGRAL PART OF OUR DUE
DILIGENCE PROCESS, NO INVESTMENT DECISIONS CAN OR
WILL BE TAKEN, WITHOUT THE SUPPORT OF THIS
COMPLETED DOCUMENT.

It contained the question: “Do the partners and employees have investments in the fund?
Please provide as much information as possible.” In response, Quantek stated that “[t]he
Directors of the Manager have position of (sic) the fund, which represents a significant
portion of their wealth.” Quantek answered another query, which sought a description of the
Opportunity Funds’ investor base, by indicating that investments from Quantek principals
accounted for 17% of the funds’ assets. Quantek personnel prepared these inaccurate
responses based on the firm’s incorrect AIMA DDQ answers. In fact, none of Quantek’s
principals had invested in the Opportunity Funds. Less than two months after it received
Quantek’s misleading AIMA DDQ and Operational DDQ answers in December 2006, the
prospective investor made a $2.5 million investment in the Opportunity Funds.
Side Letter Agreements with Institutional Investors
In early 2007, two large institutional investors were considering investments in the
Opportunity Funds. During the course of due diligence, one investor received Quantek’s
inaccurate AIMA DDQs concerning principal/management co-investment. The other investor
received the same inaccurate information during a site visit to Quantek’s offices. As a result,
both investors operated with the understanding that Quantek’s principals maintained a coinvestment in the Opportunity Funds. Before investing, both investors separately sought
assurances that they would be notified promptly if Quantek’s principals significantly reduced
their investments in the Opportunity Funds.
To memorialize their requirements, both investors sought and obtained side letter
agreements from Quantek. The side letter with the first investor stated:
[Quantek] . . . agrees to (i) provide 2 business days written notice . . .
and (ii) waive the standard notice period and accelerate the redemption
date . . . if . . . Javier Guerra withdraws 20% or more of his investment in
the Fund . . . .

The side letter with the second investor contained similar provisions in the event that
“Quantek principals” redeemed 25% percent or more of their investment in the Opportunity
Funds. Guerra executed both side letter agreements on behalf of Quantek and the Opportunity
Funds.

7

These side letter agreements implied that Quantek’s principals, including Guerra, had
investments in the Opportunity Funds when in fact they did not. After receiving these side
letters, the two investors allocated nearly $100 million in combined capital to the Opportunity
Funds.
C.

Misrepresentations Concerning Investment Process

Quantek’s investment process for the Opportunity Funds was particularly important to
investors. Unlike funds that traded liquid securities on a public exchange, the Opportunity
Funds made unique private investments that were illiquid. The funds’ loans typically were
secured by tangible assets or cash flows, and were subject to foreign law. In addition, Quantek
was a relatively new adviser without an established performance record. For these reasons,
many investors carefully evaluated Quantek’s process for making investments on behalf of the
Opportunity Funds.
Quantek’s Stated Investment Process
Quantek’s primary seed investor in the fall of 2006 was a large institutional hedge fund
(“Seed Investor”). The Seed Investor made a number of requests that it wanted Quantek to
satisfy before it would invest in the Opportunity Funds. One such request was that Quantek
adopt a robust investment approval process. At the Seed Investor’s request, Quantek formalized
its investment process so that a committee would make investment decisions for the funds. This
investment committee was comprised of five members: Guerra (chairman), two other Bulltick
partners, Patino, and another senior Quantek employee.
According to the funds’ offering documents, Quantek was to rely on the investment
committee when making investment decisions for the funds, and all investments required
approval from at least four committee members. Guerra assured the Seed Investor that all
Opportunity Funds investments would be approved in advance by the investment committee,
and that the committee would memorialize its decisions. Once Quantek committed to
implementing this process, the Seed Investor allocated tens of millions of dollars to the
Opportunity Funds.
Quantek made additional representations to prospective investors about its investment
approval process. Beginning in December 2006, Quantek stated in AIMA DDQ responses and
elsewhere that, as part of the approval process, a formal investment memorandum was prepared
and presented to the investment committee for final consideration before each investment was
made. These memoranda were to describe the proposed transactions and ask the investment
committee to approve them. Patino also told the Seed Investor in June 2007 that when the
investment committee approved a transaction, its members who voted for approval executed the
investment memo for that transaction. Patino further indicated that there was no need for
Quantek to prepare minutes of investment committee meetings because executed investment
memos performed the same function. The investment memos, among other purposes, served to
memorialize the decisions of the investment committee as part of the process Quantek promised
the Seed Investor it would follow.

