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The SEC stated that the improperly withdrawn fees, totaling $20.33 million, were originally designated for a UK real estate development dubbed Project Ursula, and have since been returned to the Liquid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 properties.
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.