SEC Charges Fund Manager and C-Suite Executives in $100M Fraud Scheme

The U.S. Securities and Exchange Commission has filed a complaint in the U.S. District Court for the Eastern District of California charging Voyager Pacific Capital Management LLC and three of its executives with conducting a multiyear fraudulent scheme.

The SEC alleges that between September 2020 and March 2024, the defendants defrauded investors in the Voyager Pacific Opportunity Fund II, LLC by misusing more than $15 million in new equity investor funds to make Ponzi-like payments to existing investors. The fund, which formed in 2015, stopped accepting new investors in December 2023.

The main investment approach presented to investors, according to the SEC, was to purchase single-family homes, renovate them and then lease them to tenants for rental income or sell them at a profit. Voyager offered and sold, on behalf of the fund, membership interests in the fund and promissory notes.

The SEC’s complaint outlines a fraud by Voyager’s Roger David Hardcastle, chief executive officer, age 62; John Giarmarco, former chief financial officer, age 70; and Vanessa Lung-Medlock, former chief operations officer, age 46. According to the complaint, the defendants allegedly misappropriated millions of dollars from the fund, funneling them into entities they owned or controlled through a series of undisclosed, prohibited transactions.

The complaint details three primary methods used to carry out the fraud:

• Misappropriation through affiliated entities: Hardcastle and Giarmarco caused the fund to send approximately $5.98 million to affiliated entities they controlled. These transactions included roughly $2.9 million in transfers with no supporting documentation and $3 million via unenforced promissory notes.
• Ponzi-like payments: To cover financial shortfalls, the defendants used more than $15 million in new investor capital to pay monthly returns to existing equity investors, a practice neither permitted by the fund’s offering documents nor disclosed to investors.
• Accounting fraud: To conceal the fund’s deteriorating financial condition, the defendants changed accounting practices and created fraudulent, backdated purchase agreements to falsely inflate the fund’s apparent net income.

The SEC alleges the defendants went to great lengths to create an illusion of profitability. In 2020, they changed the fund’s accounting policy to capitalize 85% of all rental home-related costs – a flat-rate approach that understated expenses and artificially boosted net income.

Beginning in 2022, Hardcastle and Lung-Medlock allegedly recognized “fake revenue” by recording “cash sales” of properties from the fund to affiliated entities in the general ledger, even though no cash was received and the fund retained control of the properties. These fraudulent “cash sales” totaled approximately $8.2 million, which the defendants used to falsely justify preferred return distributions to investors.

Voyager, Hardcastle, and Giarmarco are charged with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and Lung-Medlock is charged with violating the antifraud provisions of Section 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder.

The SEC’s action seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against the defendants. Additionally, the SEC is seeking conduct-based injunctions to permanently bar Hardcastle and Giarmarco of Fresno, Calif., and Lung-Medlock of Clovis, Calif., from participating in the issuance, purchase, offer, or sale of any security, except for their own personal accounts.

Nine entities – Adagio SPE LLC, Andante SPE LLC, Brighton Cove LLC, Cayucos Dream LLC, GSD Equities LLC, HGM Holdings LLC, Kastlemark LLC, Martin-Taylor Company LLC, and Premier Property Management Group LLC – have been named as relief defendants for their role in receiving proceeds from the alleged fraud.

Beyond the SEC’s civil action, Hardcastle has already pleaded guilty to two counts of conspiracy to commit wire fraud in a parallel criminal proceeding: United States v. David Hardcastle.

In connection with the SEC’s civil case, both Hardcastle and Giarmarco have agreed to bifurcated settlements, subject to court approval, which include permanent injunctions against future violations of federal securities laws and the conduct-based trading restrictions. The court will determine the appropriate amount of disgorgement and civil penalties at a later date.

Over its lifetime from 2015 through mid-2024, the fund raised approximately $100 million from approximately 500 investors. During the relevant period, the fund raised approximately $46.7 million from 272 equity investors and approximately $3.7 million from nine noteholders located in multiple states.

During its existence, the fund acquired approximately 1,200 properties. Only about 200 of the approximately 1,200 properties were acquired after Hardcastle and Giarmarco purchased Voyager on or around July 2020.

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