Securities and Exchange Commission v. Grenda Group LLC

UNITED STATES DISTRICT COURT

FOR THE

WESTERN DISTRICT OF NEW YORK

UNITED STATES SECURITIES AND )

EXCHANGE COMMISSION, )

)

Plaintiff, )

)

Vv. ) Case No. 1:18-cev-00954-CCR

)

GRENDA GROUP, LLC and )

GREGORY M. GRENDA, )

)

Defendants, )

OPINION AND ORDER

GRANTING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT

(Doe. 61)

Plaintiff United States Securities and Exchange Commission (the “SEC”) brings

this suit pursuant to Section 209(d), (e), and (f) of the Investment Advisers Act of 1940

(the “Advisers Act”) against Defendant Grenda Group, LLC (“Grenda Group”) and

Defendant Gregory M. Grenda (“G. Grenda”) (collectively “Defendants”)' for violations

of Sections 203(f), 206(1), and 206(2) of the Advisers Act. Plaintiff alleges five causes of

action: violation of Section 203(f) of the Advisers Act against Grenda Group and G.

Grenda (Count I); aiding and abetting in violation of Section 203(f) against G. Grenda

(Count IT); violation of Section 206(1) of the Advisers Act against Grenda Group and G.

Grenda (Count IID; violation of Section 206(2) of the Advisers Act against Grenda

Group and G. Grenda (Count IV); and aiding and abetting in violation of Sections 206(1)

and (2) against G. Grenda (Count VJ).

Pending before the court is the SEC’s motion for partial summary judgment with

regard to Defendants’ violations of Section 203(f), as set forth in Counts I and II ofits

Complaint. (Doc. 61.) Defendants opposed the motion on September 25, 2020. The SEC

' This court entered a final judgment against Walter Grenda (“W. Grenda”) on December 3,

2018. At that time Walter Grenda was terminated as a Defendant. (Doc. 22.)

filed its reply on October 16, 2020. The court held a hearing on October 30, 2020, at

which time it took the pending motion under advisement.

The SEC seeks summary judgment on its claim that Defendants violated

Section 203(f) of the Advisers Act which provides in relevant part:

It shall be unlawful for any person as to whom such an order suspending or

barring him from being associated with an investment adviser is in effect

willfully to become, or to be, associated with an investment adviser without

the consent of the Commission, and it shall be unlawful for any investment

adviser fo permit such a person to become, or remain, a person associated

with him without the consent of the Commission, if such investment

adviser knew, or in the exercise of reasonable care, should have known, of

such order.

15 U.S.C. § 80b-3(f) (emphasis supplied).

The SEC also seeks summary judgment on its claim that G. Grenda aided and

abetted the Grenda Group’s violation of Section 203(f), Under Section 209(f) of the

Advisers Act, “any person that knowingly or recklessly has aided, abetted, counseled,

commanded, induced, or produced a violation of any provision of this subchapter .. .

shall be deemed to be in violation of such provision ... to the same extent as the person

that committed such violation.” 15 U.S.C. § 80b-9(f).

The SEC is represented by David P. Stoelting, Esq., Barry Patrick Connell,

Esq., Judith Ann Weinstock, Esq., Marc P. Berger, Esq., Maureen Peyton King, Esq., and

Sanjay Wadhwa, Esq. Defendants are represented by Joseph G, Makowski, Esq.

L The Record Before the Court.

In addition to contesting certain facts identified by the SEC, Defendants seek to

supplement the record with additional facts. The SEC, in turn, has responded to

Defendants’ proffer of additional facts, admitting some and disputing others. Although

neither the Federal Rules of Civil Procedure nor this court’s Local Rules authorize this

practice, in light of the parties’ joint adaptation of this approach, the court has included

the additional facts, to the extent they are material, for purposes of the record on

summary judgment. See Presbyterian Church of Sudan v. Talisman Energy, Inc., 582

F.3d 244, 264 (2d Cir. 2009) (“A district court deciding a summary judgment motion “has

broad discretion in choosing whether to admit evidence.’”).

Defendants assert that the court should assign the Declaration of Elzbieta Wraga

(the “Wraga Declaration”) no weight because the telephone records summarized in the

Wraga Declaration are devoid of content and simply reflect the number of phone calls

and text messages between W. Grenda and Grenda Group clients, which Defendants

contend reflect personal cails or calls related to W. Grenda’s tax services. The SEC

counters that the Wraga Declaration establishes that Defendants permitted W. Grenda to

use a Grenda Group cell phone to communicate with Grenda Group clients thousands of

times after W. Grenda’s July 31, 2015 SEC bar and after Defendants knew W. Grenda

had impersonated G. Grenda in making calls to Charles Schwab in violation of the SEC

bar.

Evidence is relevant if “it has any tendency to make a fact more or less probable

than it would be without the evidence” and “the fact is of consequence in determining the

action.” Fed. R. Evid. 401. “Determinations of relevance are entrusted to the sound

discretion of the district court” and “[t]he standard for determining relevance is a liberal

one.” Arista Records LLC v. Lime Grp. LLC, 784 F. Supp. 2d 398, 419 (S.D.N.Y, 2011).

“On a motion for summary judgment, barring substantial cause for excluding evidence on

relevance grounds, a court should admit and consider the challenged exhibits and

testimony.” Id, Even evidence that “may be of limited probative value” cannot be ignored

on summary judgment. Whidbee v. Garzarelli Food Specialties, Inc., 223 F.3d 62, 71 2d

Cir. 2000) (quoting Schwapp v. Town of Avon, 118 F.3d 106, 112 (2d Cir. 1997)).

Because the Wraga Declaration is probative of whether Defendants permitted W.

Grenda to contact Grenda Group clients notwithstanding his barred status, whether

Defendants monitored those communications, and whether Defendants permitted them to

continue even after they knew W. Grenda had impersonated G. Grenda while making

investment inquiries to Charles Schwab, Defendants’ request to exclude the Wraga

Declaration on relevancy grounds is DENIED.

