On February 28, 2018, FINRA Enforcement entered into a settlement via Acceptance, Waiver and Consent (“AWC”) with Respondent Western International Securities, Inc. (“WIS”) (CRD# 39262). Specifically, without admitting or denying any wrongdoing — WIS consented to paying a fine of $521,908, in addition to restitution to certain investors in the amount of $125,000 — in connection with FINRA’s findings of fact that from January 2011 – November 2015, WIS allegedly failed to supervise its registered representatives with regard to sales of certain leveraged, inverse, and inverse-leveraged Exchange-Traded Funds (“Non-Traditional ETFs”).

As our firm has highlighted in a number of recent blog posts, Non-Traditional ETFs are extremely complicated and risky financial products. Non-Traditional ETFs are designed to return a multiple of an underlying benchmark or index (or both) over the course of one trading session (typically, a single day). Therefore, because of their design, Non-Traditional ETFs are not intended to be held for more than a single trading session, as enunciated by FINRA Enforcement in its recent AWC as concerns Respondent WIS:

“[t]he performance of Non-Traditional ETFs over periods of time longer than a single trading session ‘can differ significantly from the performance… of their underlying index or benchmark during the same period of time.” FINRA Regulatory Notice 09-31.

Furthermore, because of the inherent complexities and risks embedded in Non-Traditional ETFs, FINRA has explicitly advised broker-dealers and their registered representatives that Non-Traditional ETFs “[a]re typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.” Id. [emphasis added].

Pursuant to the AWC, FINRA’s findings of fact allege that WIS registered representatives solicited and effected Non-Traditional ETF purchases that were unsuitable for specific customers. For example, in one instance, FINRA determined that a 73 year-old customer with a net worth of $200,000 and an investment objective of growth and a conservative risk profile was purportedly steered into five Non-Traditional ETFs. As alleged by FINRA, this elderly investor held the Non-Traditional ETFs for an average of 356 days, resulting in a net loss of $20,232.

In another instance of purported unsuitable recommendations, FINRA Enforcement determined that a WIS customer with a net worth of $200,000 and an investment objective of growth and a conservative risk profile was also purportedly steered into five Non-Traditional ETFs. As alleged by FINRA, this investor held the Non-Traditional ETFs for an average of 350 days, resulting in a net loss of $32,865.

Brokerage firms like WIS have a duty under NASD Rule 2310 and FINRA Rule 2111 — the so-called suitability rule — to, among other things, perform reasonable diligence to understand the nature of the recommended security. This due diligence “[w]ith respect to leveraged and inverse ETFs… means that a firm must understand the terms and features of the funds, including how they are designed to perform, how they achieve that objective, and the impact that market volatility, the ETFs use of leverage, and the customer’s intended holding period will have on their performance.” See FINRA Regulatory Notice 09-31 and FINRA Regulatory Notice 12-03.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with various alternative investments, including leveraged and inverse ETFs, as well as various active investment strategies. Investors may contact our office at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

A recent spike in stock market volatility has brought into focus the enormous risks associated with certain exchange-traded-products (ETPs) linked to the Chicago Board Options Exchange (CBOE) Volatility Index (VIX). However, these products have previously been the subject of several warnings by the Financial Industry Regulatory Authority (FINRA).

Created in 1993, the VIX attempts to track broadly measured volatility in the market. VIX is an index, not a security, but certain ETPs have attempted to allow investors to track the performance of the VIX index. One such ETP is Credit Suisse’s VelocityShares Daily Inverse VIX Short-Term ETN (ticker symbol XIV), which the issuer shuttered earlier this month after investors experienced unexpectedly large losses during a spike in the VIX. Other ETP products that may pose similar risks include Proshares SVXY, VelocityShares ZIV, iPATH XXV, and REX VolMaxx VMIN.

