Lee Dana Weiss Charged with Self-Dealing and Failure to Disclose
The Securities and Exchange Commission (SEC) announced on September 29, 2015 fraud charges against a registered investment adviser and its owner for allegedly participating in self-dealing and failing to communicate material facts to clients about conflicts of interest, use of investor funds, and the risks of the investments they suggested.
In a complaint filed in U.S. District Court for the District of Massachusetts, the SEC claims that Family Endowment Partners LP and its owner, Lee Dana Weiss, of Newton, Massachusetts, strongly urged their clients to invest more than $40 million in illiquid securities distributed by several related companies without revealing that Weiss had an ownership interest in the parent company of these entities and collected payments from these entities.
In addition, the SEC’s complaint states that FEP and Weiss recommended that their clients invest in entities that Weiss owned and managed without disclosing that the investments would be used essentially to behoove FEP. FEP and Weiss also supposedly advised clients to invest in a consumer loan portfolio while concealing that Weiss himself would secretly pocket half of the clients’ profits from these investments.
According to the SEC’s complaint:
- Between 2010 and 2012, FEP and Weiss advised 11 FEP clients and Weiss caused two FEP-affiliated hedge funds to invest more than $40 million in securities issued by subsidiaries of a French company that purportedly had designed methods to reduce the harmful effects of tobacco smoking.
- FEP and Weiss failed to disclose numerous conflicts of interest, including that Weiss had a financial interest in the French company and that Weiss and entities he controlled received more than $600,000 in payments from that company and related entities shortly after the FEP clients and hedge funds invested in it.
- In July 2011, Weiss recommended that an FEP client invest $2.5 million in one of the French company’s subsidiaries, even though he knew that the client’s money would be used to pay delinquent interest owed to other FEP clients.
- Between late 2012 and 2014, FEP and Weiss recommended that five FEP clients invest approximately $8.25 million in notes or shares of companies that were owned by Weiss. In at least one instance, FEP and Weiss failed to disclose to the FEP client that the note was for a company that Weiss owned. In other instances, FEP and Weiss failed to disclose that they intended to use funds to pay FEP’s financial obligations, rather than benefit the companies in which the clients invested. FEP and Weiss also failed to disclose the significant risk that the notes would never be repaid in light of the companies’ financial condition.
- In late 2011, FEP and Weiss recommended that FEP clients invest $5 million in a consumer loan portfolio. Weiss structured the transaction so that a portion of the investment proceeds, totaling more than $300,000, were paid to a purported third-party “manager.” FEP and Weiss did not disclose to clients that the “manager” was an inactive real estate company owned by Weiss’s close friend, which transferred the payments it received to Weiss and other third parties identified by Weiss.
The SEC alleges that FEP and the Weiss violated the antifraud provisions of the federal securities laws and related SEC antifraud rules and that FEP violated and Weiss aided and abetted violations of SEC rules concerning custody of client assets and the need to provide timely disclosure of significant events.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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