8

Failure to Follow Stated Investment Process
The Opportunity Funds grew very quickly. In mid-2006, the funds had about $10
million in assets and three investors. By June 2007, the funds had approximately $635 million
in assets and almost 60 investors. The Opportunity Funds’ rapid growth, however, coincided
with a period of great disorganization at Quantek. Quantek had no standard procedure for
maintaining the Opportunity Funds’ investment documents and did not keep them in a
centralized location. Many times Quantek employees could not readily locate investment
documentation for reference.
Quantek’s growth and disarray had an impact on the Opportunity Funds’ investment
approval process. During the first six months of 2007, Quantek repeatedly failed to follow the
process that it had described to investors and prospective investors. Specifically, Quantek made
at least fifteen investments for the Opportunity Funds without first preparing and submitting a
memorandum to the investment committee. These investments accounted for about $350
million, or more than half, of the Opportunity Funds’ total portfolio value by June 2007.
The Seed Investor had a practice of conducting periodic due diligence reviews of the
Opportunity Funds’ portfolio. During one of these reviews in June 2007, a director of the Seed
Investor asked Patino, Guerra, and others at Quantek for copies of the investment memoranda.
None of the Quantek employees responded candidly that many of the investment memos did not
exist. Instead, Quantek held off the Seed Investor to allow time for employees to prepare the
missing investment memos. The newly-created memos described past Opportunity Funds
investments in the future tense and purported to seek committee approval for deals that had
already occurred. The memos also gave the impression that the committee’s review and
approval process was far more rigorous than it actually was. Guerra knew that Quantek
employees were preparing after-the-fact investment memos for the Seed Investor in this way.
Nevertheless, Guerra signed the memos along with other committee members so that Quantek
could provide the Seed Investor with fully executed copies. Quantek provided these memos to
the Seed Investor in June 2007. As a result, for the fifteen transactions in question, Quantek
gave the Seed Investor the erroneous impression that the memos were authentic in describing
the investment process and committee action.
Quantek generally prepared timely investment memoranda for investments made after
June 2007. However, through the fall of 2007, Quantek personnel continued drafting after-thefact memoranda for investments made prior to June 30, 2007. In addition, Quantek personnel
provided the misleading memos to other investors and prospective investors conducting due
diligence reviews of Opportunity Funds investments. The memos suggested that Quantek was
following a robust, documented investment process, when in fact Quantek had frequently
deviated from that process.
D.

Misrepresentations Concerning Related-Party Transactions

The Opportunity Funds’ asset-based lending strategy presented potential conflicts of
interest between the funds and Quantek’s affiliates, including its Bulltick parent company.
Bulltick sometimes originated potential investments for the Opportunity Funds. Recognizing