ETPs have previously come under scrutiny by FINRA. In October of 2017, FINRA ordered Wells Fargo to pay $3.4 million in restitution to investors relating to unsuitable recommendations of volatility-linked ETPs. FINRA also has published Regulatory Notice 17-32, regarding sales practice obligations, which cautions brokerage firms that many volatility-linked ETPs are highly likely to lose value over time and may be unsuitable to retail investors, particularly those who plan to use them as traditional buy-and-hold investments. Previously, in 2012, FINRA called for heightened supervision by brokerage firms regarding complex investment products in Regulatory Notice 12-03, specifically warning of the risks posed by investment products tied to the VIX.

Certain ETPs are structured to provide investors with returns that are positive when the VIX falls, and negative when the VIX rises, and investors in these products essentially are taking the view that the market will remain relatively steady. However, earlier this month stock market volatility and the VIX rose rapidly as the stock market whipsawed erratically.

ETFs that lost value during this market turmoil include the following:

VelocityShares Daily 2X VIX Short-Term ETN (TVIX)

ProShares Short VIX Short-Term Futures (SVXY)

iPath S&P 500 VIX Short-Term Futures ETN (VXX)

VelocityShares Daily Inverse VIX Short-Term ETN (XIV)

ProShares Ultra VIX Short-Term Futures (UVXY)

ProShares VIX Short-Term Futures (VIXY)

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have sustained losses due to unsuitable recommendations of high-risk financial products by stockbrokers or investment advisors. Investors may 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.

On December 8, 2017, the Securities and Exchange Commission (“SEC”) issued a Cease-and-Desist Order (“Order”) against Ameriprise Financial Services, Inc. (“Ameriprise”) in connection with allegations that Ameriprise and its employees or agents purportedly misrepresented the performance of certain ETF strategies. Specifically, the SEC’s investigation focused on sales of AlphaSector strategies by ETF manager F-Squared Investments, Inc. (“F-Squared”). The F-Squared AlphaSector strategies, which were based upon an algorithm, were sector rotation strategies designed to issue a “signal” as to whether to buy or sell certain ETFs, that together, comprised the industries in the S&P 500 Index.

Pursuant to the Order, the SEC has alleged that F-Squared materially miscalculated the historical performance of its AlphaSector strategies (from April 2001 to September 2008) by incorrectly implementing signals in advance of when such signals could have occurred. In addition, the SEC alleged that F-Squared relied upon hypothetical and back-tested historical performance that was purportedly inflated substantially over what actual performance would have been had F-Squared applied the signals accurately.

In December 2014, F-Squared agreed to pay a $35 million fine to the SEC, and furthermore, admitting to wrongdoing regarding falsifying performance numbers in its advertising and marketing materials. See In the Matter of F-Squared Investments, Inc., Admin. Proceeding No. 3-16325 (Dec. 22, 2014). By July 2015, F-Squared filed for Chapter 11 bankruptcy protection.

As further alleged in the SEC’s Order, Ameriprise negligently relied upon misrepresentations made by F-Squared, including that the AlphaSector strategies had a history dating back to April 2001 and had been in use since then, and that the AlphaSector strategies’ “[t]rack record had significantly outperformed the S&P 500 Index from April 2001 through September 2008.” According to the SEC’s allegations, “[A]meriprise knew or should have known that it did not have a reasonable basis to believe that F-Squared’s advertising claims for the AlphaSector strategies were accurate.”

Moreover, the SEC has alleged that “[A]meriprise also provided its financial advisors – the primary interface between Ameriprise and its clients when soliciting investments in the AlphaSector strategies – with inaccurate information.” Notably, the Order alleges that “[A]meriprise represented inaccurately to Ameriprise financial advisors that the AlphaSector Rotation strategy was able to double investor money since 2001 and stressed the ‘proven results’ of AlphaSector strategies…”

Without admitting or denying any of the SEC’s findings encapsulated in the Order, Ameriprise is required to pay disgorgement of $6.3 million, prejudgment interest of $700,000, and a civil penalty of $1.75 million to the SEC.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with various alternative investments, including leveraged and inverse ETFs. Investors may contact our office at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors who purchased shares in a leveraged inverse ETF or mutual fund upon the recommendation of their financial advisor may have arbitration claims. In today’s investment environment, many retail investors have been coaxed into investing in financial products beyond the traditional universe of stocks, bonds, and bank deposit products such as CDs. One such alternative or non-conventional investment product that has gained in popularity over the past decade with retail investors is the leveraged inverse ETF (more commonly referred to as an “ultra short fund”).

