The Financial Industry Regulatory Authority (FINRA) recently sanctioned broker Daniel Grieco based allegations that Grieco made unsuitable recommendations of non-traditional exchange-traded funds (ETFs) to customers.
Non-traditional and “leveraged” ETFs can pose significant risks not presented by ordinary ETFs. Traditional ETFs often seek to mirror an index or benchmark, and track the performance of the asset class as well as possible, Non-traditional ETFs, by contrast, may use a combination of derivatives instruments and debt to multiply returns on underlining assets, often attempting to generate 2 to 3 times the return of the underlining asset class.
Some non-traditional ETFs also attempt to track the inverse result of the return of the benchmark asset class- for example, rising in value when oil prices or the overall stock market decline, and declining in value when the underlying referenced asset class increases in value.
While non-traditional ETFs may perform as intended over short periods, in the long run they historically have not performed well in terms of tracking underlying indices or asset classes. For example, between December 1, 2008, and April 30, 2009, the Dow Jones U.S. Oil & Gas Index gained two percent while the ProShares Ultra Oil and Gas, a fund seeking to deliver twice the index’s daily return fell six percent. In another example, the ProShares UltraShort Oil and Gas, seeks to deliver twice the inverse of the index’s daily return fell by 26 percent over the same period.
Because of these risks, FINRA has stated that Non-Traditional ETFs are typically not suitable for most retail investors. Increasingly, brokerage firms are prohibiting the solicitation of these investments to its customers due to suitability concerns.
Daniel Grieco entered the securities industry in 1983. Since August 13, 2010, Grieco has been registered with First Allied Securities, Inc. (First Allied). FINRA alleged that between 2008 and 2013, Grieco recommendations of trades in various non-traditional ETFs in 15 customer accounts. FINRA found that Grieco’s recommendations were made without reasonable grounds to believe that the recommended investments were suitable.
If you received an unsuitable recommendation of non-traditional ETFs by a broker or investment advisor, and suffered significant losses are a result, you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.