Recently, United Kingdom-based Laidlaw & Co. was sanctioned by the Financial Industry Regulatory Authority (FINRA). According to the firm’s BrokerCheck report with FINRA, the firm has five regulatory sanctions against it. In May 2018, FINRA sanctioned Laidlaw in connection to allegations that it failed to establish and maintain a supervisory system, as well as written supervisory procedures, that were adequately designed to guarantee that representatives’ recommendations of leveraged and inverse exchange traded funds (ETFs), were in compliance with securities laws and rules. FINRA also found that the firm did not impose “product-specific limitations” on its representatives’ ability to recommend that customers trade in or hold non-traditional ETFs. Representatives allegedly solicited 869 purchases of non-traditional ETFs and 946 sales of non-traditional ETFs spanning 312 client accounts. In 2016, the firm was sanctioned in connection to allegations it charged unfair and unreasonable commissions, as well as a “handling fee” on certain equity transactions. Specifically, FINRA found it charged more than $27,000 in excessive commissions on 421 transactions. The firm was fined $10,000 and censured, and was ordered to pay restitution exceeding $27,000.
As federal regulators crack down on exchange-traded funds (ETFs) because of the high risk they pose to investors and the markets, Fidelity Investments’ brokerage is restricting opening transactions in some exchange-traded products. Fidelity is claiming that its decision to bar retail customers from buying the products stems from suitability concerns, rather than regulatory pressure. Fidelity spokesman Robert Beauregard stated: “as part of our responsibilities to our retail account holders, we continually review security products being offered to our retail brokerage customers to ensure that they are at least generally suitable for some customers, and that we are able to support them appropriately.” This could include ETFs that exceed a 10% tracking error on their benchmarks or when they have traded at a 10% or greater discount or premium the previous 30 days. Other factors that could affect this are whether there are excessively complex or unique features, or unusual risks, and whether comparable securities that are less complex may be available, liquidity in the marketplace, quality and ease of access for retail customers to material information available about the securities and fess associated with the product.
Other brokerage firms such as Schwab will occasionally warn investors that a particular ETF might be appropriate for the average investor, but wont keep the investor from making the purchase. Instead, the firm provides a lengthy warning about inverse or leveraged ETFs. The Financial Industry Regulatory Authority (FINRA) has also been warning about leveraged and inverse ETFs for a long time. The SEC is currently pondering placing sharp restrictions on funds that use excessive leverage. This seems to be the first step in holding brokers and brokerage firms to a higher standard of fiduciary duty, by steering clients away from products with high risk, illiquidity and structural unreliability.
Stoltmann Law Offices is investigating Christopher J. Elliott, a former registered representative with Infinex Investments. According to his Letter of Acceptance, Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA), Elliott was accused of recommending unsuitable transactions in inverse and inverse-leveraged Exchange Traded Funds and Exchange Traded Notes (non-traditional ETFs and ETNs) in the accounts of three customers. Allegedly, from December 2012 until May 2013, Elliott recommended and executed 150 transactions in ETFs and ETNs that were not suitable for the customers. He held several of the ETFs and ETNs in the accounts for as long as a month, even though these are typically short-term trading vehicles not meant to be held for extended periods. In all, the customers lost $24,850 because of the unsuitable investments. During this time, Elliott also exercised discretion in the customer’s accounts, which he was not permitted to do so. These are all against securities rules and regulations.
Elliott was registered with AXA Advisors in Norfolk, Virginia from September 2007 until January 2009, Proequities Inc. in Norfolk from December 2010 until June 2011, Navy Federal Brokerage Services in Dale City, Virginia from June 2011 until November 2011, Infinex Investments in Dumfries, Virginia from January 2012 until March 2014, United Brokerage Services in McLean, Virginia from February 2014 until September 2014 and E Trade Securities in Washington, DC from July 2015 until December 2015. He is not currently registered with any firm and is not licensed.
The Securities and Exchange Commission (SEC) recently barred New Hampshire investment advisor, Nicholas Rowe, after charges surfaced claiming he allegedly used leveraged and inverse exchange-traded funds (ETFs) in a manner that was unsuitable for his clients. Rowe was the former owner of registered investment advisor Focus Capital Wealth Management. The state also alleged that he made misrepresentations regarding the fees to be charged and regarding his qualifications as an investment advisor, violating laws prohibiting advisors from engaging in unethical practices. The state launched an investigation into Rowe and his company in 2011, after claiming that they placed assets from elderly investors with low risk tolerances into unsuitable strategies without informing the clients. Many of the clients were widows between the ages of 60 and 74 who allegedly lost $1.9 million among them. The state then revoked Focus’s registration in March 2013 and ordered Rowe to pay $20,000 in fines and investigation costs, as well as more than $2 million in restitution to investors. Other investor claims against Rowe and Focus included Financial Industry Regulatory Authority (FINRA) claims alleging negligence and civil fraud, resulting in one ruling against the RIA that forced it to pay $1.8 million in restitution payments. Rowe was also registered with Jefferson Pilot Securities Corp in Bedford, New Hampshire from December 1990 until January 2006 and he has one customer dispute against him. The SEC permanently barred him from the industry.
