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Securities and Exchange Commission v. Weiss

United States District Court, D. Massachusetts

September 20, 2019

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
LEE DANA WEISS; FAMILY ENDOWMENT PARTNERS, LP; MIP GLOBAL, INC. f/k/a MOSAIC INVESTMENT PARTNERS, INC.; MOSAIC ENTERPRISES, INC.; MOSAIC INVESTMENT PARTNERS, INC.; WEISS CAPITAL REAL ESTATE GROUP, LLC, Defendants.

          MEMORANDUM AND ORDER

          Indira Talwani, United States District Judge.

         I. Introduction

         As set forth below, Jennifer H. Hawthorne’s Limited Motion to Intervene and to Quash/Modify Continuing Writ of Garnishment and Memorandum in Support Thereof [#77] (“Hawthorne Mot.”) in this action (the “SEC action”) is DENIED as untimely.

         II. Background

         Beginning in 2009, Defendant Lee Dana Weiss acted as an investment advisor for Applicant in Intervention, Jennifer Hawthorne. Hawthorne Aff. ¶ 2 [#79]. In March 2015, Weiss informed Hawthorne that he “had been accused of perpetrating several schemes to defraud clients[.]” Id. at ¶ 6. In September 2015, Plaintiff Securities and Exchange Commission (“SEC”) initiated the SEC action by filing a complaint against Weiss related to those schemes, alleging that Weiss and his company, Family Endowment Partners, LP (“FEP”), engaged in fraudulent conduct, in violation of 15 U.S.C. §§77q(a)(1-3), 77j(b)(5), 80b-6(1-5) and 17 C.F.R. §§ 240.10b-5, 275.206(4)-2, 275.206(4)-8, 204-1(a)(1). Compl. [#1]. The complaint also named a number of other entities as Relief Defendants, including Mosaic Investment Partners, Inc. (“MIP”) and MIP Global, Inc. (“MIP Global”). Id. During the litigation, the SEC was in contact with alleged victims of the fraud, including Hawthorne’s counsel. See SEC’s Sur-Reply, Attachment 1, Declaration of Stacy L. Bogert (“Bogert Decl.”) [#95-1].

         On February 4, 2016, the SEC gave notice that SEC staff had reached a settlement in principle with Defendants and Relief Defendants that would resolve the claims in the case, see Joint Motion to Continue Scheduling Conference in Light of Parties’ Tentative Agreement to Settlement Terms [#29], and the court stayed the action for sixty days. Elec. Order. [#30].

         On March 3, 2016, the SEC gave notice here of a potentially related case in which the plaintiff had sought a temporary restraining order. Notice [#33]. In that case, Lauring et al. v. Weiss et al., 16-cv-40015-TSH (D. Mass.), a temporary restraining order was entered on that date, in which the court found that the plaintiff had shown, inter alia, that unless the defendants (including Weiss, MIP and MIP Global) were restrained, these defendants “may dissipate and conceal assets.” See Lauring et al. v. Weiss et al., 16-cv-40015-TSH (D. Mass.), Temporary Restraining Order [#23] at 2. These defendants were enjoined from transferring, pledging or in any way disposing or distributing any interests or assets they held, except as would be permitted in the SEC action or two related pending actions before this court. Id. ¶¶1-5. The TRO was subsequently extended until April 21, 2016. Lauring et al. v. Weiss et al., 16-cv-40015-TSH (D. Mass.), Amendments to Temporary Restraining Order [#54] at 1-2.

         On April 1, 2016, the SEC and Weiss moved to further stay the SEC action for an additional 60 days, stating that “[t]he settlement in principle previously reported by the parties remains in effect.” Joint Motion to Stay [#34]. The court granted this request on April 5, 2016.

         On April 9, 2016, while the TRO issued in the Lauring case and the stay based on the “settlement in principle” in the SEC action were both in effect, Weiss, on his own behalf and on behalf of MIP, MIP Global and others, and Hawthorne executed an assignment and security agreement (hereinafter the “Agreement”). Hawthorne Aff., Ex. C (“Agreement”) [#79-3]. The document’s “whereas” clauses explained that “MIP [had] an equity interest in “a registered broker-dealer by the name of Stillpoint Capital, LLC (“Stillpoint”), ” and that that“MIP Global, MIP, and Weiss have agreed to grant Hawthorne a security interest and assign to Hawthorne any payments, distributions or other amounts Weiss is entitled to receive from or in respect of his interest in Stillpoint[.]” Id. at 1. The Agreement provided that: “Weiss consents to the grant of a security interest in all net proceeds, distributions and other payments subsequently received from or with respect to Stillpoint”; “Weiss shall hereinafter instruct Stillpoint . . . to pay directly to Hawthorne” referenced amounts; and “the Agreement was intended as a transfer and present assignment of . . . Weiss’s interest in Stillpoint.” Id. ¶¶ 1, 6. On June 20, 2016, in accordance with the parties’ expressed interest, the court entered a Final Judgment as to All Defendants and Relief Defendants (“Final Judgment”) [#55] in the SEC action, restraining, enjoining, and holding liable Weiss, MIP Global, MIP, and other Relief Defendants.

         On July 7, 2017, upon SEC application, the court issued a Post-Judgment Continuing Writ of Garnishment [#63] to Stillpoint, directing it to withhold and retain any property in its control that Weiss had a present or future interest in. Stillpoint answered that it “ha[d] or anticipated having future possession, custody or control of non-earnings property in which Defendants may or will have an interest, to wit: Buyout of MIP Global, Inc.’s interest as a disassociated member of Stillpoint Capital, LLC, with an approximate value of $80, 000 less expenses.” Answer of Garnishee, Stillpoint at 2 [#65].

         On October 22, 2018, the SEC sought a Post-Judgment Continuing Writ of Garnishment [#70] directing Stillpoint to withhold and retain any property in its control in which MIP Global had a present or future interest. The court issued the writ on October 26, 2018 [#73], and the garnishee reiterated MIP Global’s interest in Stillpoint. Answer of Garnishee, Stillpoint at 2-3 [#83].

         During the week of October 22, 2018, Hawthorne reviewed her Agreement. Hawthorne Aff. ¶ 15. On October 31, 2018, Hawthorne and Weiss (on his own behalf and on behalf of MIP, MIP Global and other entities) made changes to the Agreement, and signed an Acknowledgement and Agreement asserting that “they have corrected certain scrivener’s errors and clarified certain provisions in the Agreement . . . in order to reflect the Parties’ original intent in executing the Agreement. Hawthorne Aff., Ex. D (“Amended Agreement”) [#79-4]. According to the Amended Agreement, MIP Global, rather than MIP, has an equity interest in Stillpoint. Amended Agreement [#79-4] at 3. Also, in the Amended Agreement each reference to Weiss’s interest in Stillpoint was changed to “they” or “their” interest. Id. at 1, and ¶¶ 1, 6.

         On November 5, 2018, Hawthorne moved to intervene and quash or modify the Post-Judgment Continuing Writ of ...


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