The Tribune

A Bahamian broker/dealer yesterday said it had severed all ties with a former shareholder after he allegedly misappropriated $1 million that was intended to be an equity investment in the firm.

Steve Mackey, MIP Bahamas’ chief executive, told Tribune Business he “bought out” American investor, Lee Weiss, to avoid “contamination” once allegations concerning the latter’s ‘conflicts of interest’ and misuse of investor funds started to emerge.

Weiss and his Massachusetts-based firms, Family Endowment Partners (FEP) and MIP Global, are now defendants in a Securities and Exchange Commission (SEC) lawsuit in the US, which accuses them of misusing funds intended to be invested into MIP Bahamas.

While there is no suggestion that Mr Mackey, nor his co-director, Jaspreet (JP) Dhaliwal, have done anything wrong, and neither is named in the SEC action, MIP Bahamas - formerly MIP Global Bahamas - is named as a ‘relevant entity’.

The broker/dealer, according to the lawsuit, was initially part of Weiss’s group of companies, with the American acting as its chairman.

Mr Mackey initially denied any links between himself, MIP Bahamas and Weiss when contacted by Tribune Business yesterday.

“I have no connection. I have no connection, no affiliation with Lee Weiss,” Mr Mackey said, adding that he was unaware of the SEC lawsuit’s allegations.

However, when pressed by Tribune Business, he subsequently acknowledged Weiss’s former ties to the Sandyport-based broker/dealer - links that have now been severed.

“We broke up,” Mr Mackey said of their relationship. “I own the company [MIP Bahamas] as of July. We bought him out as of April.

“When I heard of the first arbitration, I said to him: ‘I’m out of here’. I didn’t want any contamination. It’s a sad thing. It’s unfortunate, but I have no involvement.”

Mr Mackey said Weiss resigned as an MIP Bahamas director on April 16, 2015, two days after an adverse arbitration ruling on the same matters that are the subject of the SEC lawsuit.

“I got him out right away. I wanted nothing to do with it,” Mr Mackey told Tribune Business, adding that he was unaware what Weiss did with his client’s proposed investment in MIP Bahamas at the time the events occurred.

The SEC is alleging that Weiss diverted the investment by one of his customers, labelled ‘Client E’, which was intended for MIP Bahamas to instead pay off obligations owed to other clients. This was never disclosed to ‘Client E’.

“In March 2014, Weiss advised and caused Client E to make an equity investment in MIP Bahamas, a broker/dealer that Weiss indirectly owned through Mosaic Enterprises,” the SEC alleged.

“In accordance with Weiss’s recommendation, on March 25, 2014, Client E paid Mosaic Enterprises $1 million in exchange for 200,000 shares of MIP Bahamas.”

The SEC continued: “The funds that Client E invested were not used to benefit MIP Bahamas. Instead, on March 28, 2014, $1 million was sent to Weiss and FEP in two transfers of $900,000 and $100,000, respectively.

“The same day, Weiss paid $900,000 to an individual who had made a purported $900,000 investment in MIP Global during 2013. Also on the same day, FEP used Client E’s $100,000, in conjunction with the proceeds of Client B’s and Client E’s loans to MIP Global to pay off FEP noteholders.

“When Weiss advised and caused Client E to make the equity investment, he did not disclose that the purpose of the investment was simply to repay obligations of FEP and MIP Global, and not for any corporate purpose of MIP Bahamas.

“A reasonable investor would have considered the intended use of Client E’s investment as important in deciding whether to purchase shares of MIP Bahamas.”

Both Mr Mackey, who is described on its website as MIP Bahamas’ founder, and Mr Dhaliwal are former executives at EFG Bank & Trust (Bahamas).