Defendants next argue opinions provided in Arthur B. Laby’s expert witness

report are inadmissible: (1) because any evidence of G. Grenda’s failure to disclose W.

Grenda’s bar to Grenda Group clients is irrelevant; and (2) because Mr. Laby’s report

contains an ultimate legal conclusion regarding whether Defendants “permitted” W.

Grenda to associate with them. (Doc. 81 at 31) (internal quotation marks omitted), With

respect to Defendants’ first argument, Defendants argue G, Grenda’s failure to disclose

W. Grenda’s bar to Grenda Group clients is not relevant because G. Grenda was under no

duty to disclose it and the SEC’s Complaint contains no allegations of fraud or deception.

The Advisers Act “concerns itself with investment advisers, who, as fiduciaries,

have a duty to disclose material information to clients.” SEC v. Washington Inv. Network,

475 F.3d 392, 404 (D.C, Cir. 2007). Courts have therefore found it relevant whether an

SEC bar is disclosed in a Section 203(f) violation case. See id. at 402-03 (finding it

relevant that the defendants did not “take formal steps... to inform... clients of the bar

order, along with an explanation of how the bar order might affect their interests and a

neutral discussion of the options these clients might have”). Accordingly, to the extent

Mr. Laby opines regarding the significance of a failure to disclose the SEC bar to Grenda

Group clients, Defendants’ relevancy challenge to this evidence is DENIED,

Defendants fare better with their second argument that Mr. Laby’s opinion

regarding whether Defendants “permitted” W. Grenda to associate with them improperly

offers a legal conclusion. An expert witness opinion that offers a conclusion of law

usurps the judge’s role and is inadmissible. See Hygh v. Jacobs, 961 F.2d 359, 363 (2d

Cir. 1992) (holding that “expert testimony that expresses a legal conclusion” must be

excluded); United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991) (holding

“although an expert may opine on an issue of fact within the jury’s province, he [or she]

may not give testimony stating ultimate legal conclusions based on those facts”). This

conclusion applies with equal force to the declaration of G, Grenda wherein he avers that

W. Grenda “did not associate with Grenda Group after the initiation of his SEC bar on

July 31, 2015, nor did Grenda Group or I permit [W. Grenda] to associate with Grenda

Group for investment activities[,|” (Doc. 75 at 12, ] 66) as well as to W. Grenda’s

declaration that he “did not associate with Grenda Group after the initiation of [his] bar

on July 31, 2015, nor did [G.] Grenda or Grenda Group permit [him] to associate[.]”

(Doc. 76 at 13, { 74.) The court therefore GRANTS Defendants’ request to exclude Mr.

Laby’s opinion to the extent it offers a conclusion of law.

Finally, Defendants contend that pre-bar date facts are not relevant to the SEC’s

motion for partial summaty judgment because only what happened thereafter could

support a violation of Section 203(f) and an aiding and abetting claim. While this is true,

it advocates for too narrow an approach to relevancy and ignores the close association

between W. Grenda, G. Grenda, and the Grenda Group that pre-dated the SEC bar. As the

SEC point out, the pre-bar facts support a conclusion that W. Grenda and G. Grenda

represented themselves as investment adviser associates before the July 31, 2015 bar date

and did not advise their joint clients that they were severing all business relationships

between them after the bar date. They also did not affirmatively notify Grenda Group

clients of W. Grenda’s banned status. Because pre-bar date facts place Defendants’ acts

and omissions in a factual context relevant to a determination of whether they permitted

association with W. Grenda in violation of Section 203(f), Defendants’ request to exclude

this evidence is DENIED.

I. The Undisputed Facts.

A. Walter Grenda and Reliance.

In 1989, W. Grenda founded Reliance Financial Advisors, LLC (“Reliance”), a

Buffalo, New York-based investment adviser whose office was located at 2819 William

Street, Buffalo, New York. Reliance became registered with the SEC in January 2011. W.

Grenda was Reliance’s president and was also an investment adviser who passed the

following securities industries licensing examinations: the Series 7 (General Securities

Representative) in January 1981; the Series 24 (General Securities Principal) in February

1986; the Series 65 (Uniform Investment Adviser Law) in February 2007; and the Series

63 (Uniform Securities Agent State Law) in April 1984.

In approximately May 2013, the Financial Industry Regulatory Authority

(“FINRA”) began investigating an investment, Prestige Wealth Management Fund LP

(the “Prestige Fund”), recommended by W. Grenda to Reliance clients, In May and July

2013, W. Grenda gave sworn testimony as part of the FINRA investigation. On July 26,

2013 and May 9, 2014, W. Grenda received document subpoenas from SEC staff, On

June 17, 2014, W. Grenda received a “Wells” notice informing him that SEC staffhad

“made a preliminary determination to recommend that the [SEC] file an enforcement

action against [him,]” alleging that he had violated, aided and abetted, and/or caused

violations of Section 17(a) of the Securities Act of 1933 (the “Securities Act”); Section

10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”); and Rule 10b-5

and/or Sections 204, 206 (1), (2), and (4) of the Advisers Act and Advisers Act Rules

204-1, 204-2, and 206(4). (Doc. 64 at 5) (internal quotation marks omitted).

On December 14, 2014, the SEC commenced an administrative proceeding by

issuing an “Order Instituting Administrative Cease-And-Desist Proceedings” pursuant to

Section 8A of the Securities Act, Sections 15(B) and 21C of the Exchange Act, Sections

203(e), (f), and (k) of the Advisers Act, and Section 9(B) of the Investment Company Act

of 1940, where it alleged that W. Grenda “knowingly or recklessly made or used false

and misleading statements to [his] advisory clients in order to create the false appearance

that an investment in the Prestige Fund was less risky than it really was” and that in late

2009, he “borrowed $175,000 from two of his advisory clients (a mother and a daughter),

telling them that he would use the loan to grown his business[,]” which he used to,

“among other things, pay personal expenses and debts.” (Doc. 80 at 6, { 19) (internal

quotation marks omitted). The SEC asserted that W. Grenda had willfully violated

Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-

5 thereunder, Section 206(1) and (2) of the Advisers Act and had aided and abetted

Reliance’s violations. Also on December 10, 2014, FINRA’s Department of Enforcement

commenced a disciplinary proceeding against W. Grenda, alleging that he had

fraudulently induced Reliance customers to invest in the Prestige Fund and had “lied” to

FINRA investigators about borrowing money from a customer. Jd. at 7, 921-22 (internal

quotation marks omitted).