Essentially, leveraged inverse funds seek to deliver the opposite of the performance of the index or benchmark that they track. These ultra short funds employ a strategy akin to short-selling a stock (or basket of stocks), in conjunction with employing leverage, and in so doing these funds seek to achieve a magnified return on investment that is a multiple of the inverse performance of the underlying index.

For example, the ProShares UltraPro Dow30 ETF (NYSE: SDOW) is structured to provide a return that is -3% of the return of the underlying index, the Dow Jones Industrial Average. Thus, if the Dow Jones were to lose 1% in value, SDOW is structured to gain 3%. While in theory this might seem a straightforward proposition, the fact is that such ultra short funds are exceptionally complicated and risky financial products.

The greatest risk associated with leveraged inverse ETFs involves purchasing these products in a buy-and-hold scenario. Put another way, these products are not designed to be held for more than single trading day, and it is for this reason that such funds should only likely be purchased by professional investors for hedging and day trading purposes. To understand why investing in ultra short ETFs or mutual funds for more than single trading day (buy-and-hold) is likely unsuitable, it is helpful to review the summary prospectus for one inverse ETF, ProShares Short S&P 500 (NYSE: SH), and its disclosure concerning “compounding risk”:

The Fund has a single day investment objective, and the Fund’s performance for periods greater than a single day will be the result of each day’s returns compounded over the period, which is likely to be either better or worse than the Index performance times the stated multiple in the Fund’s investment objective, before accounting for fees and fund expenses. Compounding affects all investments, but has a more significant impact on an inverse fund. Particularly during periods of higher Index volatility, compounding will cause results for periods longer than a single day to vary from the inverse (-1x) of the daily return of the Index. This effect becomes more pronounced as volatility increases.

Aside from compounding risk, the other obvious risk associated with leveraged inverse funds has to do with their leverage, or their use of derivatives such as futures contracts to magnify their exposure to the underlying index or benchmark. For the uninformed and unsophisticated retail investor, it is likely an unsuitable investment strategy to purchase a financial product with 3X leverage. This is because in the event that the investment theme does not pan out, any losses will be magnified by the corresponding degree of leverage.

As of early October 2017, the following leveraged inverse ETFs are among the worst performing ETFs this year:

When a financial advisor recommends an investment to a customer, the broker and his or her firm has a duty to first conduct due diligence on the investment. In addition, pursuant to the rules and regulations set forth by the Financial Industry Regulatory Authority (“FINRA”), the financial advisor, and by extension his or her firm, must seek to ensure that they conduct a suitability analysis in order to determine if the investment being recommended is suitable for the investor in light of certain factors, including the customer’s age, risk tolerance and stated objectives, net worth and income, and degree of sophistication with investing.

If you have invested in any leveraged inverse ETFs or mutual funds, including the above referenced ultra short funds, you may be able to recover losses sustained in FINRA arbitration. Investors may 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.

Recently, the Financial Industry Regulatory Authority (“FINRA”) ordered Wells Fargo & Co. to pay a $3.4 million fine in connection with sales practice issues related to recommendations of volatility-linked exchange-traded funds (“ETFs”) and volatility-linked exchange-traded notes (“ETNs”) to customers. Specifically, FINRA determined that between July 2010 and May 2012, some Wells Fargo brokers affiliated with the company’s wealth management business recommended that their customers purchase volatility-linked exchange-traded funds (“ETFs”) and volatility-linked exchange-traded notes (“ETNs”) “without fully understanding their risks and features.” In addition, FINRA indicated that Wells Fargo lacked the appropriate supervisory procedures and safeguards to facilitate sales of the volatility-linked investment products.