9

this, the funds’ offering documents permitted them to make transactions with Bulltick and other
Quantek affiliates, including companies owned by Guerra. However, the Opportunity Funds’
investors were wary of related-party transactions between the funds and Quantek’s affiliates.
In 2006 and 2007, the Opportunity Funds made related-party loans to Bulltick entities
and a separate Guerra-controlled company that were not properly documented or secured by
collateral under the loan terms. Subsequently, Quantek and Guerra provided investors with
misleading information about the timing and terms of these loans. Bulltick assisted Quantek
and Guerra by creating written agreements for the loans that did not reflect the actual
transactions and by permitting its subsidiaries to execute those agreements.
The “Equus” Loan
In August 2006, Guerra exercised his authority as portfolio manager to direct the
Opportunity Funds to make an $800,000 loan to a company he controlled for a real estate
investment in New York City. The loan was reflected in the Opportunity Funds’ records and
repaid in full with interest by Guerra’s affiliate company in 2008. However, Quantek and
Guerra did not properly document the loan at the time it was made.
Before executing a loan agreement, Guerra wanted to ensure that the loan did not have
negative tax implications for the Opportunity Funds. In early 2007, after these tax issues were
resolved, Guerra signed a loan agreement on behalf of the Opportunity Funds. The underlying
real estate investment was made by the Guerra-controlled company and had nothing to do with
Bulltick or its subsidiaries. However, the loan agreement that Guerra executed inaccurately
stated that the Opportunity Funds had made the loan to an entity called Equus Capital Partners,
LP (“Equus”), which was a Bulltick subsidiary. The loan agreement also stated – incorrectly –
that the loan was secured by “commissions” that Equus anticipated receiving, when in fact
Equus’s business did not actually involve the receipt of commissions. The agreement bore the
date on which the loan was made in August 2006, rather than the date when the loan agreement
was prepared and executed in 2007.
Guerra arranged for other Bulltick partners to execute the loan agreement and a
similarly inaccurate loan note on behalf of Equus. As a result, Bulltick permitted its Equus
subsidiary to enter into a related-party loan agreement with the Opportunity Funds that did not
reflect the actual transaction. Instead of the loan documentation properly reflecting the funds’
$800,000 unsecured loan to Guerra’s affiliate, the documents showed that the funds had made a
nondescript secured loan to a Bulltick subsidiary called Equus.
Quantek and Guerra provided investors with untrue information about the loan. From
June 2007 through July 2008, Quantek sent investors portfolio reports that referenced an
“Equus” investment, even though the loan had nothing to do with Equus. For much of that time
period, the same portfolio reports stated that the “Equus” investment was in Latin America
when, in fact, Guerra’s affiliate company received the loan and used it to purchase a building in
New York City. In November and December 2007, Guerra personally provided some of the
funds’ investors with portfolio statements repeating the inaccurate borrower and collateral
information in the backdated Equus loan documents. In January 2010, Quantek further

10

provided the inaccurate loan documents to a forensic accounting firm retained by a committee
of large investors in the Opportunity Funds to evaluate the funds’ related-party loans.
Inaccurate information about the Opportunity Funds’ loan to Guerra was also reflected on
Quantek’s internal records including its general ledger and trial balance for the Opportunity
Funds.
The ERV Loan
Quantek and Guerra misled investors about another related-party transaction, a loan
from the Opportunity Funds to an inactive Bulltick subsidiary called ERV Investments, LLC
(“ERV”). Bulltick provided assistance by creating written agreements for the loan that did not
reflect the actual transactions and permitting its subsidiaries to execute those agreements.
In March 2007, the Opportunity Funds made a $10 million related-party loan to ERV.
The purpose of the loan was to enable Bulltick, through the ERV special purpose vehicle, to
provide initial capital to a new hedge fund that Quantek was forming. The loan documentation
was executed by Guerra (on behalf of the funds) and other Bulltick partners (on behalf of ERV).
To secure repayment of the Opportunity Funds’ $10 million loan, Bulltick pledged its
ownership shares of ERV as collateral. However, ERV had no assets, no cash flows, and no
other value apart from the loan proceeds it had just received.
After receiving the loan, Bulltick caused ERV to make a $7 million investment in the
new hedge fund. The rest of the $3 million in loan proceeds were transferred to Bulltick and
used for working capital. At this point, the Opportunity Funds’ original $10 million loan was
under-secured by the ERV shares because ERV’s only asset was the $7 million subscription in
the new fund.
In June 2007, Bulltick caused ERV to assign the Opportunity Funds’ loan to Bulltick
itself, along with the $7 million subscription in the new hedge fund. Bulltick was now the
borrower while ERV was once again an empty vehicle. However, in the loan assignment
process, Bulltick failed to modify the original security agreement to ensure that valuable
collateral would secure the funds’ loan. Instead, the only collateral securing the loan was
Bulltick’s ownership stake in ERV, which was worthless. As a result, the Opportunity Funds’
original loan to ERV was effectively unsecured. Bulltick ultimately repaid the loan in full with
interest in 2009.
Guerra and Quantek provided the Opportunity Funds’ investors with erroneous
information about the ERV loan collateral. In June 2007, Guerra and the other investment
committee members signed a backdated investment memo incorrectly stating that the loan was
to be secured by Bulltick shares, when in fact it was secured by ERV shares. The difference
was material, because ERV had no value at that time. The memo also stated that Bulltick would
hold $3 million of the loan proceeds as a “cash collateral agent,” when in fact Bulltick had
already used the $3 million for its working capital. Quantek personnel provided this memo to
various investors in the funds. Moreover, in November and December 2007, Guerra sent
investors portfolio reports stating incorrectly that the loan collateral was shares of ERV worth

