Some Securities and Exchange Commission cases catch my attention because of their headlines or their focus on a real estate investments. The case against Lee Dana Weiss caught my attention because it was from my home town.
The story is one of alleged self-dealing and failure to disclose conflicts. In a complaint filed in U.S. District Court for the District of Massachusetts, the SEC alleges that Family Endowment Partners LP and its owner, Lee Dana Weiss, of Newton, Massachusetts, urged their clients to invest more than $40 million in illiquid securities issued by several related companies without disclosing that Weiss had an financial interest in the investments.
This was not the first round of trouble for Mr. Weiss and Family Endowment. In April, they lost an arbitration and had to repay $48 million to clients. The firm had recommended a series of private investments in a company that owned a Polish tobacco company and patents on a cigarette filter that it claimed would revolutionize the tobacco industry. Not only was it a sketchy investment, but apparently Mr. Weiss had an undisclosed performance interest in the success of the company.
Browsing through the Form ADV, you can see that it is filled with subsidiaries and the multiple hats that Mr. Weiss was wearing. Given all of the existing disclosures, it seems that it should have been easier to include the additional disclosures that would have helped his case.
Given that Mr. Weiss had an ownership interest, and not just an incentive payment, the principal transactions rule would apply requiring explicit consent by the advisory client.
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