John Scott Simoncic of Reno Nevada a stockbroker formerly employed by Financial West Group has been barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon consenting to findings that (1) Simoncic made exchange traded fund recommendations that were not suitable for customers (2) Simoncic effected excessive exchange traded fund trades in customer accounts and (3) Simoncic churned the customers’ investment portfolios. Letter of Acceptance Waiver and Consent No. 2017054755205 (Oct. 24, 2018)
According to the AWC, in June of 2014, Simoncic became responsible for managing the account of customer DW, a sixty-five-year-old retired individual with limited experience investing that housed her $60,000.00 individual retirement account with Financial West. The AWC stated that DW’s objective for investing consisted of capital preservation, and she maintained a low tolerance for taking risk.
Apparently, between August of 2014 and November of 2016, Simoncic essentially controlled the customer’s account – DW depended on Simoncic to manage her account because of her limited investment experience. Simoncic reportedly decided the type, quantity and timing of the securities purchased and sold in the customer’ individual retirement account.
The AWC stated that Simoncic executed trades on an excessive basis in DW’s accounts, and completely disregarded DW’s interests in the process. That is, between August of 2014 and November of 2016, a total of ninety-seven trades (fifty-three purchases and four-four sales) had been placed in DW’s individual retirement account, which caused DW to be assessed $40,000.00 in fees and commissions. As a result of Simoncic’s activities, DW reportedly lost all her individual retirement account savings of $60,000.00.
The AWC stated that Simoncic effected in-and-out trades in DW’s accounts, purchasing and selling eleven securities within a short time frame. For example, the same oil, mining and gold stocks had been purchased and sold in the customer’s account three times, where the securities had been held, on average, for seven to eleven days. DW’s individual retirement account reportedly contained an 84.04 percent annual cost-to-equity ratio and 19.28 annual turnover rate.
Moreover, the AWC stated that fifty-four trades executed by Simoncic in DW’s account consisted of leveraged or inverse exchange traded funds – investments that DW did not understand at the time the trades were placed. Particularly, DW did not know how the investments functioned, the risks of over-concentration of these investments, and the risks pertaining to holding those investment for extended periods. Simoncic evidently held DW’s alternative investments in DW’s account over multiple trading periods despite the securities having been designed to meet their objectives in just one trading session.
In one case, Simoncic effected thirty-seven transactions involving ProShares UltraShort S&PT 500 shares, where those investments had been held in the customer’s account between four and ninety-seven days. DW ultimately incurred at least $15,000.00 in losses from those transactions alone. Another alternative investment, ProShares Ultra VIX Short-Term Futures – a double-leveraged speculative exchange traded fund – had been held in the customer’s account for nearly three hundred days, causing the customer to incur at least $20,000.00 in losses.
The AWC stated that Simoncic also caused fifty-one-year-old customer, PN, to incur losses from Simoncic’s unsuitable trading. Particularly, Simoncic controlled PN’s account in a similar manner as DW, as PN had very limited investment experience. PN evidently sought to preserve capital and accumulate wealth, and was willing to take only a moderate level of risk with respect to her assets. Evidently, Simoncic caused PN to lose about $45,000.00 of the $63,000.00 that PN maintained with Simoncic at Financial West. The AWC stated that between October of 2014 and February of 2016, one hundred seventy transactions had been executed by Simoncic in PN’s accounts, and PN was assessed $39,000.00 in fees and commissions.
The AWC stated that just like with DW, Simoncic placed in-and-out trades in PN’s accounts. Evidently, between October of 2014 and February 2015, PN’s accounts suffered from an annual cost-to-equity ratio of 58.64 to 76.57 percent and annual turnover ranging between 10.32 and 19.81.
Moreover, at least seventy-eight of the trades Simoncic placed in PN’s account consisted of alternative investments – securities which Simoncic never even discussed with PN and which PN did not otherwise understand. Apparently, $18,000.00 out of the $45,000.00 in losses were attributed to Simoncic’s trading of ProShares UltraShort S&P 500.
FINRA stated that Simoncic’s excessive trading and churning in DW’s and PN’s accounts, which FINRA referred to as quantitative unsuitability, was violative of Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5, and FINRA Rules 2010, 2111 and 2020. In addition, FINRA stated that Simoncic’s unreasonable recommendations for the customers’ accounts was violative of FINRA Rules 2010 and 2111. Considering the egregiousness of Simoncic’s actions, FINRA barred Simoncic from the securities industry.
FINRA Public Disclosure confirms that Simoncic is referenced in two customer initiated investment related disputes containing accusations of his misconduct which predate Simoncic’s activities cited by FINRA in its disciplinary action against him. Particularly, a customer initiated investment related civil action involving Simoncic’s conduct was resolved for $65,000.00 in damages founded on allegations of fraud in reference to the customer’s oil & lease investments while Simoncic was president of TransAlaska Development Corp. Civil Action No. C-84-6409-CAL. Then, a customer initiated investment related arbitration claim concerning Simoncic’s activities was settled for $12,000.00 in damages based upon accusations of Simoncic effecting unsuitable transactions in a customer’s account while associated with La Jolla Securities. National Association of Securities Dealers (NASD) Arbitration No. 97-05620.
Simoncic’s registration with Financial West Group was terminated on November 28, 2016.
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