Non-Traditional Exchange-Traded Funds Are Not Suitable For Every Investor
Our securities fraud attorneys at Shepherd Smith Edwards and Kantas (SSEK Law Firm) are looking into complaints by investors whose brokers may have inappropriately recommended that they invest in non-traditional exchange-traded funds (ETFs).
These types of ETFs are leveraged, inverse and inverse-leveraged exchange-traded funds and they are not for every investor. This is definitely the type of investment that a financial representative and its broker-dealer should assess for suitability on a customer-by-customer basis.
Non-traditional complex investment products are meant to fulfill a certain performance result every day. They are not appropriate for long-term or intermediate investing and ideally, should be part of a highly supervised and sophisticated trading strategy.
Unfortunately, non-traditional ETFs are often recommended to investors whose portfolios can’t handle the risks or complexity, which can result in devastating investment losses. Many of those we have spoken to are saying they weren’t fully apprised of the risks.
Non-Traditional Investment Claims: Past & Present
The brokers and their brokerage firms that make these unsuitable investment recommendations and facilitate their sale or purchase can be held accountable for broker fraud or negligence.
Last year, the Financial Industry Regulatory Authority (FINRA) suspended two brokers, the President of Corinthian Partners, Richard Calabrese and CEO, Mitchell Manoff. These suspensions were in relation to the solicitation of more than 1900 purchases and over 1660 sales of non-traditional ETFs involving seven customers. The transactions led to $279M in purchases, $275M in sales and approximately $890M in commissions.
The self-regulatory organization (SRO) contends that the two brokers and firm principals did not adequately supervise to make sure they had reasonable grounds for recommending that these investments be held for extended periods. Calabrese and Manoff are accused of not detecting red flags warning of unsuitable trading.
Both men were suspended by FINRA for 30 days and ordered to each pay $10K fines. Corinthian was ordered to pay a $30K fine.
In 2016, the FINRA brokerage firm, Oppenheimer & Co was ordered to pay $715K in restitution to retail customers, including older investors who were sold leveraged, inverse and inverse-leveraged ETFs that were unsuitable for them.
Among those impacted were an 89-year-old customer with a $50K/year income who lost almost $52K after holding 96 non-traditional ETFs for 32 days on average and up to 470 days in total, as well as 91-year-old investor whose annual income was $30K and who lost over $11K after holding 56 non-traditional ETFs for 48 days on average and up to 706 days.
Also, in 2019, ex-America Northcoast Securities stockbroker, Dominic Anthony Trapiano was barred by the SRO for recommending non-traditional ETFs when they were not suitable for customers. Specifically, Trapiano is accused of recommending without reasonable grounds 866 ETF transactions to 47 customers. America Northcoast Securities already has paid more than $1.5M to its customers that were affected by Trapiano’s actions. His BrokerCheck record shows eight customer disputes, most of them still pending.
Non-Traditional Investment Fraud Lawyers
Contact SSEK if you believe that your non-traditional exchange-traded fund losses may be due to brokerage firm negligence or broker fraud. We can help you explore your legal options. We work with retail investors, including seniors and retirees, as well as sophisticated and high-net-worth investors to get the compensation and damages to which they are entitled.