The SEC has brought new fraud charges against an RIA who's already on the hook to pay a $48 million award to two former clients after his claim that he was not bound to serve them as a fiduciary was rejected by an arbitrator.
The SEC's allegations pertain to $40 million that Lee Dana Weiss of Newton, Mass., is said to have persuaded his clients to invest in illiquid securities issued by a number of related companies, among other charges. Weiss failed to disclose to his clients that he had an ownership interest in the parent company of the firms and received payments from them, the commission alleges in a complaint filed in U.S. District Court for the District of Massachusetts.
BOGUS SMOKING INNOVATION?
One subsidiary at the center of the charges claimed it developed a means of reducing the harmful effects of smoking, the commission says.
Weiss is the founder of Family Endowment Partners, which still had its website up as of Tuesday night, suggesting the RIA was still open for business and offering fiduciary services to clients. However, the site went down overnight. Weiss, who is no longer registered as a CFP, did not immediately respond to attempts to reach him.
“Investment advisors have an obligation to act in their clients’ best interests,” Antonia Chion, associate director in the SEC’s Division of Enforcement, says in a statement. However, Family Endowment and "Weiss repeatedly abused their clients’ trust and placed their own interests ahead of their clients’ interests.”
Weiss also persuaded clients to invest in a consumer loan portfolio while concealing that Weiss himself would secretly pocket half of the clients’ profits from these investments, the SEC says.
In April Weiss lost an arbitration battle with two of his former clients, James and Jane Sutow, who won an award against him for a total of $48 million: $17 million to cover their losses, plus $30 million in damages and nearly $1 million for legal costs.
A hearing in November could determine whether the court agrees to confirm the arbitrators' award, as the Sutows have requested, or vacate it, at Weiss' request, according to attorney Glenn Gitomer, who represented the Sutows in the case.
Another former client, Allan Silber, filed a lawsuit on May 6 in district court in Massachusetts, accusing Weiss of fraudulently convincing him to invest nearly $2 million to help Weiss pay off loans to various individuals.
A PROMISE BY EMAIL
At the time Weiss solicited Silber for the investment, he did not inform him that he was fighting allegations from other clients and already had been ordered to pay a steep award in one case, Silber alleges in his complaint.
Weiss did manage to repay Silber $900,000 in March of last year, before sending Silber the following email, "We have set up a wire for $1,058,020.85. This includes interest through the end of September. Thank you for all your help and friendship."
That payment however, never materialized, Silber says.
In Family Endowment's most recent Form ADV filing with the SEC, which Weiss signed on Sept. 9, he reported his firm still had $27.97 million in assets under management.
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