SEC Bans Individual and Firm in Tobacco-Related Scheme

The Securities and Exchange Commission (SEC) banned Lee Weiss from the brokerage and investment advisory industry for his involvement in a fraudulent scheme. A French company claimed it could reduce the harmful effects of tobacco smoking, and Mr. Weiss and his registered investment advisory firm fraudulently advised clients and hedge funds to invest more than $40 million in securities issued by companies owned by Biosyntec. Biosyntec claimed to have developed a cigarette filter that reduced the risk of lung cancer. Mr. Weiss was paid $600,000 by the company shortly after the investments were made. Weiss and his firm, Family Endowment Partners LLC, will pay about $8.4 million in relief to investors he duped. Combined, they have been ordered to pay a $1.5 million civil penalty.

The SEC alleged that from 2010 until 2012 Mr. Weiss and his registered investment advisory firm fraudulently advised clients and hedge funds to invest more than $40 million in securities issued by companies owned by Biosyntec. The SEC alleged he failed to disclose conflicts of interest to clients and how their investments were used. The agency filed a complaint against him in federal court in Massachusetts last year. In 2011, Weiss advised a client of Family Endowment to invest $2.5 million in a Biosyntec subsidiary, knowing the money would be used to pay delinquent interest owed to other clients of the firm, according to the complaint. He also recommended customers buy $8.5 million in the company’s notes and stock, failing to disclose that the funds would pay financial obligations rather than benefit the company in which they invested. He also failed to disclose the “significant risk” that the notes would never be repaid.