By their very nature, volatility-linked investments are designed to return a profit when the market experience choppiness (or volatility) and are not intended for ordinary investors. In fact, when volatility-linked ETFs began rolling out to retail investors in early 2011, Michael L. Sapir, Chairman and CEO of ProShare Capital Management, stated that “The intended audience for these ETFs are sophisticated investors.”

Investing in a volatility-linked product is a very risky enterprise that is likely only suitable for professional investors seeking to trade on a short-term basis (e.g., several hours or day trading). Furthermore, because the VIX or so-called ‘fear index’ is not actually tradeable, investors who wish to invest in the VIX must trade derivatives instead (including volatility-linked ETFs and ETNs)- products that are beyond the understanding of ordinary retail investors.

As addressed in a March 2016 Barron’s article by Chris Dieterich – The Fear Gauge: Investors Should Avoid VIX ETFs – the stock market’s short-term roller-coaster ups and down have increased interest in exchange-traded products linked to the CBOE Volatility Index, or VIX. Dietrich asserts that these products, “… offer the chance to catch lightning in a bottle but, like all hedging tools, are virtually guaranteed to lose money longer term.” Dietrich goes on to describe how these VIX-related ETFs and ETNs are essentially “souped-up versions of short-selling bear-market funds, which ‘hedge’ stock holdings by rising when the major stock benchmarks sink.”

Aside from the risks associated with investing in derivatives, volatility-linked ETFs and ETNs also face certain structural limitations, including the fact that the funds are not directly tied to the VIX itself. These products are linked to the futures market, and because futures contracts have a finite lifespan and regularly expire, the ETFs and ETNs may face additional difficulties in tracking the index’s performance.

The attorneys at Law Office of Christopher J. Gray, P.C. have considerable experience in representing investors who have sustained losses in non-traditional, or exotic investment products, including managed futures, structured notes, and non-traditional ETFs. Investor facing losses due to an investment in a volatility-linked fund or note may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

LPL’s failure to supervise sales of nontraditional ETFs continued into 2015, according to FINRA. FINRA also alleged that LPL failed to have adequate supervisory systems and guidelines for sales of nontraded REITs from January 2007 to August 2014. LPL consented to the fine without admitting or denying the charges.

This was not LPL’s first regulatory issue concerning lack of supervision concerning high-commission investments such as non-traded REITs. In March 2014, FINRA fined LPL $950,000 for supervisory deficiencies related to sales of a wide range of alternative investment products. These include nontraded REITs, oil and gas partnerships, business development companies, hedge funds, managed futures and other illiquid investments.

Real estate investment trusts (REITs) are highly risky products that pose a significant risk that the investor will lose some or all of his initial investment. REITs are often better suited for sophisticated and institutional investors, rather than retail investors such as retirees who do not wish to risk losing a significant portion of their investment.

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, due to the high sales commissions brokers typically earn for selling REITs – as high as 15%- brokers can be tempted to make “one size fits all” recommendations to investors in order to reap commissions. Brokerage firms such as LPL are required by FINRA rules to supervise brokers and investment advisors- even those who work in independent branch offices- to ensure that the brokers make only suitable recommendations.

If you have suffered significant losses as a result of unsuitable recommedations of REITs or other non-conventional investments 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 newcases@investorlawyers.net for a no-cost, confidential consultation.

Leveraged ETFs

In addition to the inherent risks of such investments, some investors’ portfolios may be over-concentrated in oil and gas stocks or ETFs. Some of these ETFs may be leveraged or non-traditional ETFs. These types of funds will tend to rise or fall in value even more rapidly than the price of oil and gas, due to internal leverage, or the borrowing of money by the funds to increase their exposure energy prices.

