Legal Matters

Former NEXT Financial advisor Douglas Simanski, of Johnstown, Pennsylvania, will pay $3.9 million to settle SEC charges against him and will plead guilty to criminal charges filed against him in the Western District of Pennsylvania. The SEC complaint and criminal proceedings stem from allegations that Simanski violated antifraud provisions of federal securities laws by raising over $3.9 million from clients, telling them they were investing in “tax free” securities. Instead, Simanski allegedly used the money to pay back other investors and kept the money for himself. Simanski’s victims were mostly retired and/or elderly investors, according to the SEC complaint. Simanski allegedly told investors they were investing in a fixed rate investment, a rental car company, or one of two coal mining companies in which he claimed to have an ownership interest. He is alleged to have told the investors to write checks payable to personal accounts he opened in his wife’s name. Simanski’s FINRA BrokerCheck report reveals a staggering twenty-six [...]

According to court documents, Robert Shapiro, the former CEO of Woodbridge Group of Companies, has agreed to pay $120 million to the Securities and Exchange Commission to settle allegations that he defrauded investors in a $1.2 billion Ponzi scheme. According to the allegations, Woodbridge and Shapiro defrauded more than 8,400 investors in unregistered Woodbridge funds, based on a business model built on lies. According to the SEC complaint, Woodbridge marketed itself as issuing loans to purported third-party commercial property owners that were paying Woodbridge between eleven and fifteen percent annual interest for “hard money,” short-term financing. Woodbridge then promised to pay investors five to ten percent interest annually, according to the allegations. The claimed high-interest loans to third parties were actually in large part made to Shapiro-owned companies that had no income and never made interest payments on the loans, according to the complaint. The complaint alleged that the Woodbridge group was only able to pay dividends to investors using a constant [...]

Ami Forte, once a star Morgan Stanley advisor with over $2 billion in assets under management, is out at Pinnacle Investments as of October 17, according to her FINRA BrokerCheck report. Forte’s departure comes two weeks after FINRA’s announced expansion of its January Wells Notice, which informed Forte of FINRA’s preliminary decision to discipline her for violations of industry rules. The newly expanded notice includes potential violations of rules related to conflicts of interest, fraud, unsuitability of recommendations, municipal securities, and books and records. Forte’s departure from Morgan Stanley was blogged about in this space in June, after a FINRA arbitration panel entered an award of over $34 million against Morgan Stanley, Forte, and Terry McCoy based on findings of unauthorized trading, churning, breach of fiduciary duty, fraud, negligence, unjust enrichment, and elder abuse. The claimant in that case was the estate of Roy Speer, founder of the Home Shopping Network. Forte was terminated by Morgan Stanley following the allegations [...]

A Financial Industry Regulatory Authority (“FINRA”) arbitrator issued an Award yesterday in a simplified (paperwork-only) arbitration ordering Cetera Advisors, LLC to repay a claimant $43,500 out of his $50,000 arbitration claim, based on his losses suffered in unsuitably risky and illiquid real estate investment trust (“REIT”) investments. The winning claimant was represented by the Frankowski Firm. The investments at issue were sold to the client by Cetera advisor Steven F. Brandt. The Claimant had expressed an interest in only low-risk investments that would preserve his principal. Instead, Mr. Brandt sold the claimant two REITs which exposed the claimant’s account to unsuitably high risk – a risk realized when the REITs plummeted in value. One of the REITs was not available to trade on a public market, leaving the client essentially “stuck” with the losses as the REIT declined. None of these risks were disclosed to the client at the time the REITs were sold to him and the unsuitable investments [...]