Articles Tagged with Exchange Traded Funds

The Financial Industry Regulatory Authority (FINRA) announced plans to file enforcement actions against certain brokerages in connection with unsuitable sales of leveraged and inverse leveraged exchange-traded funds (ETFs), as well as for failure to train their brokers who sell them (see Reuters article by Suzanne Barlyn and Jessica Toonkel entitled “FINRA to bring cases over leveraged, inverse ETFs”). The article cites former FINRA Enforcement Chief Bradley Bennett as the source of this information, and notes that he refused to identify the broker-dealers that FINRA plans to sue.

Bennett reportedly told lawyers at a Practising Law Institute (PLI) seminar in New York that the enforcement actions will “make statements” about how broker-dealers should ensure that registered representatives are properly trained about these complex products and the types of customers for whom they may or may not be suitable. Continue Reading

The SEC and FINRA are finally stepping up to regulate nontraditional ETFs and ETNs and to ensure that these complicated products are not sold to unsophisticated investors.

Citigroup Global Markets Inc., Morgan Stanley, UBS Financial Services Inc. and Wells Fargo agreed to pay $9.1 million to settle allegations that they sold leveraged and inverse exchange-traded funds to clients who had no business investing in the complex instruments. Continue Reading

Oppenheimer & Co., Inc. (Oppenheimer) has been hit with a fine of $2.25 million and ordered to pay restitution to affected customers of over $716,000 for failing to supervise the unsuitable sales of leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs).

According to FINRA, Oppenheimer failed to enforce its own policies with respect to the solicitation and recommendation of ETFs by its registered representatives. Although Oppenheimer put ETF-related policies in place in 2009 (in response to FINRA Regulatory Notice 09-31), its representatives continued to solicit customers and to execute non-traditional ETF transactions despite the customers not meeting Oppenheimer’s criteria for suitability, e.g. having liquid assets of more than $500,000.  FINRA’s findings state that Oppenheimer representatives carried out more than 30,000 ETF transactions, totaling approximately $1.7 billion during the relevant time period. Continue Reading

Citigroup Global Markets Inc., (Citigroup) submitted a Letter of Acceptance, Waiver and Consent in which the firm consented to, but it did not admit to or deny, the described sanctions and the entry of the Financial Industry Regulatory Authority’s (FINRA) findings that it failed to deliver prospectuses with respect to the sales of exchange-traded funds (ETFs) to its investor customers.

According to FINRA, Citigroup failed to deliver prospectuses for nearly 255,000 investor purchases of approximately 160 ETFs over a three-month period. Further, FINRA found that from 2009 through April 2011, Citigroup may have failed to deliver prospectuses for more than 1.5 million purchases of ETFs by investors. Moreover, Citigroup’s supervisory system failed to achieve compliance with Federal securities laws with regard to prospectus-delivery requirements, especially since the firm allegedly detected certain failures back in 2009. Continue Reading

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