Some “leveraged ETF” funds of this nature are listed below:

AXEN – iShares MSCI ACWI ex US Energy Sector Index ETF

CHIE – Global X China Energy ETF

DBE – PowerShares DB Energy ETF

EMLP – First Trust North American Energy Infrastructure ETF

ENFR – Alerian Energy Infrastructure ETF

ENY – Claymore/SWM Canadian Energy Income ETF

ERX – Direxion Daily Energy Bull 3X Shares ETF

ERY – Direxion Daily Energy Bear 3X Shares ETF

FILL – iShares MSCI Global Energy Producers Fund

FXN – First Trust Energy AlphaDEX ETF

ICLN – iShares S&P Global Clean Energy Index ETF

IPW – SPDR S&P International Energy Sector ETF

IXC – iShares S&P Global Energy Sector ETF

IYE – iShares Dow Jones US Energy Sector ETF

JJE – iPath DJ-UBS Energy Total Return Sub-Index ETN

OGEM – EGShares Energy GEMS ETF

ONG – iPath Pure Beta Energy ETN

PSCE – PowerShares S&P SmallCap Energy Portfolio

PUW – PowerShares WilderHill Progressive Energy ETF

PXE – PowerShares Dynamic Energy Exploration & Prod ETF

PXI – PowerShares Dynamic Energy ETF

RGRE – RBS Rogers Enhanced Energy ETN

RJN – ELEMENTS Rogers International Commodity Energy ETN

RYE – Rydex S&P Equal Weight Energy ETF

UBN – UBS E-TRACS CMCI Energy Total Return ETN

VDE – Vanguard Energy ETF

XLE – Energy Select Sector SPDR

Natural Gas ETFs

Even funds that are not internally leveraged may have suffered significant losses due to their concentrated exposure to the price of natural gas. Some funds concentrated in investments linked to the value of natural gas are listed below:

DCNG – iPath Seasonal Natural Gas ETN

DDG – The Short Oil and Gas ProShares ETF

FCG – First Trust ISE-Revere Natural Gas ETF

BOIL – ProShares Ultra DJ-UBS Natural Gas ETF

KOLD – UltraShort DJ-UBS Natural Gas ETF

FRAK – Market Vectors Unconventional Oil & Gas ETF

GASL – Direxion Daily Natural Gas Related Bull 3X Shares ETF

GASX – Direxion Daily Natural Gas Related Bear 3X Shares ETF

GASZ – ETRACS Natural Gas Futures Contango ETN

GAZ – iPath DJ AIG Natural Gas TR Sub-Index ETN

IGAS – Global Natural Gas Small Cap Equity ETF

MLPG – UBS E-TRACS Alerian Natural Gas MLP Index ETN

NAGS – Teucrium Natural Gas Fund

UNG – United States Natural Gas ETF

Crude Oil ETF’s

Funds that are not internally leveraged may also have suffered significant losses due to their concentrated exposure to the price of crude oil. Some funds concentrated in investments linked to the value of crude oil are listed below:

