Moloney Securities Co, Inc. of Manchester, Missouri consented to, but did not admit to or deny, the described sanctions and to the entry of the Financial Industry Regulatory Authority’s (FINRA) findings that it failed to establish a supervisory system with regard to the sale of non-traditional exchange-traded funds (ETFs). According to FINRA, Moloney Securities permitted its representatives to recommend and sell non-traditional ETFs to customers even though the firm neglected to provide its supervisors or its representatives with training or guidance as to whether these complex and risky investments were suitable for the investors. FINRA’s findings stated that Moloney Securities neither utilized nor made available to supervisory personnel reports or other tools to monitor length of time the ETFs were held or the losses which occurred in those hold positions. Consequently, Moloney Securities was censured and fined $20,000.
ETFs have become more complex in recent years. Wall Street, in its efforts to generate more profits, has created numerous ETFs that utilize leverage and focus on narrower market sectors, which increases risk for investors. Therefore, investors considering ETFs should evaluate each ETF investment individually and not assume all ETFs are alike. Two types of ETFs that pose a significant risk to investors’ portfolios are leveraged and inverse leveraged funds. Leverage is a technique used in the financial industry to multiply investment gains by using borrowed money. If, however, an investment is generating losses, money can be lost at a multiple rate due to the amount of money owed. Leveraged ETFs seek to deliver multiples of the performance of an index by using borrowed funds. Inverse leverage funds also use borrowed funds to achieve multiples of the opposite of the movement of an index by employing a range of investment strategies such as swaps, futures contracts, and other derivative investments. Thus, leveraged and inverse leverage funds can lose many times their value in a single day, which could ultimately lead to significant losses for investors.
Broker-dealers must establish and implement a reasonable supervisory system and to protect customers from the risks associated with investing. In order to protect customers from broker misconduct, FINRA rules require brokerage firms to establish and implement a reasonable supervisory system. The implementation of the rules requires supervisors to monitor its employees to ensure compliance 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 and their supervisors fail to establish and implement these protective measures, they may be held liable to account holders for losses stemming from their employees’ misconduct. Therefore, investors who have suffered losses due to a broker’s unsuitable recommendations and/or a brokerage firm’s inadequate supervision can bring forth claims to recover damages against firms like Moloney Securities, which have a duty to supervise employees in order to protect their customers’ interests.
Have you suffered losses in an exchange-traded fund sold to you by your Moloney Securities 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 Moloney Securities 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 visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at email@example.com for answers to any of your questions about this blog post and/or any related matter.