In December 2018, a former client Next Financial Group Inc. won an award in a FINRA arbitration for compensatory damages for $2,004,423 plus $6,200 as reimbursement for the initial filing fee and hearing session fees for losses sustained from investment losses related to Simanski engaging in outside business activities (selling away from his member firm). The investors were clients of financial advisor Douglas Simanski (CRD# 2606998)?
The causes of action included breach of contract and common law indemnification. The causes of action related to Claimant’s allegations that, in violation of the Independent Contractor Agreement between Claimant and Respondent, Respondent failed to obtain Claimant’s approval for all of his personal securities accounts and all of his outside business activities, failed to inform clients that he was not acting as a representative of Claimant when he solicited funds from them for his unapproved outside business activities, and failed to indemnify Claimant for settlements entered into by Claimant in relation to Respondent’s unapproved outside business activities. The FINRA arbitration hearing was conducted in Pittsburg, Pennsylvania.
According to the SEC complaint, Simanski raised more than $3.9 million from approximately 27 investors by “falsely representing he would invest their money in one of three ventures: (1) a ‘tax free investment’ providing a fixed return for a specified number of years; (2) one of two coal mining companies in which Simanski claimed to have an ownership interest; or (3) a rental car company.”
It is alleged that Simanski convinced his clients to invest their money while knowing the investments were not legitimate, that he would make virtually no securities investments on their behalf, and would instead use their money for personal expenses or to repay other investors. According to the complaint, to conceal his fraudulent activities, Simanski placed investor funds in brokerage and bank accounts that Simanski opened in his wife’s name and used investor money to repay prior investors.
In November 2018, The Securities and Exchange Commission (SEC) entered a final judgment against Simanski and permanently barred him from registering as broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or NRSRO related to his participation in the offering of a penny stock. According to the SEC, “The Commission’s complaint alleged that while associated with his member firm and while acting as an investment adviser to his clients, Simanski engaged in a scheme to defraud his clients. He made material misrepresentations to induce his clients to send money to him personally to invest in companies that he claimed to own or operate. Simanski did not invest his clients’ money as promised and instead used the money to pay other investors and for his personal expenses.” Additionally, “The counts of the criminal information to which Simanski pled guilty alleged, inter alia, that he defrauded investors and obtained money and property by means of false and fraudulent pretenses, representations, and promises. Among other things, Simanski admitted that he used a portion of the funds raised from investors for his personal use.”
Simanski faces the following pending criminal charges: Securities Fraud, Wire Fraud and False Income Tax Return.
In June 2016, FINRA barred Simanski after he consented to the sanction and to the entry of findings that he failed to provide documents and information as requested by FINRA Enforcement staff. According to his CRD, “The findings stated that Enforcement staff sent Simanski a letter requesting that he provide documents and information related to an investigation into allegations for conversion of funds, and Enforcement staff subsequently granted an extension of time for him to respond to the request letter. The findings also stated that Enforcement staff sent Simanski another letter requesting that he provide the previously requested documents and information, and he did not provide the requested documents and information by the specified date.”
Pending criminal charges from October 2018 include Securities Fraud, Wire Fraud and False Income Tax Return.
Simanski was registered with Next Financial in Altoona, Pennsylvania from 1999 to 2016, when he was terminated regarding, “RR sold fictitious investments and converted the funds for his own personal use and benefit.”Simanski has been the subject of 23 customer complaints between 2016 and 2018, two of which were denied, according to his CRD report:
- September 2017. “Customer’s attorney alleges devastating financial losses that came about as the result of the conduct of registered representative. On July 6, 2010 and May 17, 2011, client wrote checks to registered representative for certain investments. The investments were unapproved and conducted away from the firm.” The customer sought $5,000 in damages and the case was settled for $440,000.
- September 2017. “Customer’s attorney alleges devastating financial losses that came about as the result of the conduct of registered representative. During the period May 2007 – May 2016, client invested in various tax free investments through registered representative. The investments were an unapproved activity conducted by registered representative away from the Firm.” The customer sought $5,000 in damages and the case was settled for $97,000.
- June 2017. “Claimant alleges on or about August 2015, registered representative importuned them to loan $125,000 to Payless Rent a Car, which reputedly paid 5% interest, payable at the end of the year. Claimants believe the representative took the funds for his own use.” The customer sought $125,000 in damages and the case was settled for $81,920.
- May 2017. “Firm received an oral complaint, alleging that on or about May 2016, registered representative sold customer unapproved investment products in the amount of $37,000.” The case was settled for $30,000.
- April 2017. “Firm received an oral complaint, alleging that on or about October 1, 2005, Registered Representative sold customers unapproved investment products in the amount of $45,000.” The case was settled for $30,000.
- March 2017. “Claimants allege that they were sold a tax-free investment with a guaranteed 10% yield compounded annually, which they later deemed to be fraudulent.” The customer sought $50,000 in damages and the case was settled for $25,000.
