Advisor, Others Resolve Charges Tied to Undisclosed Compensation
Conflicts of interests are always a critical issue for investment advisers. The management of other people’s money by advisers can present situations in which conflicts can arise unless there is proper disclosure. It is those conflicts, and the failure to disclose them, that often gives rise to enforcement actions involving investment advisers. It is just such a failure that is at the center of the Commission’s most recent action involving an investment adviser, SEC v. Greneco, LLC., Civil Action No. CIV 22-673 (W.D. Okla. Filed August 8, 2022).
Named as defendants in the action are: GreneCo, LLC a firm owned by defendants Gene Larson and Gregory Womack; Gene Larson, a co-owner of GreneCo with defendant Gregory Womack; and Womack Investment Advisers, Inc., a state registered investment adviser controlled by Mr. Womack.
Over about a one-year period, beginning in late December 2018, GreneCo and Messrs. Larson and Womack raised about $23.3 million from 250 investors in four unregistering offerings involving what were called real estate investment opportunities. Potential investors were solicited to purchase membership units in limited liability companies managed by GreeneCo. The units were unregistered securities.
Defendant Womack also recommended interests in one or more of the four offerings to clients of Womack Investment Advisers. Those investors were not told that Mr. Womack would receive substantial management fees from investor funds through the GreneCo offerings. Likewise, he and the Advisory did not inform Womack Investment Advisers clients that the firm would received at least $160,000 in fees directly from GreneCo. To the contrary, Part 2 of the Advisor’s Form ADV stated in part that the firm “receives no compensation from a client’s participation and does not charge the client a fee for the investment.” Mr. Womack and the firm had a duty to disclose the management fees paid to him and the compensation paid to the investment advisor from GreneCo. The disclosures were not made.
The Order alleges violations of Securities Act Sections 5(a) and 5(c) and Advisers Act Section 206(2).
Defendants resolved the action. Each Defendant consented to the entry of permanent injunctions based on the Sections cited in the complaint. Each will also pay a penalty in the amount of: $414.364, $41,440 and $186,471, respectively. Defendant Womack also agreed to pay disgorgement of $236,349 plus prejudgment interest. And, the Adviser agreed to pay disgorgement of $160,000 plus prejudgment interest and a penalty of $517, 995. See Lit. Rel. No. 25464 (August 10, 2022).