On February 6, the U.S. Securities and Exchange Commission (SEC) permanently
barred California real estate investment guru Scott M. Landress, 55, from
participating in the securities industry and fined him $1.25 million after
finding he illegally withdrew more than $20 million from two United Kingdom
private equity funds.
According to the SEC, in 2014, Landress instructed his company, SLRA Inc.,
to withdraw fees from both Liquid Realty Partners III LP and Liquid Realty
Partners III-A LP. Landress directed his California-based company, SLRA
Inc., to transfer the funds to his personal account, claiming that is
was payment for his years of servicing the funds.
SEC Associate Director of Enforcement, Scott W. Friestad, explained that
private equity fund advisers, like Landress and SLRA Inc., have an obligation
to conduct business in the best interests of their customers—a duty
he breached by illegitimately withdrawing millions of dollars in “fees”
from the funds.
The SEC stated that the improperly withdrawn fees, totaling $20.33 million,
were originally designated for a UK real estate development dubbed Project
Ursula, and have since been returned to the Liquid Realty accounts.
The two private equity funds were established in 2006 and experienced financial
difficulty as a result of the real estate market crash. Landress requested
increased payment for the period between 2009 to 2011 from the funds’
limited partners but was denied.
Landress alleged the withdrawal was legal. However, the SEC uncovered an
order, almost a month after the funds were removed, in which Landress
stated that he had earned the fees for the first time and that neither
the funds nor the limited partners had knowledge that the purported fees existed.
Landress’ defense counsel contended that the case depended on his
client’s supposed disclosure of the fees. The defense argued that
the order presented by the SEC clearly indicates that SLRA and Landress
attempted to minimize the loss to investors, halt impending foreclosures
and inform the investors as he conducted his work.
The limited partners, which were comprised of both university endowments
and pension funds, had contributed approximately $700 million to the Liquid
Realty private equity funds. Liquid Realty then invested the partners’
capital in trusts drawing interest from 197 corporate, retail, and industrial
SLRA sued the limited partners in August 2014, claiming that efforts by
investors to remove SLRA from its role as the general partner to a set
of funds were nothing more than an unjust effort to avoid paying $26.5
million in service fees. In March 2016, Landress requested that the court
dismiss the suit.