ETF Category Archives — Page 2 of 3 — Investor Lawyers Blog Published by New York, New York Investor Attorneys

Published on: January 21, 2014

Unsuitable ETF Sales Lead to Restitution for Investors

Securities fraud attorneys are currently investigating claims on behalf of customers of full-service brokerage firms for unsuitable sales of leveraged and inverse ETFs, or exchange-traded funds. On January 9, the Financial Industry Regulatory Authority (FINRA) announced that it ordered Stifel, Nicolaus & Co. Inc. and Century Securities Associates Inc. to pay $475,000 in restitution and $550,000 in fines regarding the sales of leveraged and inverse ETFs to 65 customers.

Unsuitable ETF Sales Lead to Restitution for Investors

Stifel and Century, both affiliate broker-dealers based in St. Louis, are owned by Stifel Financial Corp. According to stock fraud lawyers, leveraged and inverse ETFs are designed to meet daily objectives and “reset” each day. As a result, the performance of these investments can diverge from the performance of the underlying benchmark or index very quickly. Naturally, this problem is exacerbated in volatile markets.

According to securities fraud attorneys, because of the nature of these investments, leveraged and inverse ETF investors can suffer enormous losses, even if there is a gain in the index performance over the long-term.

Published on: December 19, 2013

Exchange-traded Fund Investors Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses in inverse and leveraged exchange-traded funds or ETFs. Inverse and leveraged exchange-traded funds are supposed to meet daily objectives. As a result, their performance can drop rapidly relative to the underlying index or benchmark.

Exchange-traded Fund Investors Could Recover Losses

According to securities arbitration lawyers, even ETFs with a long-term gain in index performance can result in significant losses for investors. When markets are volatile, the problem is often exacerbated. As a result, ETFs are unsuitable for many investors.

Reportedly, the Financial Industry Regulatory Authority recently ordered J.P. Turner & Co. to pay restitution to 84 clients regarding the unsuitable recommendation and sale of inverse and leveraged ETFs. J.P. Turner did not admit or deny the charges but agreed to pay $707,559 in restitution to settle the charges. The charges also included allegations of excessive mutual fund switches, failure to provide adequate training regarding ETFs and failure to implement an adequate supervisory system.

Published on: May 7, 2013

Retirees Targeted for Excessive Trading, Unsuitable Recommendation of REITs

by InvestorLawyers

Securities fraud attorneys are cautioning retirees regarding two potential threats to their retirement investments. Many retirees have suffered significant losses as a result of unsuitable recommendations of risky, illiquid investments. In other cases, losses have resulted from excessive trading in customer accounts.

Reportedly, many seniors are being persuaded to invest in non-traded REITs, or real estate investment trusts, but are not being made aware of the risks and illiquidity of these products. Stock fraud lawyers say that many brokers and advisers with full-service brokerage firms may be tempting senior investors with promises of steady returns that exceed those available in traditional investments such as bonds or CDs while failing to adequately disclose the risks of non-conventional investments such as non-traded REITs.

Many retirees have a low risk tolerance and want conservative, income-producing portfolios. Advisors often tout the steady stream of income produced by non-traded REITs and present them as an alternative to fixed-income investments such as bonds, but there is no guarantee of ongoing distributions by non-traded REITs. In fact, distributions may be suspended or stopped completely. Another problem retirees face with REITs is that they may need access to their funds, but redeeming or selling a non-traded REIT may be difficult, or may be possible only at a price much lower than the investor’s initial investment.

Published on: April 25, 2013

Morgan Stanley Broker Allegedly Traded on Customer Accounts without Permission

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of customers of Morgan Stanley and other full-service brokerage firms who were the victim of unauthorized trading or discretionary trading on a non-discretionary account without receiving prior written authorization.

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According to FINRA’s discretionary rule, “No member or registered representative shall exercise any discretionary power in a customer’s account unless such customer has given prior written authorization to a stated individual or individuals and the account has been accepted by the member, as evidenced in writing by the member or the partner, officer or manager, duly designated by the member, in accordance with Rule 3010.” However, according to securities arbitration lawyers, this rule doesn’t stop all brokers.

