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Investors Capital Corp. Censured and Fined for Inadequate Supervision of ETF Sales

Lynnfield, Massachusetts-based Investors Capital Corp. submitted a Letter of Acceptance, Waiver and Consent in which the firm consented to, but did not admit to or deny, the entry of the Financial Industry Regulatory Authority’s (FINRA) findings that it failed to ensure delivery of exchange-traded fund (ETF) prospectuses to customers. The findings stated that the firm violated Section 5(b)(2) of the Securities Act of 1933 by failing to establish an adequate supervisory system, including written supervisory procedures (WSPs), concerning the sale of ETFs and the firm’s obligations to provide ETF prospectuses to customers. The firm did not have any procedures directly concerning the sale of ETFs or its obligations to provide ETF prospectuses to customers and permitted representatives to sell ETFs before completing any firm-mandated training. The firm was censured and fined $100,000

Much like stocks, ETFs are investment funds that are traded on stock exchanges. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index and are attractive investments because of their low costs, tax efficiency, and stock-like features. By owning an ETF, investors benefit from the diversification of an index fund as well as the ability to purchase as little as one share. In addition, expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, investors pay the same commission to their brokers that they would pay on any regular stock order. Leveraged and inverse exchange traded funds are designed to magnify short-term returns of a fund’s underlying assets by a factor of 2 or more. They employ derivatives and are generally considered to be unsuitable for ordinary buy-and-hold investors.

In order to protect customers, FINRA rules require broker-dealers to establish and implement a reasonable supervisory system. These rules require supervisors to monitor firm activities to ensure they comply with federal and state securities laws, securities industry rules and regulations, as well as the brokerage firm’s own policies and procedures. If broker-dealers do not establish and implement such protective measures, they may be a liable to account holders for damages stemming from a lack of supervision. As a result, investors who have suffered losses can bring forth claims to recover damages against broker-dealers like Investors Capital Corp., which have a duty to oversee sales activities in order to protect their customers’ interests.

Have you suffered losses in an exchange-traded fund sold to you by your Investors Capital Corp. broker? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against stockbrokers for unsuitable recommendations, misrepresentations, and/or other fraudulent and illegal conduct.

The most important of investors’ rights is the right to be informed! This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over , Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities, and investment law issues. The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please post a comment, call (800) 732-2889, send Mr. Pearce an email at pearce@rwpearce.com, and/or visit our website at www.secatty.com for answers to any of your questions about this blog post and/or any related matter.