BARL – Morgan Stanley S&P 500 Crude Oil Linked ETN

BNO – United States Brent Oil Fund

DBO – PowerShares DB Oil ETF

DNO – United States Short Oil Fund ETF

DTO – PowerShares DB Crude Oil Double Short ETN

DUG – UltraShort Oil & Gas ProShares ETF

IOIL – Global Crude Oil Small Cap Equity ETF

FRAK – Market Vectors Unconventional Oil & Gas ETF

OIH – Market Vectors Oil Services ETF

OIL – Goldman Sachs Crude Oil Total Return ETN

OILZ – ETRACS Oil Futures Contango ETN

OLEM – iPath Pure Beta Crude Oil ETN

OLO – PowerShares DB Crude Oil Long ETN

SCO – ProShares UltraShort DJ-AIG Crude Oil ETF

SZO – PowerShares DB Crude Oil Short ETN

USO – United States Oil Fund ETF

USL – United States 12 Month Oil Fund ETF

UHN – United States Heating Oil Fund ETF

UCO – ProShares Ultra DJ-AIG Crude Oil ETF

DDG – The Short Oil and Gas ProShares ETF

CRUD – Teucrium WTI Crude Oil Fund

WCAT – Jefferies TR/J CRB Wildcatters Expl& Prod Equity ETF

FOL – FactorShares 2X Oil Bull/S&P500 Bear ETF

SNDS – Sustainable North American Oil Sands ETF

Brokers who sell oil and gas investments have an obligation to make sure that the investment is suitable for the investor and to disclose all the risks associated with the product. If you suffered significant losses are a result of possible unsuitable recommendations, 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.

According to Bloomberg, the $45,000 loss suffered by Jeff Steckbeck in TVIX, a Credit Suisse Group AG note, has set off a probe by the Securities and Exchange Commission. Reportedly, ETNs became more popular with the TVIX in February 2012. That month, Credit Suisse stopped selling the ETN and rising demand caused the investment to veer up to 89 percent from the index. When Credit Suisse began issuing the notes again in March of that year, a FINRA warning cautioned investors that ETNs could trade at a price that was higher than their underlying index.

Bloomberg data indicates that the estimated initial value of the securities is typically 2 to 4 percent less than the price investors paid. Exchange-traded notes like TVIX mimic assets through the use of derivatives and their value is based on volatility shifts in the market. However, the ETN market is small beans compared to the ETF market, which has around $2.4 trillion in assets.

In addition, the Securities and Exchange Commission recently announced that it will reconsider a 2008 rule proposal regarding ETFs. Reportedly the proposal will address the underlying and direct instrument transparency, differences between active and index funds, creative flexibility and inverse leverage. Reportedly, unauthorized trading and the unsuitable sale of inverse and leveraged ETFs increased following the 2008 economic downturn. As a result, securities arbitration lawyers have filed numerous arbitration claims on behalf of investors who suffered significant losses in inverse and leveraged ETFs.

If you purchased unsuitable ETFs or ETNs from Credit Suisse or another full-service brokerage firm, you may be able to recover your losses through securities 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.

According to the claim, the woman was sold non-traded REITs and other alternative investments by Jonathan Pyne, a broker for Berthel Fisher. The claim argues that her age and low risk tolerance made the investments unsuitable for her. The investments included:

• Inland American Real Estate Trust
• Wells REIT
• Cornerstone Core Properties REIT
• Gulf Coast Rig & Equipment
• REEF Oil & Gas Income and Development
• Leaf Equipment Leasing Income Fund III

Securities arbitration lawyers say that these investments are illiquid and, in many cases, may have been negligently misrepresented. In this woman’s case and possibly many others, the investments also allegedly represented a concentration level of her liquid net worth that was too large to be suitable.

Firms have an obligation to properly supervise their brokers and fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance.

Non-traded REITs are attractive to investors because they carry a relatively high dividend or interest. According to investment fraud lawyers, however, these investments are inherently risky and illiquid, which limits access of funds to investors and makes them unsuitable for many individuals with conservative risk tolerances and those who need easy access to funds, especially when over-concentrated. 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, and the problem is exasperated in volatile markets, making these investments unsuitable for many investors as well.

If you were sold unsuitable alternative investments from a Berthel Fisher broker, including non-traded REITs, inverse and leveraged ETFs and/or Oil & Gas Partnerships, you may be able to recover your losses through a securities arbitration claim. 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.

According to the FINRA investigation’s findings, Berthel Fisher did not have adequate written procedures and supervisory systems in place from January 2008 to December 2012 for the following alternative investments:

• Non-traded REITs
• Oil and gas programs
• Managed futures
• Business development companies
• Equipment leasing programs

Allegedly, the firm did not accurately calculate alternative investment concentration levels in some cases and, as a result, did not correctly adhere to suitability standards in those instances. Furthermore, Berthel Fisher staff was not adequately trained on the suitability standards for individual states.

