Wednesday, October 7, 2015

Week Ago Wednesday: Weiss Burned Investors

"SEC charges Newton adviser with defrauding clients" by Beth Healy Globe Staff  September 29, 2015

Federal securities regulators have filed civil fraud charges against a Newton investment advisory firm, Family Endowment Partners, alleging that it urged clients to invest more than $53 million in entities that secretly benefited the firm’s owner.

According to a Securities and Exchange Commission complaint, the firm and its owner, Lee Dana Weiss of Newton, advised 11 clients between 2010 and 2012 to invest more than $40 million in units of a French company in which Weiss had a financial interest.

The firm and Weiss allegedly failed to disclose the conflicts of interest. Weiss and groups that he controlled received more than $600,000 in payments from the French company and related entities shortly after the clients and hedge funds invested in it, according to the complaint, filed in federal court in Boston.

The French company, Biosyntec, was working on methods to reduce the harmful effects of smoking tobacco.

No one from Family Endowment Partners was available for comment. A lawyer believed to be representing the firm did not respond to requests for comment.

The firm, according to its website, was founded in 2007 and had an office in Boston; the SEC said it has been registered with regulators since 2009. It reported having $27 million in assets under management this year.

The SEC also alleged that Weiss’s firm persuaded five clients to invest $8.3 million, purportedly in notes or shares of companies under Weiss’s control, between late 2012 and 2014. Weiss and his company failed to disclose that the money in fact went to pay off millions of dollars in debts and business expenses for Weiss’s entities.

In addition, the SEC alleged, four Weiss clients invested $5 million in a consumer loan portfolio and siphoned off half the 18 percent return he had promised investors. The SEC did not say how much money Weiss’s clients have lost.

Weiss also has controlled other investment entities, including one in the Cayman Islands, Catamaran Holding Fund, and MIP Global Bahamas Ltd., in the Bahamas.

He lured clients in part with a resume that included stints at respected firms, such as Wall Street’s Merrill Lynch and Boston-based Fidelity Brokerage Services, according to records with regulators.

The case was handled in part from the SEC’s Philadelphia office, as the firm once had an office in Wayne, Pa., and had some large clients in the area. For instance, James and Jane Sutow of Pennsylvania in April won an arbitration case against Weiss in which they were awarded $48 million, including actual damages of $17.4 million and treble damages of $30 million.

Another client was Theodore J. Guarriello Jr., who invested $16 million with Weiss, according to a separate lawsuit filed in federal court in Boston. In 2010, Guarriello named Family Endowment Partners as the adviser on four accounts at Fidelity Investments.

Guarriello was a “conservative to moderate” investor whose assets consisted chiefly of blue-chip stocks, utilities, and government stocks and bonds, as well as money market funds, according to his lawsuit.

Weiss allegedly made a host of short-term trades in the account and moved half of Guarriello’s money into the investments benefiting himself, without adequate disclosure.

Antonia Chion, associate director in the SEC’s Division of Enforcement, said in a statement, “FEP and Weiss repeatedly abused their clients’ trust and placed their own interests ahead of their clients’ interests.”