Retail Investors Were Allegedly Told To Hold Exchange-Traded Products for Too Long
In separate settlements reached with the US Securities and Exchange Commission (SEC), Royal Alliance Associates, Securities America Advisors, Summit Financial Group, Benjamin F. Edwards & Co., and American Portfolio Financial Services / American Portfolio Advisers will pay over $3M in penalties and restitution for their allegedly unsuitable sales of exchange-traded products (ETPs) to customers between January 2016 and April 2020. The firms did not deny or admit to the findings.
All of the respondents recommended and sold iPath S&P 500 VIX Short–Term Futures ETNs (VXX), which utilize short-terms futures contracts https://www.investopedia.com/articles/investing/080715/etf-analysis-ipath-sp-500-vix-futures-vxx.aspto try tracking the S&P 500 Index’s implied volatility. It also is considered one of the largest and most volatile ETPs and among the worst-performing from last year.
Other ETPs involved in these SEC’s cases are the ProShares VIX Short-Term Futures ETFs (VIXY), which was sold by Benjamin F. Edwards and Securities America Advisors. The latter also sold VelocityShares Daily Inverse VIX Short Term ETNs and Proshares VIX Short-Term Futures ETFs (“VIXY”).
Exchange-Traded Product Risks: What Investors Should Be Aware Of
Exchange-traded products can be very volatile. The offering documents of the ETPs at issue had clearly explained that because these are short-term products, they are likely to go down in value when held for too long.
Yet, contends the Commission, registered representatives from all of the firms not only recommended that customers and clients buy the exchange-traded products but also advised that they hold them for an extended length, sometimes for up to months or years. The SEC also found that none of the firms had put into place or implemented policies and procedures related to the suitability of volatility-linked ETPs.
Investors Will Get Some Restitution
American Portfolio Financial Services, along with American Portfolio Advisors, consented to pay a $650K penalty. The SEC found that they did not adequately supervise their registered representatives involved in the ETP sales. The firms will pay another $2,500 in disgorgement plus prejudgment interest.
Benjamin F. Edwards also was ordered to pay a $650K. Its disgorgement with prejudgment interest is around $35K.
Summit Financial and Securities America were fined $600K each. At least 92 client accounts held the iPath S&P 500 VIX Short–Term Futures ETN for several months or longer. 91 of these accounts suffered substantial investment losses. Disgorgement plus prejudgment interest for Summit customers is around $3700.
At Securities America, about 156 customer accounts sustained substantial losses from exchange-traded products during the period at issue. Disgorgement with prejudgment interest for the firm is $3,776.82.
Royal Alliance’s civil penalty was $500K. At least 108 Royal Alliance Customer accounts lost money from holding iPath S&P 500 VIX Short–Term Futures ETNs for months or even years.
Breach of Fiduciary Duty
Broker-dealers and investment advisors should always act in the customer’s best interests. This includes only recommending products, trades, and investing strategies that are suitable for them. Failure to do so is a breach of fiduciary duty.
ETP Investment Fraud Lawyers
Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) has been speaking to investors throughout the US who have suffered significant losses in iPath S&P 500 VIX Short–Term Futures ETNs, ProShares VIX Short-Term Futures ETF, VelocityShares Daily Inverse VIX Short Term ETNs, or VIX Short-Term Futures ETFs.
We can determine if misrepresentations or omissions were made by your broker or investment advisor, as well as whether unsuitability was a factor.
Even when a regulator gets involved, your best bet as an investor for recovering most or all of your losses is to work with experienced exchange-traded product fraud attorneys. Call SSEK Law Firm at (800) 259-9010 and ask for your free, no-obligation case consultation.