As an example, James Harman McNeill, a Morgan Stanley broker, recently was cited for unsolicited trades and discretion. Allegedly, McNeill violated FINRA Rule 2010 in November 2011 when he exercised discretionary power in Morgan Stanley customer accounts without receiving written authorization prior to doing so. Furthermore, later that month McNeill allegedly marked non-traditional Exchange Traded Fund purchase orders as “unsolicited” even though they were solicited, according to the allegations listed in the Letter of Acceptance, Wavier and Consent that was submitted in March of this year. The Financial Industry Regulatory Authority imposed a 9-month suspension and a $15,000 fine upon McNeill. According to investment fraud lawyers, mis-marked tickets can raise issues regarding inaccurate books and determining if a broker made an unsuitable recommendation.

Published on: January 31, 2013

Losses Resulting from Unsuitable Recommendation of ETFs Could be Recoverable

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who have suffered significant losses in exchange traded funds, or ETFs. Exchange traded funds are similar to stocks in that they are investment funds traded on stock exchanges. These types of investments hold stocks, bonds, commodities or other assets. Throughout the trading day, an ETF trades close to its net asset value and most of these investments track a stock or bond index.

Losses Resulting from Unsuitable Recommendation of ETFs Could be Recoverable

Securities arbitration lawyers say that because of the low-cost, stock-like features and tax efficiency, ETFs are attractive to many investors. However, there are risks associated with ETFs that may make them unsuitable for some investors. In 2012, many ETFs suffered declines that resulted in investor losses. According to investment fraud lawyers, investors suffered losses anywhere from 22-90 percent in exchange traded funds.

The following is a list of ETFs that declined in 2012:

Published on: October 17, 2012

First Midwest Securities, Scott & Stringfellow Customers Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of the customers of First Midwest Securities Inc. and Scott & Stringfellow LLC in light of recent fines and censures by the Financial Industry Regulatory Authority. Both firms were censured; in addition, First Midwest Securities was fined $75,000 and Scott & Stringfellow was fined $350,000. Both firms submitted a Letter of Acceptance, Waiver and Consent but did not admit or deny FINRA’s findings.

First Midwest Securities and Scott & Stringfellow Customers Could Recover Losses

In the case of First Midwest Securities, securities arbitration lawyers say FINRA’s findings indicated that the firm failed to provide an adequate supervisory system and enforce adequate supervisory procedures to prevent excessive trading and ensure the suitability of equity transactions. Furthermore, the firm allegedly failed to utilize exception reports that would help in detecting excessive and unsuitable trading. Instead, according to the allegations, the firm relied on turnover ratio reports and daily trade blotter reviews that were prepared manually. However, these reports failed to address accounts’ cost-to-equity ratios.

Investment fraud lawyers are also investigating claims against Scott & Stringfellow based on FINRA’s findings that indicated the firm failed to maintain an adequate supervisory system related to the sale of Non-Traditional ETFs, or Non-Traditional Exchange Traded Funds. In addition, the firm allegedly allowed the recommendation of a Non-Traditional ETF by its registered representatives to customers without performing adequate due diligence. FINRA stated that some of the firm’s customers received unsuitable recommendations of the investment. The firm’s supervisory system, according to FINRA, was not reasonably designed for compliance with applicable FINRA and NASD rules and did not provide adequate guidance, tools, or adequate formal training to educate the firm’s supervisors and registered representatives about these investments.

Published on: October 8, 2012

ProShares Investors Could Still Recover Losses Following Class Action Lawsuit Dismissal

by InvestorLawyers

Following the dismissal of the class action lawsuit against ProShares, securities fraud attorneys are investigating potential claims on behalf of investors who suffered significant losses as a result of their investment in the ProShares leveraged and inverse exchange-traded funds.

ProShares Investors Could Still Recover Losses Following Class Action Lawsuit Dismissal

The U.S. District Court for the Southern District of New York recently dismissed the class action lawsuit that was reportedly filed in 2009. According to securities arbitration lawyers, reports indicated that the plaintiffs’ claims that certain risks were omitted from the registration statements disclosures were rejected by the courts. Reportedly, these omitted risks were associated with holding inverse and leveraged exchange-trade funds, or ETFs, for periods exceeding one day.

