Lee Dana Weiss of San Juan Puerto Rico a stockbroker formerly employed by MP Global Inc. and owner of Family Endowment Partners LP (FEP) has been barred by Securities and Exchange Commission (SEC) from being a broker or investment advisor or otherwise associating with brokers or investment advisories according to an SEC Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Investment Advisors Act of 1940 Section 203(f) based on the SEC’s allegations that Weiss failed to make required disclosures to customers about: (1) conflicts of interest with regard to their investments (2) risks pertaining to the customers’ purchases of investments through Family Endowment Partners and (3) the matter in which investor funds were used. In the Matter of Lee D. Weiss Administrative Proceeding File No. 3-17321 (June 29, 2016).
According to the Order, SEC’s decision to bar Weiss was based in part upon a Final Judgment entered against Weiss which enjoined him permanently from engaging in conduct violative of, inter alia: Securities Exchange Act of 1934 Section 10(b); SEC Rule 10b-5; Securities Act of 1933 Section 17(a); and Investment Advisors Act of 1940 Section 206. Securities and Exchange Commission v. Lee D. Weiss et al. Civil Action No. 1:15-cv-13460-IT (D. Mass June 20, 2016).
Apparently, the SEC’s Complaint against Weiss which preceded SEC’s Order alleged that Weiss and Family Endowment Partners steered two hedge funds and eleven customers of Family Endowment Partners toward contributing in excess of $40,000,000.00 in securities issued by a French company’s subsidiaries. This French company reportedly attracted investor attention because it claimed to have come up with unique ways to reduce the detrimental effects of smoking. Apparently; however, Weiss and Family Endowment Partners neglected to inform customers about conflicts of interest present in the customers’ securities transactions given Weiss’ own investments in the French entity in addition to his investments in the companies owned by that French entity. Apparently, Weiss also failed to inform customers that a total of $600,000.00 had been paid to Weiss, or companies controlled by Weiss, from the French company and other entities subsequent to the hedge funds and customers of Family Endowment Partners LP making their investments.
The Complaint alleged that in one case, Weiss advised a customer of Family Endowment Partners to make a $2,500,000.00 investment in one of the French entity’s subsidiaries; however, Weiss knew at that time of the customer’s transaction that the funds would not be used for the French entity’s subsidiaries but instead utilized to make delinquent interest payments to another customer of Family Endowment Partners.
Additionally, the SEC claimed that five more customers of Family Endowment Partners were advised by Weiss to make a total of $8,250,000.00 in purchases of shares or notes issued by the companies Weiss owned. Evidently, there were a lack of disclosures made by Weiss and Family Endowment Partners in reference to the use of those customers’ funds for paying the financial obligations of Family Endowment Partners instead of being directed to the benefit of companies which investors believed they were investing in. Moreover, Weiss reportedly neglected to inform customers about the risks posed by those notes; he left out the fact that the notes were unable to be repaid given the financial condition of the companies.
According to the Complaint, additional Family Endowment Partners customers were advised by Weiss to make a $5,000,000.00 investment in a loan portfolio. Transactions were allegedly structured by Weiss to enable $300,000.00 of customer funds to be indirectly paid to him. Specifically, the customers were led to believe that a third-party manager would be compensated; however, those customers were not provided details about the money instead being paid to a friend of Weiss’ who ultimately provided the funds to Weiss and other parties.
Financial Industry Regulatory Authority (FINRA) Public Disclosure confirms that Weiss is referenced in seven customer initiated investment related disputes pertaining to allegations of his violative conduct during the time that he was associated with Merrill Lynch and Family Endowment Partners LP. Specifically, a customer filed an investment related arbitration claim concerning Weiss’ activities in which the customer sought $5,500,000.00 in damages based upon accusations that Weiss or Family Endowment Partners failed to undertake reasonable due diligence on promissory notes sold to the customers; made omissions and misrepresentations in regard to their investments; and breached fiduciary and contractual obligations to the customers. AAA Arbitration (June 5, 2014).
Subsequently, a customer filed an investment related civil action involving Weiss’ conduct in the United States District Court for the District of Massachusetts where the customer requested unspecified damages founded on allegations that the customers’ funds had been converted; contractual and fiduciary duties owed to the customers were violated; and the customers became victims to Weiss’ fraudulent activities regarding their hedge fund, promissory note and direct investment product purchases. Civil Action No. 1:14-CV-13351-IT (Sept. 18, 2014). Then, a customer filed an investment related civil action in a Boston State Court involving Weiss’ activities in which the customer sought $1,200,000.00 in damages supported by accusations of a botched customer loan to Family Endowment Partners resulting in the customer’s losses. Civil Action No. 1:2015CV11787 (Sept. 8, 2015).