On July 31, 2015, the SEC issued an “Order Making Findings and Imposing

Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 8A of the

Securities Act of 1933, Sections 15(b) and 21C of the Securities Exchange Act of 1934,

Sections 203(e), 302(f) and 203(k) of the Investment Advisers Act of 1940, and Section

9(b) of the Investment Company Act of 1940” (the “Cease and Desist Order”). In the

Cease and Desist Order, the SEC made findings, which W. Grenda neither admitted nor

denied, that W. Grenda “made or disseminated to his advisory clients materially false and

misleading statements” in marketing the Prestige Fund and had “made false and

misleading statements and omissions to two advisory clients” in order to borrow funds

from them.” (Doc. 80 at 8, 4] 25) (internal quotation marks omitted).

In the Cease and Desist Order, the SEC further found that W. Grenda and Reliance

had violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and

Rule 10b5 thereunder, and Sections 206(1) and (2) of the Advisers Act and had aided and

abetted violations of these statutes by Reliance and the Prestige Fund. The SEC imposed

a number of sanctions, including censuring Reliance and revoking its registration as an

investment adviser and ordering W. Grenda to pay a disgorgement fee of $25,000 and

civil penalties of $50,000. As a result of the Cease and Desist Order, as of the July 31,

2015 bar date:

[W. Grenda] was barred from association with any broker, dealer,

investment adviser, municipal securities dealer, municipal advisor, transfer

agent, or nationally recognized statistical rating organization; prohibited

from serving or acting as an employee, officer, director, member of an

advisory board, investment adviser or depositor of, or principal underwriter

for, a registered investment company or affiliated person of such

investment adviser, depositor, or principal underwriter; and barred from

participating in any offering of a penny stock, including: acting as a

promoter, finder, consultant, agent or other person who engages in

activities with a broker, dealer or issuer for purposes of the issuance or

trading in any penny stock, or inducing or attempting to induce the

purchase or sale of any penny stock; with the right to apply for reentry after

three (3) years to the appropriate self-regulatory organization, or if there is

none, to the [SEC.]

Id, at 9, 927. W. Grenda did not seek reentry after the bar date.

On February 11, 2016, FINRA issued an Order Accepting Offer of Settlement in

which W. Grenda was “barred from association with any FINRA member in any

capacity.” Id. at {29 (internal quotation marks omitted). G. Grenda became aware that

W. Grenda, his father, was barred by the SEC “shortly after... it occurred|.]” (Doc, 61-

16 at 15.)

B. Formation of Grenda Group and G. Grenda’s Involvement.

Starting in 2008, G. Grenda, who took courses but did not graduate from college,

was employed as an intern at Reliance until 2010, eventually working his way up to the

position of W. Grenda’s assistant. In April 2012, he passed his Series 7 (General

Securities Representative) examination, and in January 2014, he passed his Series 66

(Uniform Combined State Law) examination. From April 2012 to February 2014, G.

Grenda was an investment adviser at Reliance.

W. Grenda decided to sell Reliance because he “certainly didn’t think a good

outcome was going to come out of” the pending SEC investigation and because he

always intended for G. Grenda to succeed him in his business. (Doc. 80 at 11-12, 38)

(internal quotation marks omitted), G. Grenda testified that he “saw everything [his]

father was going through, [and] decided that it was an opportunity for [him] to purchase

the business and start [his] own.” (Doc. 61-16 at 12.)

In an Asset Purchase Agreement dated February 1, 2014 between W. Grenda, as

seller, and the Grenda Group, as purchaser, Grenda Group acquired the assets of

Reliance, which included all of Reliance’s customers, for a purchase price of $1,780,000.

A Promissory Note in the amount of $2 million was executed the same day by G. Grenda

on behalf of Grenda Group and personally guaranteed by G, Grenda. It provided that

Grenda Group would pay W. Grenda monthly installments of $15,000, together with

interest at a rate of ten percent per annum. Although real property located at 2819

William Street was included in the Asset Purchase Agreement, it was not transferred to

the Grenda Group or to G. Grenda because that property served as collateral for a loan

owed by W. Grenda. Grenda Group instead became a lessee of office space at 2819

William Street, the former office of Reliance.

Since January 2014, G. Grenda has been the owner, Chief Compliance Officer,

and sole member of Grenda Group, a limited liability company created under New York

law. On January 21, 2014, Grenda Group became an investment adviser registered with

the SEC. As the principal of Grenda Group, G. Grenda is also considered an investment

adviser,

C. W. Grenda Forms, Owns, and Operates GWM.

In 2014, W. Grenda formed Generational Wealth Management (“GWM”) to assist

clients in making “the most of their financial situation . . . [b]y looking at all financial

transactions[|” and making recommendations and by preparing tax returns. (Doc. 62-4 at

9.) The GWM office was also located at 2819 William Street, Buffalo, New York. Upon

selling Reliance, W. Grenda testified that he told clients he was “not going out to pasture

[and] was going to begin doing taxes and things of that nature” and had “every intention

of staying updated with the clients” through GWM. (Doc. 80 at 13, 41) (internal!

quotation marks omitted).