11

$7.5 million, the value of the new hedge fund investment. In fact, the ERV shares had no value
because the fund investment had been assigned to Bulltick.
Finally, in June 2008, Guerra and other Bulltick partners signed backdated assignment
and pledge agreements for the Opportunity Funds’ loan to ERV. In spring 2008, Bulltick
personnel discovered that the documents assigning the loan from ERV to Bulltick had not been
finalized. Bulltick attempted to remedy the problem by preparing backdated assignment and
pledge agreements. Those documents incorrectly indicated that the ERV loan had been
assigned to Bulltick and secured by Bulltick shares as early as June 2007. In this manner,
Guerra, Quantek, and Bulltick made it appear as if the Opportunity Funds’ loan to ERV was
properly documented and secured with valuable collateral at all times. In September 2008,
Quantek provided these loan documents to a prospective investor that was conducting due
diligence on the funds’ related-party transactions. In January 2010, Quantek also provided
these documents to a forensic accounting firm that had been retained by a group of the
Opportunity Funds’ investors specifically to evaluate the funds’ related-party loans.
Violations
Sections 17(a)(2) and 17(a)(3) of the Securities Act
Section 17(a)(2) of the Securities Act specifically prohibits obtaining money or property
by means of any untrue statements of material fact or material omissions in the offer or sale of
securities. Section 17(a)(3) prohibits engaging in any transaction, practice, or course of
business which operates as a fraud or deceit upon the purchaser in the offer or sale of securities.
Establishing violations of Sections 17(a)(2) and 17(a)(3) does not require a showing of scienter;
negligence is sufficient. Aaron v. SEC, 446 U.S. 680, 697 (1980); SEC v. Hughes Capital
Corp., 124 F.3d 449, 453-54 (3d Cir. 1997).
As a result of the conduct described above, Quantek and Guerra willfully4 violated
Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Patino willfully violated Section
17(a)(3) of the Securities Act.
Section 206(4) of the Advisers Act and Rule 206(4)-8 Thereunder
Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder prohibit investment
advisers from engaging in any act, practice, or course of business which is fraudulent,
deceptive, or manipulative, and from making any untrue statement of a material fact or omitting
to state a material fact necessary to make the statements made, in light of the circumstances
under which they were made, not misleading to investors or prospective investors in a pooled
investment vehicle. Scienter is not required to establish a violation of Section 206(4) and Rule
206(4)-8.

4

A willful violation of the securities laws means merely “‘that the person charged with the duty knows
what he is doing.’” Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d
969, 977 (D.C. Cir. 1949)).

