A former advisor admitted to a $4.3 million fraud scheme that bilked retirement-aged clients and helped fund a retail marijuana business, say federal prosecutors.

Shayne Kniss, 42, pleaded guilty to one count of wire fraud in a federal court in Oregon. The scheme used various means, including brochures, private placement memoranda, emails and personal presentations, to deceive investors into thinking the funds would be used to flip outdated homes and sell them at a profit, say prosecutors.

In actuality, Kniss co-mingled investor money, used new investments to make payments to prior investors and used more than $500,000 for personal use, including investing in a marijuana enterprise, say prosecutors.

“Investment advisors are legally required to act in the best interest of the clients,” says Billy J. Williams, U.S. Attorney for the District of Oregon in a statement. “This defendant did the exact opposite.”

After leaving KPS Financial Services, an affiliate of Ladenburg Thalmann, in 2009, Kniss founded an investment firm the following year, according to court documents. The firm, Iris Capital, offered real estate-based products in several different funds, including some that purchased residential properties in the greater Portland area that could be upgraded and resold at a substantial profit, court documents show.

Roughly 47 people invested in the scheme between February 2011 and April 2013, prosecutors say. Some of the investors were over the age of 65 at the time and used “significant portions” of their retirement savings, court records show.

“Kniss lied to and took advantage of his clients, many of whom were over 65, to fund his own personal pursuits,” Williams says.

DOJ FBI IAG


Iris Capital listed two employees on their last Form ADV filed in August 2013 and managed $4.8 million in client assets.

Conor Huseby, a public defender representing Kniss, declined to comment on the ongoing litigation.

Before forming his own firm, Kniss was registered with KMS from 2009 to 2010 and previously with UBS beginning in 2006, per BrokerCheck records. He was barred from the industry in 2015, per BrokerCheck.

There are two other disclosures listed in FINRA records. A 2010 dispute alleged a client’s account was negligently over concentrated and settled for $13,000, per BrokerCheck. Another alleged that Auction Rate Securities purchased through UBS were misrepresented and was settled for $25,000, per BrokerCheck.

“Client continues to work with and trust me and has made specific attempts to categorize this complaint as against UBS and not me,” Kniss said in the filing. “Client has transferred all assets except said ARS to me at my new broker-dealer.”

A spokesman for Ladenburg Thalmann said the firm doesn’t discuss former advisors’ legal affairs. UBS declined to comment.

“Kniss treated these victims — and their savings accounts — like his personal ATM,” says Renn Cannon, Special Agent in Charge of the FBI in Oregon, who participated in the investigation.

Kniss faces as many as 20 years in prison and $250,000 fine when he is sentenced August 22.

Sean Allocca

Sean Allocca is an associate editor of Financial Planning, On Wall Street and Bank Investment Consultant.