The vast majority of Grenda Group’s clients had previously been Reliance clients

and were both “long-standing clients” as well as personal friends of W. Grenda. /d. at

4 43 (internal quotation marks omitted). These Reliance clients had known G. Grenda

“since he’s been a boy[.]” Jd. at § 42 (internal quotation marks omitted). W. Grenda had a

“very intimate relationship with all the customers” and they did not “hesitate to talk to

him about anything” and “don’t financially sneeze without checking with [him].” /d. at

14, 9 45 (internal quotation marks and alterations omitted).

D. W. Grenda and Grenda Group Communications Pre-Bar Date.

In March 2014, a letter on Grenda Group letterhead was sent by W. Grenda

informing clients that he had decided to transfer the “day-to-day business management

responsibilities” of Reliance to G. Grenda and the Grenda Group as part of “the ongoing

growth of Reliancef,]” id. at 15, [48 (internal quotation marks omitted), and that he had

“sold Reliance . . . to [his] son, G].] Grenda[]” and G, Grenda would “assume the day-to-

day management of the practice responsible for operations, execution, and compliance.”

(Doc. 63-5 at 31.) W. Grenda explained that the transition “will enable me to fully

concentrate on investment and market research, risk management and portfolio

management techniques” and further stated that “your current investments and the way

your accounts are managed will not be affected by this transition.” (Doc. 80 at 15, | 48)

(internal quotation marks omitted). The letter informed Grenda Group clients they could

reach W. Grenda at his cell phone number ending in 6234 but asked that they contact him

“after 4 pm to allow for my undivided attention on the markets” and noted that he

“look{ed] forward to sharing in our continued relationship and successes for many years

to come,” Jd. at 4 49 (internal quotation marks omitted).

In 2014, both W. Grenda and G, Grenda sent client letters on Grenda Group

letterhead, sometimes co-signing the letter and identifying W. Grenda as the firm’s

“Market Strategist” and G. Grenda as the “Chief Operating Officer.” Jd. at | 48 (internal

quotation marks omitted). In an October 2014 “Dear Clients” letter on Grenda Group

letterhead, W. Grenda and G. Grenda offered suggestions “to properly assess your

investment performance.” /d, at 16, § 50 (internal quotation marks omitted). The “Dear

Clients” letter was signed by G, Grenda as Grenda Group’s “Chief Operating Officer”

and identified W. Grenda as Grenda Group’s “Marketing Strategist.”

On April 25, 2014 W. Grenda wrote to a client:

FYI, I’m going to be shutting Reliance Financial down and literally

resigning from being registered for numerous reasons but the most

important being the lack of regulations (in a{n] ever growing regulatory

environment) that frees me to openly communicate with clients, friends &

family via social media, etc... . Bottom line it’s in everyone’s best interest

to have me focused without interruption when the markets are open.

Id. at 17-18, ¥ 54 (internal quotation marks omitted).

KE. W. Grenda’s Communications with Grenda Group Clients After the

Cease and Desist Order and July 31, 2015 Bar Date.

On August 11,2015, W. Grenda emailed a Grenda Group client informing him

that “I charge $300.[00] for a complete estate plan and apply a $50.[00] discount for

being a Grenda Group client and a $50.00 discount for payment in cash.” (Doc. 62-18 at

1.) On October 8, 2015, W. Grenda emailed another Grenda Group client stating G.

Grenda “is editing a market update now and will email[ it] out soon but the essence of the

message is risks abound with a hedge (SDS) and an exit strategy (profit taking or go to

10

cash) is critical... [[’]d like to reach out to Jack, your thoughts?” (Doc. 62-19 at 1.)

On September 28, 2015, W. Grenda called Charles Schwab, stating, “I’m in

Buffalo, and I have a problem allocating. I was trying to get ahold of trading.” (Doc. 80

at 25, 76) (internal quotation marks omitted), When asked for his name, he responded

“Greg Grenda.” /d. (internal quotation marks omitted). In a call placed on November 9,

2015, W. Grenda called Charles Schwab and identified himself as “Greg Grenda” and

asked for “performance information about [Vantage Investment Advisors’ offerings.” □□□

at 26, 77 (internal quotation marks omitted). The Charles Schwab representative

recommended that he call Vantage Investment Advisors directly, and W. Grenda

responded by asking, “I would rather stay anonymous. Is there any way of doing it?” Id.

(internal quotation marks omitted). On May 26, 2016, W. Grenda cailed Charles Schwab,

impersonated G, Grenda, and requested client information on Renee Weisgold. The

Charles Schwab representative informed him that “the distribution would process the

next day unless the client signed a form to authorize a wire,” and W. Grenda responded

call you back. But at least it’s going out tomorrow morning?” Jd. at 27 (internal

quotation marks omitted).

When the Charles Schwab impersonation calls were made from W. Grenda’s 6234

cell phone number, G. Grenda claims he had no knowledge that his father was

impersonating him or making investment-related calls and was not sure that W. Grenda

had done so. In August 2016, G, Grenda asserts that he learned that W. Grenda had

impersonated him. Within forty-five minutes of learning of the calls from the 6234

number, G. Grenda confronted his father; secured key fobs used by his father to log into

the Charles Schwab system; changed the locks to Grenda Group’s office; and contacted

AT&T, Grenda Group’s telephone service provider, and removed W. Grenda’s cell phone

number ending in 6234 from Grenda Group’s plan. At that point, G. Grenda did not tell

anyone else about the impersonated calls. After August 2016, W. Grenda used a cell

phone number ending in 1886. At all times from 2014 to 2018, the cell phones used by

W. Grenda were part of Grenda Group’s services and paid for through Grenda Group’s

company account. W. Grenda was removed from the plan entirely in August 2018. Even

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after W. Grenda had impersonated him, in 2015, G. Grenda sent clients a holiday card

signed by G. Grenda, W. Grenda, Amanda, and MaryAnn.

On June 13, 2016, W. Grenda responded to an email from a Grenda Group client

stating:

[w]e can actively manage both accounts at a tax-deductible $500.[00] (or

1% of total value of all account, whichever is greater) annual fee, payable

to Grenda Group” and “please send the website and log-in information for

both of your employer-sponsored savings plans... We can actively

manage both accounts[.]

