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.