In addition, from April 2009 to April 2012, Berthel Fisher allegedly did not have a “reasonable basis” for certain leveraged and inverse ETF sales, according to FINRA’s findings. FINRA investigators also found that non-traditional ETFs were not adequately researched or reviewed, and that the sales force was not adequately trained before registered representatives were allowed to make customer recommendations. Stock fraud lawyers believe that many customers may have suffered significant losses as a result of the recommendation and sale of these products, which were unsuitable for many investors.

Under FINRA rules, firms have an obligation to fully disclose all the risks of a given investment when making recommendations, and those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance. Furthermore, securities fraud attorneys say that firms have an obligation to properly supervise brokers’ activities while they are registered with the firm.

If you suffered significant losses in non-traded REITs or inverse and leveraged ETFs sold by Berthel Fisher or Securities Management & Research Inc., you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a stock fraud lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

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.

“The complexity of leveraged and inverse exchange-traded products makes it essential for securities firms and their representatives to understand these products before recommending them to their customers,” FINRA Executive Vice President and Chief of Enforcement Brad Bennett stated. “Firms must also conduct reasonable due diligence on these and other complex products, sufficiently train their sales force and have adequate supervisory systems in place before offering them to retail investors.”

According to FINRA’s investigation, from January 2009 to June 2013, some Stifel and Century representatives did not fully understand the risks and features of leveraged and inverse ETFs and, as a result, made unsuitable recommendations to clients. FINRA concluded that Stifel and Century allowed the recommendations and many customers suffered significant losses because of the unsuitable recommendations.

If you suffered significant losses as a result of the unsuitable recommendation of inverse and leveraged ETFs by Stifel, Century or another full-service brokerage firm, you may be able to recover losses through securities arbitration. To find out more about your legal rights and options, contact a stock fraud lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

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.

FINRA also alleges that J.P. Turner allowed registered representatives to recommend these investments without performing due diligence regarding the suitability of these investments to at least 27 customers. These clients reportedly included investors and retirees with conservative risk tolerances. In addition, J.P. Turner is accused of conducting 2,800 unsuitable mutual fund switches, despite red flags. Allegedly, the switching resulted in more than $500,000 in commissions and sales charges paid by 66 clients.

According to investment fraud lawyers, firms have an obligation to fully disclose all the risks of a given investment when making recommendations. In addition, those recommendations must be suitable for the individual investor receiving the recommendation given their age, investment objectives and risk tolerance. If a firm fails to make suitable recommendations, investors may be able to recover losses through FINRA arbitration.

If you suffered significant losses as a result of the unsuitable recommendation of inverse and leveraged ETFs or excessive mutual fund switching, you may be able to recover your losses through securities 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.

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.

Finally, non-traded REITs are often highly leveraged, utilizing borrowed money to invest in real estate. When, as in 2007 through 2009, real estate prices are dropping, investors in non-traded REITs can face substantial losses of principal.

Some of the non-traded REITs currently being investigated by the securities fraud attorneys at Law Office of Christopher J. Gray, P.C. include KBS REIT, Cornerstone Healthcare REIT, Behringer Harvard REITs, Paladin Realty Income Properties REIT, Wells REIT, Apple REIT, Desert Capital, REIT, TNP Strategic Retail Trust, Dividend Capital REIT, Whitestone REIT, ArciTerra National REIT and Hines REITs.

Other retirees may be suffering losses as a result of excessive trading in their individual retirement accounts, or IRAs, by their financial adviser. One investor recently filed a Statement of Claim alleging excessive trading that exceeded a conservative-to-moderate account’s appropriate turnover ratios. Furthermore, his allegations stated that the trades included unsuitable exchange traded funds, or ETFs, that, like REITs, were too risky given the client’s investment objectives and risk tolerances.