(Doc. 63-1 at 1; Doc. 80 at 18, 55) (internal quotation marks omitted). W. Grenda

added: “I reviewed your income tax returns,” Jd. (internal quotation marks omitted).

A few days later, on July 18, 2016, W. Grenda emailed a Grenda Group client,

writing, “I logged in to your TSP and made some changes to better reflect the volatility

and uncertainty in the markets. I continue to be cautiously optimistic and feel being more

conservative is more appropriate at this time. Cal! me with any questions.” (Doc. 63-2 at

1.) Also in 2016, G. Grenda sent an email to a Grenda Group client wherein he stated that

Reliance was rebranding by changing its name to Grenda Group.

In an April 2017 email exchange, a Grenda Group client directed an email to W.

Grenda, writing, “Walter, Will give 50k[,}” and G. Grenda responded, “This is Greg

Grenda. I will relay your message to Walter.” (Doc. 63-3 at 1.) G. Grenda asserts that he

had no idea what the message meant.

In 2017, W. Grenda made the decision that Grenda Group clients would use W.

Grenda and GWM to prepare their tax returns. See Doc. 80 at 17, [53 CW. Grenda

testified: “It was actually me who made that decision, from the standpoint that-you

know, those customers were—those customers would come to me”) (internal quotation

matks omitted),

Stephanie Tjhung, a Grenda Group client who was a client of W. Grenda for

twenty-five years, was not informed about the Cease and Desist Order or the SEC bar.

Ms, Tjhung received letters explaining that Grenda Group decided to move from TDA to

Schwab and then from Schwab to Interactive Brokers.

12

On June 4, 2018, a Grenda Group client sent the following email to G. Grenda’s

email address:

Hi Walt,

I’m visiting my daughter in Chicago and this is the only contact

information I have for you. I need to check and see if there is enough

money in the brokerage account to loan her family $12,000... . So could

you please let me know what the brokerage account looks like, ... Thanks

and I hope you,[ ]Mary Ann and Greg are well.

(Doc. 63-4 at 1.)

On August 31, 2018, G. Grenda told a Grenda Group client that he “made the SEC

fully aware that my father would continue to do estates and taxes, but also that he had

formed friendships with many of the clients over the years” and “{t}hat is something

beyond my control.” (Doc. 80 at 14, | 46.)

Although Defendants correctly point out that G. Grenda is not copied on the

majority of the communications W. Grenda sent to Grenda Group clients, he was an

email recipient of a series of emails in November 2015 from Edwin B, Hubbard which

posed investment questions to both G. Grenda and W. Grenda and which indicated Mr.

Hubbard’s “understanding in speaking with [G. Grenda] was that we 3 would have a

discussion about SWAN [an investment rating system]” (Doc. 62-20 at 1) and telling

“Walter” “[t}his is why I question the track record of SWAN and why I continue to look

at index funds and wonder ‘would we be better off in the long run by leveraging across

multiple index funds?’” /d. In this email chain, W. Grenda stated: “Per our discussion,

although it seems unlikely that we will be able to get a decent premium on RAT as it

closed at 45 today, if you can get a decent premium and do a CC at 45 and do a buy to

close, go for it.” Jd. at 3, On November 15, 2015, W. Grenda sent Edwin Hubbard an

email in which he wrote:

[Yes the next report will be UR (under review) that includes stocks

identified as strong buys and because, at the time, were trading well above

support (buy price), [I] would track them . . . [I] also put stocks on the UR

list when [I] feel their sector is out of favor... my thinking is that we

review the rating system (using the spreadsheet [J] already sent you) and

then move onto UR report, then onto UW (under watch), INC (income-

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oriented stocks), CC (covered call possibilities) and SS (special situations,

like shorting a [stock] — for example, we spoke while playing golf about

shorting Green Mtn. Coffee Roasters[.|

(Doc. 62-20 at 2.) In addition to G. Grenda’s receipt of these emails, Mr. Hubbard

emailed draft comments intended for “Walter” but which he indicated he wanted G.

Grenda to review in anticipation of their discussion of investment strategies.

According to the Wraga Declaration, after July 31, 2015, call logs for W. Grenda

using a Grenda Group cell phone reflect 1,767 outgoing calls to Grenda Group clients

that lasted thirty seconds or longer and 1,075 incoming calls from Grenda Group clients

that lasted thirty seconds or longer. W. Grenda also sent 1,700 text messages to and

received 1,517 text messages from Grenda Group clients.

W. Grenda does not dispute that he violated the SEC bar and the Cease and Desist

Order. Defendants also do not dispute that W. Grenda violated the SEC bar and the Cease

and Desist Order.

Ill. The Disputed Facts.

A. Formation of GWM.

Defendants assert that GWM was not formed until 2016. The SEC, however,

argues that it was formed sometime in 2014, citing emails between W. Grenda and G.

Grenda containing GWM reports for three Grenda Group clients. Defendants further

contend that GWM operated from a “separate and independent physical office and

conference room at 2819 William[] Street{.]” (Doc, 85 at 8.) The SEC disputes this

characterization because G. Grenda testified that he and his father work from the same

address and share the conference room, bathroom, fax machine, printer, coffee and

reception area, and entrance. The court finds this dispute is not material to the outcome.

B. W. Grenda’s Interactions with Grenda Group Clients.

Defendants assert that W. Grenda communicated with Grenda Group clients

because he operated GWM, through which he provided tax and estate planning services,

and because he maintained personal relationships with former clients. Although W.

Grenda admits that he met with Grenda Group clients after July 31, 2015, he asserts that

he did so only in conjunction with GWM.

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The SEC proffers affidavits from Grenda Group clients Donald Peters and Linda

Fusco, who aver that after July 31, 2015, they attended meetings with both W. Grenda

and G. Grenda at which W. Grenda provided investment advice in G. Grenda’s presence.

In his declaration, Mr. Peters stated that “I had the impression that [W. Grenda] was

acting as a guide to [G, Grenda].” (Doc. 61-11 at 1.) Ms. Fusco stated in her declaration

that she “recail[s] that [W. Grenda] and [G. Grenda] described each other as partners in

their business],]” and that W. Grenda “was more of the talker than” G. Grenda at a March

2016 investment discussion at which Ms. Fusco “remember[s] [W. Grenda] saying how

good FitBit was as an investment, how much money they would make investing in FitBit,

what a good investment it was.” (Doc. 61-12 at 1-2.) In his declaration, Thomas Pollard

avers that he met with W. Grenda on November 14, 2016 and was provided with

investment advice and was never told of W. Grenda’s SEC bar.

In his declaration, G. Grenda does not dispute that a joint meeting took place

between he and his father with Ms. Fusco but avers that:

At no time, either during a meeting on or about November 15, 2015, or

ever, did I advise Ms. Fusco that [W.] Grenda and I were partners in

Grenda Group and/or that both [W.] Grenda and I would be managing Ms.

Fusco’s IRA... With respect to the FitBit investment, Ms. Fusco is

incorrect in her statement that [W.] Grenda recommended to her that she

purchase FitBit, He did not. I made a discretionary investment in FitBit for

Ms. Fusco at the end of 2015.

(Doc. 75 at 10-11, 57.) With regard to Ms, Fusco, W. Grenda denies her

characterization of their meeting, however, he admits that he met with her on November

15, 2015 after G. Grenda met with her but claims he did so only to provide tax advice, Id.

at 11, 4 60.

With regard to the Peters’ declarations, W. Grenda admits that he met with the

Peters after the SEC bar including “[o]n several occasions in 2016 and 2017,” but at no

time did he discuss investments with the Peters or investments in G, Grenda’s presence.

(Doc, 76 at 10, §ff 55-56.) W. Grenda admits that he did not advise the Peters about the

SEC bar but believes he had no obligation to do so. He also does not dispute that he and

G. Grenda met with the Peters together.

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W. Grenda acknowledges that Thomas Pollard, who resided in Canada, was a

“long-time client” at Reliance and that in 2014, when Mr, Pollard wanted to make the

transition to Grenda Group, he discussed possible solutions including the use of W.

Grenda’s home address because Charles Schwab might object to Mr. Pollard’s foreign

address. (Doc. 76 at 11, at ] 63.) He contends that Mr. Pollard was present “when [he]

called Charles Schwab while in [the Pollards’] kitchen and impersonated him on the

call.” Jd. at 12, | 67. G. Grenda denies knowledge of W. Grenda’s and Mr. Pollard’s

address change arrangement and asserts “{u]pon information and belief, following his

bar, [W.] Grenda never met with Mr. Pollard on November 14, 2016, and gave him

investment advice, or at any time thereafter[.]” (Doc. 75 at 11, | 62.)

W. Grenda disputes Ms. Tjhung’s contention that “[s}tarting in about 2014, ...

[her] accounts were managed by [W.] Grenda and the Grenda Group, LLC” and states he

“never managed any investment account for Ms. Tjhung once she became a client of

Grenda Group.” Id. at 13, | 72 (internal quotation marks omitted). G. Grenda disputes

these same facts in his declaration but admits that “[i]n early 2014, Ms. Tjhung met with

me and [W.] Grenda to discuss the transfer[]” of her account from Reliance to Grenda

Group. (Doc. 75 at 12, 9 63.)

Crediting Defendants’ version of the facts, it remains undisputed that W. Grenda

and G. Grenda jointly met with Grenda Group clients after W. Grenda’s SEC bar and at a

time when no association between them was permissible. The court finds the remaining

disputed facts unnecessary in determining whether summary judgment is appropriate.

In his declaration, G. Grenda asserts that after W. Grenda’s SEC bar appeared in

the news, he contacted, or was contacted by, many Grenda Group clients to discuss the

bar and answer any questions they had. For those clients he was unable to reach, he left

voice messages to call him back. He does not affirmatively state that he notified any

Grenda Group clients of W. Grenda’s SEC bar.

Defendants proffer declarations from Grenda Group clients Patrick Lyons, Peter

Andrews, and Joseph A. Cherico, who aver that when W. Grenda and G. Grenda met

with them together, W. Grenda never provided them with investment advice. These

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declarations do not create a material issue of fact as to whether Defendants permitted

investment advice to be provided by W. Grenda to other Grenda Group clients. They,

however, provide further evidence that W. Grenda and G. Grenda continued to meet

jointly with Grenda Group clients after the SEC bar.

Defendants assert that after July 31, 2015, with the exception of payments made

under the Promissory Note for Reliance’s assets, W. Grenda was not paid any form of

compensation by Grenda Group. The SEC points to several payments made from 2014

through 2016 as evidence that Defendants’ assertion is false. The documents that the SEC

relies on for this assertion, Doc. 83-11 and Doc, 83-12, are both labeled “Walter Grenda

Rent & Note Payments[.]” This issue is not material because it is undisputed that Grenda

Group made monetary installment payments to W. Grenda pursuant to the Promissory

Note.

IV. Conclusions of Law & Analysis.

A. Standard of Review.

A party is entitled to summary judgment if it can “show/|] that there is no genuine

dispute as to any material fact” and that it “is entitled to judgment as a matter of law.”

Fed. R. Civ. P. 56(a). A “genuine” dispute exists “if the evidence is such that a

reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty

Lobby, Inc., 477 U.S, 242, 248 (1986). “Only disputes over facts that might affect the

outcome of the suit under the governing law” are material to the court’s determination.

ld.

At the summary judgment stage, the nonmoving party is entitled to “the benefit of

all permissible inferences and all credibility assessments[.]” SEC v. Sourlis, 851 F.3d

139, 144 (2d Cir. 2016). The moving party “always bears the initial responsibility of

informing the district court of the basis for its motion, and identifying” the evidence

“which it believes demonstrate[s]| the absence of a genuine issue of material fact.”

