Articles Tagged with non-traditional ETFs

Recently, Edward McFarlane was suspended by the Financial Industry Regulatory Authority (FINRA) and fined $5,000 for allegedly recommending and effecting unsuitable transactions involving inverse, leveraged and inverse-leveraged exchange-traded funds (ETFs) in client accounts. FINRA stated that the ETFs that Mr. McFarlane recommended did not suit the client’s financial situation, conservative investment objectives and minimal risk tolerance. ETFs are highly risky and illiquid investments that are not suitable for all investors, and a broker must do his due diligence to determine whether or not the security is suitable based on a client’s age, investment objectives and risk tolerance, among other facts. ETFs are also only meant to be held for a short amount of time, but McFarlane held the non-traditional ETFs in the accounts for as long as 470 days with an average holding period of 40 days. Because of this, the client suffered total losses of approximately $48,524.79. He was suspended from the industry for almost two months.
McFarlane was previously registered with SEI Investments Distribution Co., PBHG Fund Distributors, ICC Distributors, Deutsche Bank, Edward Jones, AG Edwards & Sons, Wachovia Securities and Oppenheimer & Co. in Jenkintown, Pennsylvania from September 2008 until February 2017. He is currently registered with International Assets Advisory in Orlando, Florida and has been since February 2017. He is suspended from the industry.
If you would like more information about how you may be able to bring a claim against International Assets Advisory for Edward McFarlane investment losses, please call us today, as your no-cost consultation has no obligation. Attorneys are standing by. We sue firms like IAA in the FINRA arbitration forum on a contingency fee basis in order to recover funds for customers.

The Financial Industry Regulatory Authority (FINRA) recently brought a regulatory action against ProEquities. FINRA accused ProEquities of failing to supervise the sales of non-traditional ETFs, failing to supervise the dissemination of consolidated report, failing to supervise variable annuity switching and failing to properly supervise the investment advisory conduct of certain advisors. FINRA alleged that the firm failed to have procedures in place to adequately supervise the sales of inverse and leveraged ETFs, from 2008 to April 2012. The firm agreed to pay a $200,000 fine. ETFs can be very risky investments, not suitable for all investors. A brokerage firm can be responsible for investor losses if it allows for its brokers to sell unsuitable securities to its clients.

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Oppenheimer & Co. Inc. $2.5 million and ordered the firm to pay restitution of more than $716,000 to affected customers for selling leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs) to retail customers without reasonable supervision, and for recommending non-traditional ETFs that were not suitable. In August 2009, Oppenheimer instituted polices prohibiting its representatives from soliciting retail customers to purchase non-traditional ETFs, and also prohibited them from executing unsolicited non-traditional ETF purchases for retail customers, unless the customers met certain criteria, such as the customer had liquid assets in excess of $500,000. Oppenheimer, allegedly, failed to execute the stated criteria. During the time period of August 2009 until September 30, 2013, more than 760 Oppenheimer representatives executed more than 30,000 non-traditional ETF transactions totaling approximately $1.7 billion for customers.

FINRA found that Oppenheimer failed to conduct adequate due diligence regarding the risks and features of non-traditional ETFs, and, as a result, did not have a reasonable basis to recommend these ETFs to retail customers. Also, Oppenheimer’s representatives solicited and effected non-traditional ETF purchases that were unsuitable for specific customers. For example:

An 89-year conservative customer with annual income of $50,000 held 96 solicited non-traditional ETF positions for an average of 32 days (and for up to 470 days) resulting in a net loss of $51,847.

Stoltmann Law Offices is investigating BestVest Investments, a securities brokerage firm based out of Media, Pennsylvania. The Financial Industry Regulatory Authority (FINRA) brought a regulatory action against BestVest Investments, claiming that they failed to establish an adequate supervisory system to supervise the sales of leveraged and inverse exchange-traded funds (ETFs). These are also sometimes called non-traditional ETFs. These funds are designed to be held for less than a day, but BestVest allegedly failed to monitor how long their customers held these ETFs. BestVest agreed to a censure and a fine of $15,000.

ETFs are used to track and replicate the performance of an index, such as the S&P 500, the Russell 2000 or the Dow Jones. They oftentimes attempt to double or triple the index. They are popular because investors can invest in a basket of securities that provides diversification but with the simplicity of being a single stock. Leveraged ETFs are often risky and are not suitable for all investors. A registered representative has a duty to take into account his client’s portfolio, age, net worth and investment sophistication before recommending and executing trades on behalf of that client. Also, brokerage firms don’t always do their due diligence when researching funds such as ETFs. Many times, the registered representatives are not knowledgeable of the product and recommend holding them in an investor’s account for weeks or even months. According to a FINRA regulatory notice: “inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.”

If you invested money in ETFs with BestVest Investments, please call our Chicago-based securities law firm to speak to an attorney. We sue firms such as BestVest for not doing their due diligence on investment products. We may be able to help you sue BestVest for financial losses in the FINRA arbitration forum. The call is free with no obligation. We take cases on a contingency fee basis only.

Stoltmann Law Offices is investigating Jeffrey D. Daggett, who entered into a Letter of Acceptance, Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA). According to his AWC, Daggett recommended unsuitable transactions in an Exchange Traded Note (ETN) and leveraged and inverse leveraged Exchange Traded Funds (ETFs), in customer accounts. Recommending unsuitable funds for customers is against FINRA conduct rules. An exchange-traded note is a senior, unsecured debt security issued by an underwriting bank. They are backed only by the credit of the issuer and are based on the performance of a market index. It is a type of security that combines bonds and ETFs. These can be volatile and speculative securities, and risky.

Jeffrey D. Daggett was registered with Wells Fargo Advisors in Temecula, California, at the time of the accusations against him. Allegedly, from March 2010 until September 2011, Daggett recommended and traded ETN and non-traditional ETFs in the account of one of his customers. These accounts were concentrated in inverse triple leveraged ETFs, a speculative ETN and a triple leveraged ETF. The concentrations of securities were not consistent with the customer’s investment objectives, as he had objectives of moderate growth and income for his portfolio. The non-traditional ETNs Daggett put the client in were intended for short-term trading, and the client desired long-term trading strategies and steady growth. Even though the ETNs were meant to be held for a period of a day, Daggett held them for one month to two years. Because Daggett violated FINRA rules, he was suspended from the industry for four months and fined $20,000.

Daggett was also registered with E.F. Hutton & Company from September 1977 until April 1981, Lehman Brothers from March 1981 until June 1983, Bateman Eichler Hill Richards from June 1983 until August 1985, Smith Barney Harris Upham & Co from August 1985 until December 1986, Prudential Securities from December 1986 until June 1995, Morgan Stanley from June 1995 until April 2007, Morgan Stanley from April 2007 until January 2009, and Wells Fargo from December 2008 until July 2013. He is not licensed within the industry, and has six customer disputes against him. Daggett’s former firm, Wells Fargo, can be sued in the FINRA arbitration forum for failing to reasonably supervise him while he was employed with them. Please call us at 312-332-4200 to speak to an attorney to find out how. The call is free.

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