If you are a retiree who suffered significant losses as a result of excessive trading or the unsuitable recommendation of risky non-traded REITs or ETFs, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact a stock fraud lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 for a no-cost, confidential consultation.

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.

According to a recent article in Forbes, “not every example of unauthorized trading or mis-marked tickets can be ascribed to time pressure and fatigue. Frequently, bad folks are simply up to no good. Similarly, some folks just won’t listen to reason and no matter how often you warn certain registered persons to avoid shortcuts and go by the book, they figure it’s their lucky day and who’s gonna know and who’s gonna find out — and that’s exactly when bad goes to worse.”

If you believe your stockbroker or investment advisor executed trades on your non-discretionary account without your permission, you may have a valid securities arbitration claim. 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 for a no-cost, confidential consultation.

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:

• C-Tracks ETN Citi Volatility Index Total Return fell 90 percent
• Market Vectors Solar Energy ETF fell 31 percent
• DJ-UBS Natural Gas Subindex Total Return ETN fell 23 percent
• Market Vectors Coal ETF fell 21 percent
• Dow Jones-UBS Coffee ETN fell 43 percent
• Gold Explorers ETF fell 32 percent
• Pure Beta Softs ETN fell 24 percent
• Global Carbon ETN fell 22 percent

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. Because of the risks associated with ETFs, these investments may not have been suitable for many individuals who received ETF recommendations from full-service brokerage firms. In addition, investment fraud lawyers say that some investors may not have been made aware of the risks associated with ETFs. In some cases, these risks can include losses several times larger than losses in the underlying assets held by the fund due to the use of borrowed money by the ETF to purchase assets.

If your full-service brokerage firm recommended ETFs for investment that were unsuitable for you and you suffered significant losses as a result, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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.

If you believe churning occurred in your First Midwest Securities account or a Scott & Stringfellow representative made an unsuitable recommendation of a Non-Traditional ETF, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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.”

Following the dismissal of the class action lawsuit, investors who suffered losses as a result of their investment in the ProShares ETF are seeking alternative methods for recovering their losses. Those investors can contact a securities fraud attorney about filing a Financial Industry Regulatory Authority arbitration claim against the broker-dealer or financial advisor that recommended the investment. In many cases, firms, brokers and/or advisors can be held liable for investor losses if they failed to fully disclose the risks associated with the investment or recommended an investment that was unsuitable for the investor.

If you suffered losses in ProShares exchange-traded funds, you could recover your losses through securities arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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.

Based on the information that is now known about Winex, investment fraud lawyers believe that many of the brokerage firms that sold this investment failed to accurately assess the risks involved with the investment. Without an accurate risk assessment, firms cannot adequately communicate investments’ risks to investors and, as a result, investors cannot make informed financial decisions. Furthermore, many brokerage firms allegedly sold the Winex investment to clients for which it was unsuitable, a clear violation of the suitability standard upheld by the securities industry.

If you suffered significant losses as a result of your investment in Winex Investments LLC, or another foreign currency investment, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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.”

Risks associated with exchange-traded notes include market risk, credit risk, liquidity risk, price-tracking risk, conflicts of interest, holding-period risk and call, early redemption and acceleration risk. According to securities arbitration lawyers, many investors are not made aware of all these risks when receiving recommendations from financial professionals.

If you suffered significant losses in a risky ETN because of the recommendation of your broker or advisor and were not made aware of the risks associated with the investment, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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:

• Auction rate securities (ARS)
• Hedge funds
• Equity-indexed annuities
• Return optimization securities
• Structured products
• Principal protected notes (PPN)
• Leveraged and inverse exchange-traded funds (ETF)
• Asset back securities
• Reverse convertibles and commodity futures-linked securities
• Unlisted real estate investment trusts (REIT)

If you are an elderly investor who has been improperly recommended one of the above investments, or have noticed any of the other red flags pertaining to your recent investments, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.