- December 27, 2023
- Pollux Wealth Management
Shawn Duane Sokolosky (CRD#: 2507013) is a registered investment advisor at Pollux Wealth Management in Wichita, KS.
Shawn Sokolosky entered the securities industry in 1994 and previously worked for The O.N. Equity Sales Company; Dimensions-Financial Consultants, Inc.; Dimensions Financial Group; and Frontier Wealth Management, LLC.
Allegations of Misconduct
According to publicly available records released by the United States Securities and Exchange Commission, in September 2021, The SEC deemed it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933, Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940 against Frontier Wealth Management, LLC (“Frontier”) and Shawn Sokolosky (“Sokolosky”) (Frontier and Sokolosky hereinafter collectively, “Respondents”). The Commission finds that: this matter concerns Frontier’s failure to adopt and implement written policies and procedures reasonably designed to prevent its investment advisory representatives (“IARs”) from recommending certain types of complex products to clients for whom they were not suitable.
In January 2016, Frontier, a Missouri-based registered investment adviser, created the Frontier Permo Fund (“Feeder Fund”), a private feeder fund, which provided its clients access to invest in Fund A, which was managed by a third-party advisor (“Advisor A”). Fund A purported to use complex option strategies and synthetic futures positions to generate returns. Fund A disclosed that its strategy carried speculative and substantial risks with high volatility. From January 2016 to February 2018 (the “Relevant Period”), approximately 177 Frontier retail clients invested approximately $45 million into the Feeder Fund. In February 2018, due to extreme volatility in U.S. equity markets, Fund A lost about 35% of its value, resulting in losses of approximately $16 million to Frontier’s clients who invested in the Feeder Fund. During the Relevant Period, Frontier delegated broad autonomy over client investment recommendations to its IARs. Frontier, however, did not provide them with adequate policies, procedures, training, and supervision concerning the features and risks of complex products like the Feeder Fund or whether such products were suitable for clients. Without adequate policies, procedures, training, and supervision in place at Frontier, certain IARs failed to reasonably assess whether the Feeder Fund was suitable for each client.
Consequently, certain clients with low-risk tolerances and conservative trading preferences invested in the Feeder Fund. Frontier adviser Shawn Sokolosky recommended that approximately fifty (50) of his clients invest in the Feeder Fund without adequately assessing whether the product was suitable for them. Sokolosky did not adequately consider each of his client’s risk tolerances, investment objectives, or financial circumstances when recommending the Feeder Fund, which rendered certain recommendations unsuitable for his clients. Sokolosky also did not adequately understand the Feeder Fund’s trading strategy, underlying investments, and risks. He misrepresented the Feeder Fund’s risks and made misleading statements about the fees associated with the Feeder Fund.
Under the circumstances described above, Frontier willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder and failed reasonably to supervise its IARs within the meaning of Section 203(e)(6) of the Advisers Act and Sokolosky willfully violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 206(2) of the Advisers Act. As a result, Sokolosky was suspended for one year and order to pay a $100,00 civil and administrative penalty/fine.
In addition, Mr. Sokolosky was permitted to resign from Frontier Wealth Management
For a copy of Shawn Sokolosky’s SEC AdvisorInfo, click here.
We Help Investors Recover Investment Losses
Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.
Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.
Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s age, tax status, time horizon, liquidity needs, and risk tolerance; a client’s other investments, financial situation and needs, investment objectives, and any other information disclosed by the customer should also be considered.
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