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986), If the moving party meets that

burden, its opponent must show that there is “sufficient evidence favoring the nonmoving

party for a jury to return a verdict” in its favor. Anderson, 477 U.S. at 249. However, in

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opposing summary judgment, “[t]he non-moving party may not rely on conclusory

allegations or unsubstantiated speculation” Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir.

1998) but instead must “offer some hard evidence showing that its version of the events

is not wholly fanciful.” D’Amico v. City of New York, 132 F.3d 145, 149 (2d Cir. 1998).

In adjudicating a motion for summary judgment, the district court’s role “is not to

resolve disputed questions of fact” but to “determine whether, as to any material issue, a

genuine factual dispute exists.” Kaytor v. Elec. Boat Corp., 609 F.3d 537, 545 (2d Cir.

2010). “Credibility determinations, the weighing of the evidence, and the drawing of

legitimate inferences from the facts are jury functions, not those of a judge.” Proctor v,

LeClaire, 846 F.3d 597, 608 (2d Cir. 2017) (internal quotation marks omitted).

In this case, although certain facts are disputed, they do not preclude summary

judgment if they are not material to the outcome. See Anderson, 477 U.S. at 247-48 (“By

its very terms, this standard provides that the mere existence of some alleged factual

dispute between the parties will not defeat an otherwise properly supported motion for

summary judgment; .. . [o|nly disputes over facts that might affect the outcome of the

suit under the governing law will properly preclude the entry of summary judgment.”).

Stated differently, “[flactual disputes that are irrelevant or unnecessary will not be

counted.” Jd, at 248.

Application of the foregoing standard to the instant case reveals that

notwithstanding the existence of certain disputed facts, if the SEC can prove each

essential element of its claims with undisputed evidence, it will be entitled to judgment as

a matter of law in its favor.

B. Whether the SEC is Entitled to Summary Judgment Against

Defendants for Violation of Section 203(f) of the Advisers Act

(Count J).

An investment adviser has “an affirmative duty of utmost good faith, and full and

fair disclosure of all material facts, as well as an affirmative obligation to employ

reasonable care to avoid misleading his clients.” SEC v. Cap. Gains Rsch. Bureau, Inc.,

375 U.S. 180, 194 (1963) (internal quotation marks and footnotes omitted). That duty is

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codified in Sections 206(1) and 206(2) of the Advisers Act which was enacted “to

achieve a high standard of business ethics in the securities industry[,]” id. at 186, and

which “was directed not only at dishonor, but also at conduct that tempts dishonor.” Jd. at

200 (internal quotation marks omitted).

To establish a violation of Section 203(f), the SEC must establish that:

(1) Defendants were investment advisers; (2) Defendants knew or reasonably should have

known of W, Grenda’s bar from association with an investment adviser; and

(3) Defendants “permitted” W. Grenda to associate with them. Jd.

Section 202(a)(11) defines an “investment adviser” as “any person who, for

compensation, engages in the business of advising others . . . as to the advisability of

investing in, purchasing, or selling securities[.]” 15 U.S.C. § 80b-2(a)(11). Since January

2014, G. Grenda has been the sole owner, Chief Compliance Officer, and sole member of

Grenda Group. Defendants do not dispute that both he and Grenda Group are “investment

advisers.” (Doc, 80 at 1-2.) As a result, the SEC may bring a Section 203(f) claim against

G. Grenda as well as Grenda Group, See SEC v. Berger, 244 F. Supp. 2d 180, 193

(S.D.N.Y. 2001), aff'd, 322 F.3d 187 (2d Cir. 2003) (concluding that because he

“effectively controlled {the firm] and its decision[ Jmaking, [the individual defendant

was] also properly labeled an investment adviser within the meaning of the Advisers

Act”).

It is further undisputed that Defendants knew W. Grenda was subject to the Cease

and Desist Order and a SEC bar shortly after the July 31, 2015 bar date. Although the

term “associate” for purposes of Section 203(f) is not defined by the Advisers Act,

Defendants agree that “a person associated with an investment adviser” includes persons

performing clerical or ministerial functions as well as the provision of investment advice.

The only contested issue is whether Defendants “permitted” W. Grenda to associate with

them after the July 31, 2015 bar date.

The SEC argues that pursuant to cither an active or a passive definition of “to

permit,” Defendants permitted W. Grenda to associate with them after the bar date

through an array of acts and omissions. Focusing on only the uncontested evidence, the

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SEC points out that notwithstanding a close pre-bar association whereby W. Grenda and

G. Grenda worked together as investment advisers, after the bar date, Defendants did

nothing to affirmatively disclose to Grenda Group clients W. Grenda’s barred status.

They also did nothing to prevent W. Grenda from accessing client data and firm systems

which allowed him to email Grenda Group clients and offer them investment advice and

change their portfolios. Defendants thus furnished and paid for the equipment, data

services, and cell phone that facilitated W. Grenda’s violation of the SEC bar. It was not

until G. Grenda discovered that his father had impersonated him on several occasions that

Defendants terminated W. Grenda’s access to these data systems and cancelled the 6234

cell phone.

Even after the impersonations, Defendants continued to provide and pay for a ceil

phone for W. Grenda which he used to contact Grenda Group clients thousands of times.

Defendants neither monitored these communications, nor did anything else to ensure that

W, Grenda was not continuing to provide investment advice to Grenda Group clients.

Instead, Defendants allowed W. Grenda to remain a point of contact for their clients.

Notwithstanding his claim that he was unaware of the content of his father’s

communications with Grenda Group clients, G. Grenda was the recipient of a series of

emails wherein W. Grenda provided investment advice to Edwin B. Hubbard in

November of 2015. Thereafter, he allowed W. Grenda to join him in Grenda Group client

meetings and he allowed W. Grenda to make the determination that Grenda Group clients

would receive tax services from GWM which operated in the same building as Grenda

Group.