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As a result of the conduct described above, Quantek and Guerra willfully violated
Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, and Patino willfully aided
and abetted and caused Quantek’s violations of Section 206(4) of the Advisers Act and Rule
206(4)-8 thereunder.
As a result of the conduct described above, Bulltick willfully aided and abetted and
caused Quantek’s violations of Section 206(4) of the Advisers Act and Rule 206(4)-8
thereunder.
Section 206(4) of the Advisers Act and Rule 206(4)-7 Thereunder
Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder require registered
investment advisers to adopt and implement written procedures reasonably designed to prevent
violations of the Advisers Act.
Quantek willfully violated Rule 206(4)-7 by failing to implement policies and
procedures reasonably designed to prevent the firm from making material misrepresentations to
investors. Quantek’s compliance policies required all of its correspondence with investors and
prospective investors to be reviewed for compliance with applicable laws and approved in
advance by its chief compliance officer. Quantek’s compliance staff lacked sufficient time to
review those marketing materials because of their other compliance responsibilities at Quantek
affiliates. In addition, prior to spring 2008, Quantek’s compliance employees, including its
chief compliance officer, had virtually no investment adviser compliance experience or training.
As a result, Quantek’s correspondence with investors and prospective investors was not
adequately reviewed and approved as required by its own compliance policies.
Both Bulltick and Guerra willfully aided and abetted and caused Quantek’s violations of
Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. Guerra was the founder and
managing principal of Quantek as well as portfolio manager of the Opportunity Funds. Bulltick
established Quantek to serve as its hedge fund advisory subsidiary. Guerra and Bulltick knew
about Quantek’s regulatory compliance obligations and undertook to provide compliance staff
for the firm. However, they assigned compliance staff to Quantek that did not have the
necessary training, experience, and time to perform the required advisory compliance functions.
Section 204 of the Advisers Act and Rule 204-2(a)(7)
Section 204 of the Advisers Act requires that every investment adviser registered or
required to be registered maintain certain books and records. Rule 204-2(a)(7) requires that
registered investment advisers “make and keep true, accurate and current . . . originals of all
written communications received and copies of all written communications sent by such
investment adviser[s] relating to (i) any recommendation made or proposed to be made and any
advice given or proposed to be given, [and] (ii) any receipt, disbursement or delivery of funds
or securities . . . .”
Quantek willfully violated Section 204 of the Advisers Act and Rule 204-2(a)(7)
thereunder by failing to keep true, accurate, and current originals of written communications

13

with investors and others concerning certain of the Opportunity Funds’ related-party loans,
whose underlying source documentation was inaccurate.
As a result of the conduct described above, Bulltick and Guerra willfully aided and
abetted and caused Quantek’s violations of Section 204 of the Advisers Act and Rule 2042(a)(7) thereunder.
IV.
In view of the foregoing, the Commission deems it appropriate and in the public interest
to impose the sanctions agreed to in Respondents’ Offers.
Accordingly, pursuant to Section 8A of the Securities Act, Sections 203(e), 203(f), and
203(k) of the Advisers Act, and Section 9(b) of the Investment Company Act, it is hereby
ORDERED that:
A.
Respondent Quantek cease and desist from committing or causing any violations
and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections
206(4) and 204 of the Advisers Act and Rules 206(4)-8, 206(4)-7, and 204-2(a)(7) thereunder.
B.
Respondent Guerra cease and desist from committing or causing any violations
and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections
206(4) and 204 of the Advisers Act and Rules 206(4)-8, 206(4)-7, and 204-2(a)(7) thereunder.
C.
Respondent Bulltick cease and desist from committing or causing any violations
and any future violations of Sections 206(4) and 204 of the Advisers Act and Rules 206(4)-8,
206(4)-7, and 204-2(a)(7) thereunder.
D.
Respondent Patino cease and desist from committing or causing any violations
and any future violations of Section 17(a)(3) of the Securities Act and Section 206(4) of the
Advisers Act and Rule 206(4)-8 thereunder.
E.

Respondents Quantek and Bulltick are censured.

F.

Respondent Guerra be, and hereby is:
barred from association with any broker, dealer, investment adviser, municipal
securities dealer, municipal advisor, transfer agent, or nationally recognized
statistical rating organization with the right to apply for reentry after five (5)
years to the appropriate self-regulatory organization, or if there is none, to the
Commission; and
prohibited from serving or acting as an employee, officer, director, member of an
advisory board, investment adviser or depositor of, or principal underwriter for, a
registered investment company or affiliated person of such investment adviser,

