• October 18, 2023
• Frontier Wealth Management

Wolper Law Firm, P.A. is investigating former SEC Registered Investment Advisor (“RIA”), Frontier Wealth Management, LLC.  Frontier Wealth Management, LLC was formerly registered with the SEC as a registered investment advisor.  Shawn Sokolosky is one of its former investment advisor representatives.

On September 3, 2021, the Securities and Exchange Commission (SEC) instituted administrative proceedings against Frontier Wealth Management and Shawn Sokolowsky.  The latter settled the claims with the SEC, agreeing to a Cease and Desist Order.  A copy of the Order is can be found by clicking the following link.  According to the SEC Order, Frontier Wealth Management failed to properly supervise its employees by allowing them to recommend its retail clients to invest in the proprietary Frontier Permo Fund without first making a determination if the fund was suitable and appropriate for a given investor.  The SEC stated:

“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.”

The SEC further found that Shawn Sokolosky failed to disclose the risks of the Feeder Fund with at least 50 clients.  “Frontier adviser Shawn Sokolosky (“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 risk.”

This misconduct was determined to violate the Investment Advisers Act of 1940 and Frontier Wealth Management and Shawn Sokolosky were sanctioned.  Frontier Wealth Management was ordered to pay disgorgement of $261,617, interest of $47,095 and a civil penalty of $350,000.  Similarly, Shawn Sokolosky was ordered to pay a civil penalty of $100,000.  In October 2023, the SEC completed its plan of distribution for the disgorgement money paid by Frontier Wealth Management and Shawn Sokolosky, which can be accessed through this link.  This compensation does not make investors whole and only represents a partial recovery.

Both Frontier Wealth Management and Shawn Sokolosky owe fiduciary duties to their clients.  The SEC and courts across the country have interpreted the fiduciary duty standard imposed by the Advisers Act and have found that advisers owe both (1) a duty of care and (2) a duty of loyalty.  SEC v. Capital Gains, 375 U.S. 180 (1963).  The duties articulated in Capital Gains have been reaffirmed in the SEC’s most recent pronouncement regarding fiduciary standards.  The fiduciary duty standard is broad and applies to the entire adviser-client relationship.  The duty of care includes a duty to provide investment advice that is in the best interest of the client, including a duty to provide advice that is suitable for the client.  In order to provide such advice, an adviser must have a reasonable understanding of the client’s objectives which is a critical component of the duty of care.  Whether the advice is in the client’s best interest must be evaluated in the context of the portfolio that the adviser manages for the client and the client’s objectives.  The duty of care also encompasses the duty to provide advice and monitoring at a frequency that it in the best interest of the client, taking into account the client relationship.

The Investment Advisers Act of 1940 also imposes upon Frontier Wealth Management a duty to supervise its employees, including Shawn Sokolosky.  In order to discharge this responsibility, Frontier Wealth Management must have supervisory processes in place to monitor customer accounts and the trading therein.  Failure to properly supervise trading or the disclosures made by its registered employees, including Shawn Sokolosky, may constitute a breach of fiduciary duty.

If you invested with Frontier Wealth Management and Shawn Sokolosky, and have experienced investment loss due to misconduct or a breach of fiduciary duty, you may be entitled to recover those losses.  The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis.  Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled more than 1,000 securities cases during his career involving a wide range of products, strategies and securities, including cases involving options strategies.  Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters.  We can be reached at 800.931.8452 or by email at mwolper@wolperlawfirm.com.