On April 14, 2015, the Eastern District of Pennsylvania confirmed an American Arbitration Association (“AAA”) Award (“Award”) granting two investors (herein referred to as “Claimants”) more than $48.4 million in damages against Family Endowment Partners LP (“Family Endowment Partners”), a Boston based investment advisory firm and Lee D. Weiss (“Weiss”), a registered investment advisor. The Award included $17.4 million in actual damages, $990,705 in attorney fees and $30 million in treble damages.
Family Endowment Partners has approximately $334.6 million in assets under management and was formed by Weiss in 2007. In the AAA arbitration, the Claimants brought claims for negligence, breach of fiduciary duty and violations of The Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) and the Pennsylvania Securities Act, amongst other counts. According to the Award, the Claimants alleged that Weiss and Family Endowment Partners gave them negligent and unsuitable investment advice with respect to recommendations to invest approximately $20 million in unregistered securities. Specifically, the Claimants alleged that that Weiss recommended a $9 million investment in a Polish state tobacco company that had been privatized and bought by Biosyntec Polska (“Biosyntec”), a company that purportedly held patents which could create a cigarette that produced less harmful free radicals when smoked. Additionally, the Claimants alleged that the advice given by Weiss and Family Endowment Partners was fraudulent and contained material misstatements. Finally, the Claimants alleged that Weiss failed to disclose his personal financial interest in the investments he recommended.
According to the Award, Weiss and Family Endowment Partners argued in defense that the Claimants were sophisticated businessmen, who had complete authority over all investment purchases, and tasked them with diversifying a complex portfolio with potentially high-yield investments. Weiss and Family Endowment Partners further argued that suggestions they made regarding non-discretionary trades did not give rise to a relationship encompassing a fiduciary duty and as such, they breached no duty owed to the Claimants.
However, according to the Award, the one arbitrator AAA panel (“Arbitrator”) found, in a written decision, that Weiss and Family Endowment Partners both owed a fiduciary duty and breached that duty when providing investment advice to plaintiffs. The Arbitrator also found that Family Endowment Partners and Weiss breached those duties by failing to disclose material information, such as: 1) that Weiss was a longtime acquaintance of the head of the group that controlled Biosyntec and the polish tobacco company; 2) that prior to making his initial recommendation, Weiss had a “performance interest” in Biosyntec that was worth between $14 and $25 million; 3) and that, the Polish tobacco company Weiss recommended was “technically insolvent” at time of the Claimant’s investment. Furthermore, the Claimants were not provided with any offering documents for their investments in the Biosyntec affiliated companies.
Additionally, the Arbitrator found that Weiss and Family Endowment Partners suggested that the Claimants make loans to Biosyntec, despite the fact that Biosyntec was not current on previous loan payments owed to Claimants. The Arbitrator noted that “as a result [Claimants] put up additionally money to pay themselves the past due amounts that they were owed,” noting, that this type of practice was “akin to a Ponzi scheme.”
When an investment advisor places their personal financial interests ahead of their customers, they may have breached a fiduciary duty owed to those customers. Lax & Neville represents its clients in AAA and FINRA arbitration involving investment advisors’ breach of fiduciary duties. If you have invested with Family Endowment Partners or Lee D. Weiss, contact the securities fraud attorneys at Lax & Neville LLP today at 212-696-1999.