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depositor, or principal underwriter with the right to apply for reentry after five (5)
years to the appropriate self-regulatory organization, or if there is none, to the
Commission.
G.
Any reapplication for association by Guerra will be subject to the applicable
laws and regulations governing the reentry process, and reentry may be conditioned upon a
number of factors, including, but not limited to, the satisfaction of any or all of the following:
(a) any disgorgement ordered against Guerra, whether or not the Commission has fully or
partially waived payment of such disgorgement; (b) any arbitration award against Guerra
related to the conduct that served as the basis for the Commission order; (c) any self-regulatory
organization arbitration award against Guerra to a customer, whether or not related to the
conduct that served as the basis for the Commission order; and (d) any restitution order against
Guerra by a self-regulatory organization, whether or not related to the conduct that served as the
basis for the Commission order.
H.

Respondent Patino be, and hereby is:
barred from association with any broker, dealer, investment adviser, municipal
securities dealer, municipal advisor, transfer agent, or nationally recognized
statistical rating organization with the right to apply for reentry after one (1) year
to the appropriate self-regulatory organization, or if there is none, to the
Commission; and
prohibited from serving or acting as an employee, officer, director, member of an
advisory board, investment adviser or depositor of, or principal underwriter for, a
registered investment company or affiliated person of such investment adviser,
depositor, or principal underwriter with the right to apply for reentry after one (1)
year to the appropriate self-regulatory organization, or if there is none, to the
Commission.

I.
Any reapplication for association by Patino will be subject to the applicable
laws and regulations governing the reentry process, and reentry may be conditioned upon a
number of factors, including, but not limited to, the satisfaction of any or all of the following:
(a) any disgorgement ordered against Patino, whether or not the Commission has fully or
partially waived payment of such disgorgement; (b) any arbitration award against Patino related
to the conduct that served as the basis for the Commission order; (c) any self-regulatory
organization arbitration award against Patino to a customer, whether or not related to the
conduct that served as the basis for the Commission order; and (d) any restitution order against
Patino by a self-regulatory organization, whether or not related to the conduct that served as the
basis for the Commission order.
J.
Respondents Quantek and Guerra, shall, jointly and severally, pay
disgorgement of $2,056,446 and prejudgment interest of $219,585 to the Securities and
Exchange Commission. Payment shall be made in the following installments: $1,138,016
within ten (10) days of the entry of this Order and $1,138,015 on or before October 1, 2012. If

15

any payment is not made by the date the payment is required by this Order, the entire
outstanding balance of disgorgement and prejudgment interest, plus any additional interest
accrued pursuant to SEC Rule of Practice 600, shall be due and payable immediately, without
further application. Payments shall be: (A) made by wire transfer, United States postal money
order, certified check, bank cashier’s check or bank money order; (B) made payable to the
Securities and Exchange Commission; (C) hand-delivered or mailed to the Securities and
Exchange Commission, Office of Financial Management, 100 F St., NE, Stop 6042,
Washington, DC 20549; and (D) submitted under cover letter that identifies Quantek and
Guerra as Respondents in these proceedings, the file number of these proceedings, a copy of
which cover letter and money order or check shall be sent to Scott Weisman, Assistant Director,
Asset Management Unit, Division of Enforcement, Securities and Exchange Commission, 100
F St., NE, Washington, DC 20549.
K.
Respondent Quantek shall, within ten (10) days of the entry of this Order, pay a
civil money penalty in the amount of $375,000 to the Securities and Exchange Commission. If
timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.
Payment shall be: (A) made by wire transfer, United States postal money order, certified check,
bank cashier's check or bank money order; (B) made payable to the Securities and Exchange
Commission; (C) hand-delivered or mailed to the Securities and Exchange Commission, Office
of Financial Management, 100 F St., NE, Stop 6042, Washington, DC 20549; and (D)
submitted under cover letter that identifies Quantek as a Respondent in these proceedings, the
file number of these proceedings, a copy of which cover letter and money order or check shall
be sent to Scott Weisman, Assistant Director, Asset Management Unit, Division of
Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549.
L.
Respondent Bulltick shall, within ten (10) days of the entry of this Order, pay a
civil money penalty in the amount of $300,000 to the Securities and Exchange Commission. If
timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.
Payment shall be: (A) made by wire transfer, United States postal money order, certified check,
bank cashier's check or bank money order; (B) made payable to the Securities and Exchange
Commission; (C) hand-delivered or mailed to the Securities and Exchange Commission, Office
of Financial Management, 100 F St., NE, Stop 6042, Washington, DC 20549; and (D)
submitted under cover letter that identifies Bulltick as a Respondent in these proceedings, the
file number of these proceedings, a copy of which cover letter and money order or check shall
be sent to Scott Weisman, Assistant Director, Asset Management Unit, Division of
Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549.
M.
Respondent Guerra shall pay a civil money penalty in the amount of $150,000
to the Securities and Exchange Commission. Payment shall be made in the following
installments: $75,000 shall be paid within thirty (30) days of the date of this Order and another
$75,000 shall be paid within 365 days of the date of this Order. If any payment is not made by
the date the payment is required by this Order, the entire outstanding balance of civil penalties,
plus any additional interest accrued pursuant to 31 U.S.C. § 3717, shall be due and payable
immediately, without further application. Payment shall be: (A) made by wire transfer, United
States postal money order, certified check, bank cashier's check or bank money order; (B) made

