SEC Charges Mass. RIA With Fraud, Self-Dealing

The U.S. Securities and Exchange Commission has charged a Newton, Mass.-based registered investment advisor with fraud and self-dealing after the advisor recommended clients invest millions of dollars in companies from which the RIA stood to gain.

Lee Dana Weiss and his Family Endowment Partners “engaged in a pattern of self-dealing” and failed to disclose conflicts of interest, use of investor funds and the risks associated with investments they recommended on behalf of investors, according to the SEC complaint.

A message left Tuesday for Weiss and Family Endowment Partners, an SEC-registered investment advisor to high-net-worth investors, pension and profit-sharing plans and charitable organizations, was not returned.

Between 2010 and 2012, Weiss invested more than $40 million belonging to individual clients and hedge funds in Biosyntec SA. The Paris-based company that claimed to have developed a cigarette filter that would reduce the risk of lung cancer from smoking tobacco, the SEC charged in papers filed in U.S. District Court.

Weiss, however, never revealed to his clients that he received as much as $600,000 from the French biotechnology company and its Polish subsidiaries, the SEC charged Tuesday in a complaint filed in U.S. District Court.

“The investments were generally in the form of ‘loan agreements,’ though in fact they were securities,” which were not publicly traded and illiquid, the SEC also said.

Between 2012 and 2014, Weiss recommended that clients invest the equivalent of $8.25 million in securities under Weiss’s control. But he did not disclose that the funds were being used to pay millions of dollars in delinquent debt and business expenses incurred by Family Endowment Partners, the SEC also alleged.

In a third violation of securities laws, the SEC charged Weiss, who is also a registered representative with the Puerto Rico-based broker-dealer MIP Global Inc., with recommending that clients invest $5 million in a consumer loan portfolio of a specialty financing company from which Weiss stood to profit.

The specialty finance company was offering an annual return of 18 percent, but Weiss “arranged for the clients to receive a lesser return of approximately 9 percent,” the SEC charged.

“Weiss pocketed the difference for himself by routing the other payment through a purported third-party ‘manager,’ which was supposed to provide insurance for the investment, but, in fact, performed no services,” the SEC also charged.

In addition, the SEC charged Weiss with failing to prepare and distribute financial statements of a fund under his control, and updating Family Endowment Partners Form ADV, which should have noted that Weiss and Family Endowment were subject to a $48 million arbitration award.

Family Endowment Partners’ Form ADV lists $28 million in assets under management, according to the SEC’s database.