When a broker sells a leveraged exchange traded fund ("ETF") to a customer, the sale is marked as either solicited or unsolicited. A solicited sale is one that is advertised or recommended whereas an unsolicited sale is a purchase initiated by the customer, without input from the broker.
In 2009, FINRA reminded its member firms about best practices in regards to leveraged and inverse ETFs, noting that these complex products that are reset daily are unsuitable for retail investors who plan to hold them for longer than one trading session. Accordingly, FINRA reminded firms and brokers to recommend—or solicit—wisely and based on a full understanding of suitability and the specific ETF product's terms and features.
When improper recommendations are made regarding leveraged or inverse ETFs, the consequences can be devastating.
For instance, JP Turner's recent unsuitable leveraged and inverse ETF sales to at least 27 customers including elderly retirees and those with conservative investment objectives produced damages ranging into the hundreds of thousands of dollars.
In that case, FINRA ordered JP Turner to pay $707,559 in restitution for this and similar supervisory deficiencies.
In 2008, a 60-year-old rancher lost nearly $600,000 after broker Mark E. Marek allegedly made a series of unsuitable and misleading recommendations regarding ETFs and several other high-risk investment options.
Next, consider the more recent case of Stuart A. Epley, former Ameriprise Financial Services, Inc. representative, who was recently suspended from FINRA involvement for misconduct stemming from the mislabeling of solicited complex ETF sales as "unsolicited."
When Epley allegedly mismarked 24 order tickets as "unsolicited" even though he solicited unapproved securities, he apparently did so because Ameriprise prohibited registered representatives from recommending—or soliciting—leveraged ETFs.
Not only did mismarking the order tickets cause Ameriprise's books and records to be inaccurate, this alleged breach of firm policy put customers needlessly at risk.
Sometimes a violation of one firm policy can correlate with additional instances of misconduct.
For instance, in addition to mismarking "solicited" sales as "unsolicited," Epley allegedly exercised discretion without written authorization over the course of 87 transactions in eight customer accounts, in violation of both NASD conduct and Ameriprise firm rules.
If you have invested with Stuart A. Epley, J.P. Turner, or with any broker or firm whose unsuitable recommendations in leveraged or inverse ETFs or whose characterization of such solicited transactions as "unsolicited" has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.