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.

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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 for a no-cost, confidential consultation.

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Cushing Royalty & Income Fund (NYSE:SRF), an exchange-traded fund that traded at $25 in February 2012 ,currently trades at less than $5. It is a leveraged fund which invests in oil and gas royalty trusts that was reportedly sold in some cases to elderly and conservative retirees who did not understand the risky nature of the fund. The fund is believed to have lost value due to drops in the prices of oil and gas. In addition to the risky nature of this investment, the fees and commissions associated with its sale are believed to have exceeded 6% in some instances.

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The Fund describes itself as a non-diversified, closed-end management investment company, with an investment objective of seeking a high total return with an emphasis on current income, that seeks to provide shareholders with a tax-efficient vehicle to invest in a portfolio of energy-related U.S. royalty trusts, exploration and production master limited partnerships.
Cushing & Royalty Income Fund was underwritten by these broker-dealers

• Stifel, Nicolaus & Company

• RBC Capital Markets

• Oppenheimer & Co.

• Robert W. Baird & Co.

• BB&T Capital Markets, a division of Scott & Stringfellow

• Ladenburg Thalmann & Co.

• Wunderlich Securities

• Maxim Group
Customers of these firms may have had the Cushing Royalty & Income Fund recommended to them as part of the initial distribution of shares.
Brokers and financial advisors are required to make investment recommendations that are consistent with their clients’ risk tolerance, net worth, investment objectives and experience in the market. However, high sales commissions can lead brokers and financial advisors to disregard these responsibilities and recommend higher-risk products that also carry high commissions.

If you have suffered significant losses as a result of unsuitable recommendations of Cushing Royalty & Income Fund or another oil and gas-linked investment by a stockbroker or financial advisor, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investor rights attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or for a no-cost, confidential consultation.

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