“The Advisers Act does not define the term ‘permit’ as it applies to the

prohibitions detailed in Section 203(f).” SEC v. Bolla, 401 F. Supp. 2d 43, 61 (D.D.C.

2005), aff'd in part & remanded sub nom., Wash. Inv. Network, 475 F.3d 392. In

Washington Investment Network, the D.C. Circuit held that it is enough that an

“investment adviser” “took some affirmative step to permit [a barred person] to associate

with [it], or at least that it acquiesced in... ongoing management [by the barred person]

_.. such that its passivity can be deemed a violation of section 203(f).” /d. at 401. The

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D.C. Circuit rejected a definition of “permit” that requires an affirmative grant of

authority:

Appellants argue the term “permit” in section 203(f) means “authorize,”

which suggests an affirmative giving of permission, as when a regulatory

agency issues a license allowing a private party to engage in a regulated

activity, The SEC rejects this narrow reading of the word “permit,”

interpreting the word to mean, in effect, “acquiesce.” We think the SEC’s

reading of the statute is correct. If Congress in adopting section 203(f) used

the word “permit” to mean “authorize,” the statute would be so narrow in

scope as to be almost silly.

Id.

To “permit” thus includes “actively and passively” failing “to prevent [W. Grenda]

from continuing his association with both [Grenda Group] and [G. Grenda| after

[Defendants] had full knowledge of [W. Grenda’s] bar,” Bolla, 401 F. Supp. 2d at 65, and

taking “no significant actions on behalf of [Defendants] to sever ties with [W. Grenda|

during the months following the bar order.” Washington Inv. Network, 475 F.3d at 403.

Although the Second Circuit has not crafted its own definition of “to permit,” the

plain meaning of the term does not require written or oral authorization but includes

providing an opportunity and allowing association to take place.’ In this case, Defendants

went several steps further by continuing W. Grenda’s association with them and their

investment clients even after they knew W. Grenda had repeatedly violated the SEC bar

and impersonated G, Grenda in doing so. Instead of severing ties to W. Grenda, they

facilitated and actively maintained them in order to retain W. Grenda’s former clients.

The court agrees with the SEC that, even in the light most favorable to

Defendants, the undisputed evidence satisfies the plain meaning of “to permit” as set

forth in the Adviser’s Act and encompasses Defendants’ post-bar association with W.

2 Permit, BLACK’S LAW DICTIONARY (11th ed. 2019) (1. To consent to formally; to allow

(something) to happen, esp. by an official ruling, decision, or law <permit the inspection to be

carried out>. 2, To give opportunity for; to make (something) happen <lax security permitted the

escape>. 3. To allow or admit of <if the law so permits>.”); Permit, Cambridge Dictionary, verb

1. “to allow something” 2, “to make something possible.” Cambridge Dictionary, available at

https://dictionary.cambridge.org/us/dictionary/english/permit,

2i

Grenda which permitted him to violate the SEC bar on numerous occasions. Because the

SEC has established that Defendants “permitted” W. Grenda to associate with them in

violation of Section 203(f), the SEC’s motion for partial summary judgment on Count I is

GRANTED,

C. Whether the SEC is Entitled to Summary Judgment on its Aiding and

Abetting Claim (Count ID.

To establish liability for aiding and abetting, the SEC must establish: (1) a primary

securities law violation; (2) knowledge of this violation on the part of the aider and

abettor or recklessness with regard to the commission of the primary violation; and

(3) substantial assistance by the aider and abettor in the achievement of the primary

violation. SEC v. Dibella, 587 F.3d 553, 566 (2d Cir. 2009); “[T]he SEC may seek an

enforcement action against aiders and abettors of ‘a violation of any provision’ of the

Advisers Act... which would include certain negligent acts in violation of the Advisers _

Act.” Jd. at 569.

The SEC has established that Grenda Group violated Section 203(f) of the —

Advisers Act by permitting W. Grenda to associate with it. It is further undisputed that G.

Grenda, as the sole owner and member of Grenda Group and as its Chief Compliance

Officer, not only had knowledge of Grenda Group’s activities but directed and controlled

them. See SEC v. Mgmt. Dynamics, Inc., 515 F.2d 802, 813 (2d Cir. 1975) (holding that

as “vice-president in charge of trading,” aider and abettor “occupied a prominent position

within the company[]” such that the “apparent authority exercised by [him]” created

liability under agency principles).

Finally, the SEC has established that G. Grenda substantially assisted Grenda

Group’s primary violation by “join[ing] the specific venture and shar[ing] in it,” by

undertaking efforts that “contributed to its success,” and by “consciously assist[ing] the

commission of the specific [violation] in some active way.” DiBella, 587 F.3d at 566

(quoting United States v. Ogando, 547 F.3d 102, 107 (2d Cir. 2008)) (internal quotation

marks omitted). G. Grenda made the decision to continue Grenda Group’s association

with W. Grenda even after he knew that his father had impersonated him in investment

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activities and even after he had direct and personal knowledge of W. Grenda’s repeated

violations of the SEC bar. Had G. Grenda chosen to do so, he could have severed Grenda

Group’s association with W. Grenda. Instead, he facilitated it by providing access to

Grenda Group data systems, cell phones, and clients. Even when the undisputed facts are

regarded in the light most favorable to Defendants, the SEC has established that G.

Grenda provided substantial assistance to further Grenda Group’s violation of Section

203(4).

Because the SEC has established that it is entitled to judgment as a matter of law

on its aiding and abetting claim against G. Grenda as set forth in Count II of its

Complaint, its motion for partial summary judgment on that count is GRANTED.

CONCLUSION

For the foregoing reasons, the SEC’s motion for partial summary judgment is

GRANTED with regard to Count I and Count II of its Complaint. (Doc. 61.)

SO ORDERED.

Dated this am day of May, 2021.

Christina Reiss, District Judge

United States District Court

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