The Securities and Exchange Commission (SEC) recently uncovered two new parts of rule-making proposals aimed at trimming risks in exchange-traded funds (ETFs). These proposals could drive investors into less well-regulated products such as exchange-traded notes (ETNs). Investors in ETNs can take on significant credit risk. The first proposal aimed to address liquidity concerns for the ETFs, mandating that no more than 15% of a fund’s holdings take longer than seven days to liquidate without moving the market. Exchange traded funds are investment funds traded on stock exchanges, much like stocks, and tracks and trades its net asset value over the course of the trading day. They are not typically meant to be held for a long period of time. The proposal requires mutual funds and ETFs to implement liquidity risk management programs and enhance disclosures regarding fund liquidity and redemption practices. This will mean it could be difficult for the funds to hold certain financial classes.
The second proposal unveiled by the SEC in December aimed to address derivatives usage by limiting the leverage in funds. It would limit funds’ use of derivatives and require them to put risk management measures in place which would result in better investor protections. This proposal could put a majority of levered ETFs in violation, therefore driving investors to invest in alternate ETNs. ETNs are senior, unsecured unsubordinated debt securities issued by an underwriting bank. They also have a maturity date and backed only by the credit of the issuer. Although ETNs are an alternative to an ETF, they can be just as risky for investors. ETNs are regulated under a less stringent Securities Act and are unsecured debt obligations carrying a large amount of risk. There is also always a risk that the issuer could default and investors would lose some or all of their investments, as ETNs are not required to physically hold collateral. Some of the past defaults of ETNs include those sold by Lehman Brother. Many investors only recovered 9% of their investment following the crash and demise of the firm in 2008.
LPL Financial reached a settlement with state regulators on Wednesday and will be prepared to pay a $1.43 million fine. This comes after the sale of nontraded real estate investment trusts (REITs) the brokerage firm sold from January 1st, 2008 until December 31st, 2013. A North American Securities Administration Association task force found LPL agents violated minimum net worth, income and concentration standards set by product issuers, state concentration limits and the firm’s internal guidelines when selling the REITs. LPL did not provide adequate supervision of the transactions. LPL on Wednesday also reached an agreement with Massachusetts Attorney General Maura Healey to pay $1.8 million in fines for unsuitable sales of leveraged exchange-traded funds (ETFs) to 200 investors in the state. LPL also reached a similar settlement with the Delaware Department of Justice on Tuesday regarding leveraged ETFs. The firm will pay a $50,000 administrative fine and set up a $150,000 investor-restitution fund.
If you invested money with LPL Financial, you may be able to bring a claim against them to recover money losses. Please call our securities law firm in Chicago, Illinois to speak to an attorney. We sue firms such as LPL to recover money for investors. The call is free with no obligation, and we only take cases on a contingency fee basis so we don’t make money unless you recover.
According to a Letter of Acceptance, Waiver and Consent (AWC) by the Financial Industry Regulatory Authority (FINRA), Sterne Agee failed to reasonably supervise its registered representatives from the period of May 2010 through October 2013. A representative allegedly mismarked 966 order tickets as “unsolicited” when, in fact, the orders were solicited. Sterne Agee also failed to detect the mismarked tickets and enforce written supervisory procedures prohibiting solicitation of inverse or leveraged exchange traded funds (ETFs). The majority of the transactions involved four different securities that were purchased in 26 customer accounts. There were almost 1000 transactions in a limited number of inverse and leveraged ETFs and Sterne Agee never investigated whether the transactions were actually unsolicited. For these transgressions, the firm was censured and fined $25,000. If you invested money with Sterne Agee, please call our securities law office in Chicago at 312-332-4200 for a free consultation with an attorney. We take cases on a contingency fee basis only.
Stoltmann Law Offices is investigating Powershares Gold Double Long Exchange-Traded Funds (ETFs). ETFs are often marked as a conservative way to track the market, and are registered investment companies that share a portfolio of securities. They are designed to mirror the performance of the underlying index such as the S&P and can fluctuate throughout the day. ETFs can be deceptively tricky and complex investments, that my only be suitable for more sophisticated investors. An investment advisor must take into account a customer’s age, portfolio, investment sophistication and net worth before recommending an investment to him or her. The investment advisor must do his due diligence to make sure the recommended security is suitable for the client. If he does not, his investment firm can be held liable for financial losses, as the firm had a duty to reasonably supervise its employees. If you invested in Powershares Gold Double Long ETF, please contact our securities law firm in Chicago at 312-332-4200 to speak with an attorney. The call is free with no obligation, and we take cases on a contingency fee basis, which means we do not get paid unless you recover money.
Stoltmann Law Offices is investigating ProsShares Ultrashort S&P 500 (SDS) investment losses. ProsShares is an exchange-traded fund (ETF), or an investment fund that tracks an index, a commodity, bonds or a basket of assets like an index fund. These are traded on the stock market and have price changes during the day. Many times, ETFs can be extremely complex and risky investments, not suitable for all investors. Brokers who recommend these products, must be overseen by their brokerage firms, so as not to recommend unsuitable investments. If the brokerage firm does not adequately supervise its brokers, it can be sued in the Financial Industry Regulatory Authority (FINRA) arbitration forum to recover financial losses. We sue brokerage firms on behalf of our clients, and we take cases on a contingency fee basis. Please call us at 312-332-4200 to speak to one of our attorneys. The call is free with no obligation.