- March 2017. “Customer alleges in early 2014, registered representative recommended a $100,000 new investment in a purported coal company. Representative promised they would earn $5,000 annual interest for five years, which could be taken as cash or reinvested and customers could get their money out after a five year period. On or about April 27, 2015, representative recommended customer invest another $125,000 into the purported coal company based on the same terms as before. Customer believes all investments in the purported coal company are lost.” The customer sought $225,000 in damages and the case was settled for $180,000.
- February 2017. “Customer alleges that on July 23, 2014, she wrote a $100,000 check to E*Trade for an investment with registered representative and she was recently advised that the invested amount no longer exists.” The customer sought $100,000 in damages and the case was settled for $119,706.
- January 2017. “Customer alleges between the period of March 1, 2010 through October 9, 2015, $231,665 was provided to registered representative to be placed in appropriate investment vehicles. Customer believes registered representative unlawfully diverted the funds to an account in the name of registered representative and said funds were used for registered representative’s own personal gain and funds have been depleted.” The customer sought $231,665 in damages and the case was settled for $215,000.
- December 2016. “Customer alleges on or about August 1, 2015, registered representative importuned customer to purchase a $200,000 note from Payless Rent a Car which reputedly paid 5% interest. Customer paid representative by personal check, the note was for 5 years, with interest to be paid annually on August 1. Customer expected to receive interest of $10,000 on or about August 1, 2016 but no payment was ever received. Customer believes representative may have taken all funds to his own or his family’s use.” The customer sought $210,000 in damages and the case was settled for $132,080.
- December 2016. “Customer alleges on or about November 1, 2013, a check for $100,000 was given to registered representative which was to be invested in the Black Diamond Mining Company. This investment offered a 5 year, 5% secured or guaranteed note to investors. Customer believes this note was non-existent and representative converted or otherwise used the proceeds from investment for his personal use.” The customer sought $100,000 in damages and the case was settled for $70,000.
- December 2016. “Customer alleges Registered Representative convinced her to purchase a Pennsylvania Tax Free Investment Fund, which supposedly would generate tax-free income of between 3% and 5%. Customer invested $130,000 in the Pennsylvania Tax Free Investment Fund, which was non-existent and believes representative converted or otherwise used the proceeds from customer’s investment for representative’s personal benefit.” The customer sought $102,127 in damages and the case was settled for $75,000.
- October 2016. “Customer alleges he invested $890,000 in a 10% “tax-free” fixed income security or bond which would pay interest annually and have a maturity date of two years. Customer believes this investment was non-existent and registered representative converted funds to his personal benefit. No date when activities took place was noted in the statement of claim, but firm believes the date range was 2003-2006.” The customer sought $1,090,000 in damages and the case was settled for $140,000.
- October 2016. “Customer alleges registered representative recommended they take money out of their annuity and invest it in a safe, tax-free investment for a five year period that would earn $5,000 annual interest which could be taken as cash or reinvested. Money was withdrawn from an annuity, incurred $6,000 in taxes and customers wrote a check for $104,000 to “E*Trade” around February 12, 2016. Customers believe all investments in this account are lost.” The customer sought $104,000 in damages and the case was settled for $91,000.
- October 2016. “Customer alleges in November 2014 that registered representative recommended customer invest $120,000 was invested in a “CD” for 36 months at 1.7% interest. Customer alleges that their check, which was made payable to E*Trade, was deposited in an E*Trade account under registered representative’s control and that the funds were misappropriated.” The customer sought $120,000 in damages and the case was settled for $98,000.
- September 2016. “Customers allege that in July or August 2013 registered representative recommended that they invest $90,000 in an investment that would operate like an annuity, guaranteed they would earn $5,000 annual interest for 20 years and could get their principal investment back. Customer wrote a check to E*Trade, which was deposited into an account apparently owned by the registered representative.” The customer sought $76,000 in damages and the case was settled for $68,500.
- August 2016. “Customer’s daughter alleges on 10/22/2014, her father who is now deceased, gave registered representative a check in the amount of $140,000 and received a signed five year fixed investment note in return. Registered representative absconded with the balance of $100,000.” The case was settled for $67,425.
- July 2016. “Customers allege that in 2009 they invested $200,000 in a promissory note which they would receive a six percent tax-free return for a two year period. Claimants state the registered representative sold fraudulent and unregistered securities.” The customer sought $200,000 in damages and the case was settled for $120,000.
- June 2016. “Customer alleges registered representative persuaded them to invest $80,000 into a special project and funds were misappropriated. The dates when the activities leading the the allegation occurred were not provided by the customer.” The customer sought $80,000 in damages and the case was settled for $60,000.
- June 2016. “Client sent a letter, on or about September 14, 2016, after being contacted by the firm, confirming that client invested $50,000 in an investment with a 10% tax free return. The investment was an unapproved activity conducted by registered representative away from the firm.” The customer sought $30,000 in damages and the case was settled for $25,000.
- June 2016. “Client sent a letter, dated June 2, 2016, after being contacted by the firm confirming that client invested $40,000 in a 5-year, 5% interest investment through the registered representative. The investment was an unapproved activity conducted by registered representative away from the firm.” The case was settled for $30,000.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Next Financial Group Inc. may be liable for investment or other losses suffered by Simanski’s customers.
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