SEC Charges Investment Adviser Firm and President With Custody Failures

ADMINISTRATIVE PROCEEDING
File No. 3-20611

September 30, 2021 - The Securities and Exchange Commission today instituted settled charges against California-based registered investment adviser Redwood Wealth Management, LLC, and its president, Benjamin Lincoln, for failing to properly take custody of client assets.

According to the SEC's order, in 2019, Lincoln suggested that several Redwood clients purchase promissory notes issued by a mortgage company seeking an alternative to more traditional financing. The mortgage company was owned and controlled by another Redwood client. In total, Redwood clients invested $30 million in promissory notes issued by the mortgage company. The promissory notes, which were significant investments for those clients, were held outside of Redwood's managed accounts. As a result, neither Redwood's Chief Compliance Officer nor its Chief Investment Officer was aware of the investments, and they had no ability to monitor or evaluate the propriety of the investments as required by Redwood's investment policies.

The SEC's order finds that Redwood violated Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-2 and 206(4)-7 thereunder, and that Lincoln caused those violations.

Without admitting or denying the findings, Redwood agreed to pay a civil penalty of $50,000, comply with certain undertakings, and be censured by the SEC. Also without admitting or denying the findings, Lincoln agreed to pay a civil penalty of $20,000.

The SEC's investigation was conducted by Melissa Mitchell and Joshua Mayes, and supervised by Matthew McNamara, all of the Atlanta Regional Office.