In a warning issued by FINRA, the regulatory authority stated that leverage inverse ETFs are unsuitable for ordinary investors and that these investments should be held for a short time period only. Brokers have been known to sell ETFs and ETNs as conservative ways to track a sector of the market, or the market as a whole. However, complicated trading strategies are necessary to accomplish this, and using these investments to track a sector of the market may or may not be a conservative trading strategy. This depends on the sector of the market and assets in the account relative to the investment’s concentration level. For more information on ETFs and ETNs, see the previous blog post, “Investors Could Recover Losses from their Inverse ETF and ETN Investments.”

Published on: October 1, 2012

Winex Investments LLC Investors Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investigating claims on behalf of investors who suffered significant losses as a result of their investment in Winex Investments LLC. Winex Investments is a foreign currency investment. In many cases, broker-dealers may have improperly recommended Winex Investments to their clients. Furthermore, securities arbitration lawyers believe some broker-dealers misrepresented the risks associated with Winex.

Winex Investments, LLC Investors Could Recover Losses

Recent anxiety about the devaluation of the dollar and rising U.S. government debt has made some investors turn to foreign currency investing. However, because this type of investment is relatively unknown to many investors, it is essential that the risks are adequately disclosed before any decisions are made. Trading in foreign currency involves the purchasing of debt of foreign countries. Exchange-traded funds, or ETFs, can either buy options and future contracts or purchase the currencies directly.

Prior to recommending an investment to a client, brokers and firms are required to perform the necessary due diligence to establish whether the investment is suitable for the client, given their age, investment objectives and risk tolerance. Financial Industry Regulatory Authority rules have established that firms have an obligation to fully disclose all the risks of a given investment when making recommendations. Furthermore, brokerage firms must, before approving an investment’s sale to a customer, conduct a reasonable investigation of the securities and issuer.

Published on: August 3, 2012

FINRA Alert: Exchange-traded Notes

by InvestorLawyers

Stock fraud lawyers encourage investors to read the Financial Industry Regulatory Authority (FINRA)’s new Investor Alert, which was announced on July 10. This alert, titled “Exchange-traded Notes — Avoid Unpleasant Surprises,” is meant to help investors become more informed of the risks and features of exchange-traded notes, or ETNs. This investor alert can help investors make smart decisions about investing in ETNs. And if you’ve already invested in an ETN, it can also help you determine if you were unsuitably recommended exchange-traded notes by your broker or adviser.

FINRA Alert: Exchange-traded Notes

ETNs are, according to the FINRA alert, a type of debt security that trades on exchanges and promises a return that is linked to a market index or some other benchmark. Unlike exchange-traded funds (ETFs), however, exchange-traded notes don’t replicate or approximate the performance of that index through the purchase or holding of assets. According to stock fraud lawyers, brokers have been known to sell ETFs and ETNs as conservative ways to track a sector of the market or the market as a whole. However, complicated trading strategies are necessary to accomplish this, and using these investments to track a sector of the market, even if valid, may or may not be a conservative trading strategy. FINRA wants investors to be aware of the fact that an ETN’s market price can deviate from its indicative value, and in some cases this deviation is significant.

FINRA’s Vice President for Investor Education, Gerri Wals, stated that “ETNs are complex products and can carry a raft of risks. Investors considering ETNs should only invest if they are confident the ETN can help them meet their investment objectives and they full understand and are comfortable with the risks.”

Published on: June 13, 2012

Investment Fraud Red Flags for Elderly Investors

by InvestorLawyers

According to securities fraud attorneys, elderly and retired individuals are frequently the targets of securities fraud. While this is not likely to change, elderly investors can be aware of red flags that could indicate fraud has occurred. Some of these red flags include recommendations for investments that are typically unsuitable for elderly investors, unsolicited investment offers, unrealistically high return promises, promises of little or no risk, request for up-front payments, high pressure tactics, direct mail offerings and Internet offerings.

Investment Fraud Red Flags for Elderly Investors

In regards to suitability, FINRA Rule 2111 will replace NASD Rule 2310 on July 9, 2012. Factors determining an investment’s suitability for each investor will now include the customer’s age, tax status, financial situation and needs, liquidity needs, investment experience, investment objectives, risk tolerance, investment time horizon and other investments. A broker or adviser must consider these factors before making a recommendation after July 9.

According to securities fraud attorneys, because of an elderly investor’s age, asset allocations that are weighted in investments with a long time horizon or higher risk investments are often considered inappropriate. Potentially unsuitable investment products for elderly investors include: