The Securities and Exchange Commission settled charges against the founder of a Maine-based medical marijuana company that solicited investors on Craigslist.
The SEC’s complaint alleges that, beginning in 2014, Richard Greenlaw raised approximately $500,000 from at least 59 investors by offering securities in 20 cannabis-related entities that he formed, which purportedly sold medical marijuana products that did not contain THC, the chemical compound responsible for most of marijuana’s psychological effects.
According to the complaint, Greenlaw sold ownership interests in the companies by posting advertisements on Craigslist. Greenlaw described the securities offering as an opportunity to be part of the new medical cannabis industry “without getting into marijuana and all of its regulations.”
When prospective investors responded to his online ads, Greenlaw followed up with securities offering documents and sales materials describing the purported marijuana products.
However, according to the SEC, Greenlaw’s offers and sales of securities were not covered by registration statements filed or in effect with the SEC.
The SEC’s settlement, which is subject to court approval, requires Greenlaw to pay disgorgement and prejudgment interest of $340,142 and a civil penalty of $50,000.
Father Sold Firm to Son, Got Barred, Didn’t Stay Away: SEC
The SEC filed charges against a Buffalo, New York, investment advisory firm and its owner for misleading firm clients about its association with a barred investment advisor, who is also being charged for violating the bar.
The SEC’s complaint alleges that in 2014, Walter Grenda sold his investment advisory assets, including his longstanding client base, to Grenda Group LLC and his son, Gregory Grenda, in anticipation of a negative outcome in an SEC fraud investigation.
In 2015, the SEC barred Walter Grenda from association with an investment advisor, but the SEC alleges that Walter Grenda continued to associate with Grenda Group by meeting with a prospective client and current clients in the firm’s offices, as well as making discretionary changes to clients’ investment accounts.
The complaint alleges that Grenda Group and Gregory Grenda permitted Walter Grenda’s association with the firm, failed to disclose his bar to their clients, and made misleading statements to clients who inquired about Walter Grenda’s bar.
The SEC further alleges that Walter Grenda impersonated a Grenda Group client on a call to the firm’s broker-dealer and, while subject to the associational bar, Walter Grenda repeatedly impersonated his son on calls to the firm’s broker-dealer, after which the broker-dealer terminated its relationship with Grenda Group. The complaint alleges that Grenda Group and Gregory Grenda later made misleading statements to clients and failed to disclose material facts about the termination.
The SEC’s complaint seeks penalties and permanent injunctions.
Compliance Failures Lead to Firm’s Demise
Compliance deficiencies led to the demise of a private fund manager because of failures to enforce a consistent redemption policy, deliver audited financial statements, and file accurate Form ADVs.
According to the SEC, Aria Partners, which was an investment advisor to several private funds over the course of its history, failed to implement a compliance program consistent with its obligations as an RIA. This led to a failure to disclose to all investors in one of those private funds all their options to redeem their investment in the fund.
The fund’s limited partnership agreement required 90 days’ written notice for redemptions. However, Aria Partners had an informal policy, which was not disclosed to all investors in the fund, of accommodating investors’ requests to provide partial redemptions on significantly less notice than 90 days.
“These practices resulted in materially different full redemption amounts for two investors in 2015, when the fund lost value in a short period,” the SEC states.
According to the SEC, the firm also failed to deliver audited financials as required by the custody rule. The SEC also cites the firm for filing inaccurate Form ADVs, including claiming SEC registration eligibility even though the firm had less than $100 million in assets under management.
The SEC attributes the failures to the firm’s deficient compliance program which used a template manual and did not require annual compliance reviews.
As part of the SEC’s order, Aria Partners was censured and ordered to pay a civil money penalty in the amount of $150,000 to the SEC.
SEC Charges Florida Cash Advance Company, Ex-CEO With Defrauding Investors