RIA (and a fiduciary) must pay $17M in damages to investor clients
Money manager must pay $48 million for bad investments
ERIN E. ARVEDLUND, INQUIRER STAFF WRITER
POSTED: Monday, April 20, 2015, 1:08 AM
A local money manager must pay $48 million in damages to an Ambler, Penn., couple who said he placed their money in unsuitable, illiquid investments such as a Polish tobacco company and turbine-engine makers in Tunisia.
James and Jane Sutow last week were awarded $17.4 million in actual damages, slightly more than $30 million in treble damages and almost $1 million in legal fees and costs by the American Arbitration Association.
The Sutows were clients of Family Endowment Partners and its money manager, Lee Dana Weiss, from 2010 to 2013. They sought damages under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.
“Jim [Sutow] grew up in this area and sold his steel business in 2005,” said the couple’s attorney, Glenn Gitomer.
Red flags popped up a year or so after the Sutows invested. “Weiss had blind faith in his investments. He lent millions of dollars to Biosyntec [Polska, a start-up tobacco-filter firm], a company with no assets,” Gitomer said.
Calls and an e-mail to Weiss were not returned. He can still appeal the arbitration award. The SEC database (www.adviserinfo.sec.gov) shows Family Endowment Partners oversees about $335 million from its Wayne and Boston offices.
According to the award filed in U.S. District Court in Philadelphia, Weiss also invested client money in companies in which he had a personal financial investment, a conflict of interest.
Weiss stopped calling the Sutows to answer their questions and became elusive, Gitomer said. The Sutows consulted a competing money manager about Weiss’ underlying investments, which he had not explained in writing, the arbitration award said.
Then the compliance officers at Weiss’ firm quit. (In a twist, the latest to leave, L. Allison Charley, now works at the Securities and Exchange Commission.)
The Sutows declined to comment except through their attorney.
Unlike Bernard Madoff, Family Endowment Partners and Weiss did not run a Ponzi scheme, but rather invested some of the Sutows’ assets in Biosysntec Polska, which, as the arbitrator found, was akin to a Ponzi scheme in that it used investors’ money to pay past-due amounts owed.
Gitomer said Weiss was a registered investment adviser, and thus a fiduciary, “and a fiduciary has a duty to do right by their clients.”
Fiduciary obligations are a hot topic. Last week, the U.S. Department of Labor proposed a rule requiring brokers and other financial advisers to put clients’ interests first.
“We see what happens when those in and near retirement lose vast sums of money as a result of conflicted advice,” said Joseph C. Peiffer, president of the Public Investors Arbitration Bar Association.
The fiduciary standard may not protect everyone from bad investments. But it offers investors the potential for redress when a fiduciary fails to act in their best interests.