16

payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the
Securities and Exchange Commission, Office of Financial Management, 100 F St., NE, Stop
6042, Washington, DC 20549; and (D) submitted under cover letter that identifies Guerra as a
Respondent in these proceedings, the file number of these proceedings, a copy of which cover
letter and money order or check shall be sent to Scott Weisman, Assistant Director, Asset
Management Unit, Division of Enforcement, Securities and Exchange Commission, 100 F St.,
NE, Washington, DC 20549.
N.
Respondent Patino shall pay a civil money penalty in the amount of $50,000 to
the Securities and Exchange Commission. Payment shall be made in the following
installments: $25,000 shall be paid within thirty (30) days of the date of this Order and another
$25,000 shall be paid within 365 days of the date of this Order. If any payment is not made by
the date the payment is required by this Order, the entire outstanding balance of civil penalties,
plus any additional interest accrued pursuant to 31 U.S.C. § 3717, shall be due and payable
immediately, without further application. Payments shall be: (A) made by wire transfer, United
States postal money order, certified check, bank cashier’s check or bank money order; (B) made
payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the
Securities and Exchange Commission, Office of Financial Management, 100 F St., NE, Stop
6042, Washington, DC 20549; and (D) submitted under cover letter that identifies Patino as a
Respondent in these proceedings, the file number of these proceedings, a copy of which cover
letter and money order or check shall be sent to Scott Weisman, Assistant Director, Asset
Management Unit, Division of Enforcement, Securities and Exchange Commission, 100 F St.,
NE, Washington, DC 20549.
O.
Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a
Fair Fund is created for the disgorgement, interest, and penalties ordered herein. Regardless of
whether any such Fair Fund distribution is made, amounts ordered to be paid as civil money
penalties pursuant to this Order shall be treated as penalties paid to the government for all
purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty,
Respondents agree that in any Related Investor Action, they shall not argue that they are entitled
to, nor shall they benefit by, offset or reduction of any award of compensatory damages by the
amount of any part of Respondents’ payment of civil penalties in this action (“Penalty Offset”).
If the court in any Related Investor Action grants such a Penalty Offset, Respondents agree that
they shall, within 30 days after entry of a final order granting the Penalty Offset, notify the
Commission’s counsel in this action and pay the amount of the Penalty Offset to the United
States Treasury or to a Fair Fund, as the Commission directs. Such a payment shall not be
deemed an additional civil penalty and shall not be deemed to change the amount of the civil
penalty imposed in this proceeding. For purposes of this paragraph, a “Related Investor

17

Action” means a private damages action brought against one or more of the Respondents by or
on behalf of one or more investors based on substantially the same facts as alleged in the Order
instituted by the Commission in this proceeding.
By the Commission.

Elizabeth M. Murphy
Secretary

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A3f37f6a394a519ca. Public record. Not legal advice.