FSC Securities Fined $100,000 for Failure to Supervise ETF Sales

FSC Securities Corporation has been censured and fined $100,000 and ordered to pay restitution to affected customers of over $492,485.33 for failing to supervise the unsuitable sales of leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs).

The Financial Industry Regulatory Authority (FINRA) found that FSC Securities, which is headquartered in Atlanta, Georgia, failed to establish and maintain an adequate supervisory system to ensure the suitability of its sales of non-traditional ETFs.  According to FINRA, FSC Securities executed approximately 6,500 purchases of the non-traditional ETFs, which were worth approximately $92 million and generated roughly $603,000 in commissions.  

FINRA noted examples of FSC Securities’ unsuitable ETF sales, including an 82 year old customer with a conservative investment profile and net worth of $500,000 whose unsuitable ETF hold position resulted in a loss of $14,251.  Another customer, a 67 year old conservative customer with investment objectives of income and growth, a moderately conservative risk tolerance, and net worth of $350,000 incurred a loss of $13,420 from an unsuitable ETF investment.  FSC Securities consented to FINRA’s sanctions without admitting or denying the findings.

FINRA rules require brokerage firms to establish and implement a reasonable supervisory system to protect customers from the risks associated with investing. The implementation of the rules requires supervisors to monitor their 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 investment losses which stem from their employees’ misconduct. Therefore, investors who have suffered losses due to a brokerage firm’s failure to supervise the recommendations and/or transactions of its representatives can bring forth claims to recover damages against firms, like FSC Securities, which have a duty to supervise employees in order to protect their customers’ interests.

Have you suffered losses in your FSC Securities investment account?  Did you purchase an exchange traded fund which was unsuitable in light of your investment goals?  If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

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 35 years, 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 pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.