A Pennsylvania-based investment advisor was sentenced to five years in prison after pleading guilty for a Ponzi-like scheme defrauding investors of more than $7 million, according to the Department of Justice. One official said the accused advisor used the funds for “everything from car payments, to country club fees, to payouts to previous investors.”
Lee Dana Weiss was the principal at Family Endowment Partners, an SEC-registered investment advisor located in West Chester, Penn., according to the indictment against him filed in July 2020. Weiss pleaded guilty to investment advisor fraud and was ordered to pay $750,000 in restitution and a $250,000 fine in addition to the prison sentence.
In a statement, U.S. Attorney Jacqueline Romero said when someone like Weiss corrupts the relationship between advisor and client, the damage to a client’s finances can be “catastrophic.”
“The end result is as devastating and traumatic as if the victim had been robbed at gunpoint; therefore, we take it just as seriously,” she said.
Most of Weiss’ clients were “high wealth individuals with substantial sums to invest,” according to the indictment. The DOJ argued Weiss’ firm created a “fund-of-funds” for clients, touting it as a safe and stable place for investments.
Weiss transferred a substantial amount of the funds to an unnamed individual, eventually placing those investments in a venture purportedly created to acquire and operate a defunct Florida tobacco company that had been seized by the government and whose assets were being auctioned. But Weiss misappropriated much of the clients’ funds for his own uses, according to the DOJ.
The indictment detailed the plight of a victim, called “J.H.,” in the document. Weiss introduced himself to J.H. after overhearing a phone conversation in which she told someone that her parents were victims of the Bernie Madoff Ponzi scheme. Weiss told her he was an investment advisor and could help her deal with her parents’ losses.
“J.H. was deeply affected by the losses that her parents suffered as a consequence of the Madoff Ponzi scheme, and initially refused defendant Lee D. Weiss’s repeated offers of assistance,” the indictment read. “Nonetheless, defendant Weiss continued to contact and to solicit J.H. After approximately one year, J.H. agreed to invest funds with defendant Weiss, subject to the condition that they be placed in legitimate third-party institutional investments.”
In total, J.H. invested more than $3 million into suggestions by Weiss that were, in some cases, entities controlled by Weiss. The advisor eventually used J.H.'s money to make payments to other clients, unrelated business investors, attorneys, credit cards in his name and a charity with which Weiss was associated and country club fees, among other expenses.
In an in-person meeting, Weiss falsely told J.H. and her husband that his firm had no relationship with the entities in which he’d invested their funds (though in reality, he controlled them, according to the DOJ). Weiss continued to tell clients they were making money, even after he’d misappropriated their funds, in order to prevent them from learning the truth of the scheme.
The DOJ sentencing follows SEC fraud charges against Weiss and his firm in 2015 for related offenses, alleging that Weiss failed to “disclose material facts” to clients about conflicts of interest and how their funds were being used (in total, the SEC argued Weiss urged clients to invest more than $40 million in illiquid securities issued by a number of companies in which he had an ownership interest).