FINRA fined Sigma Financial Corporation $100,000 for failing to establish, maintain, and enforce adequate an supervisory system and procedures related to the sales of leveraged, inverse, and inverse-leveraged exchange-traded funds (also known as non-traditional or complex ETFs). The regulator also expressed frustration with Sigma for previously telling FINRA it would correct these deficiencies, only to discover that Sigma failed to implement the measures as portrayed to FINRA.
AWC #2016052300602 states that Sigma failed to establish and enforce a supervisory system that would review non-traditional ETF transactions despite several communicated rules, regulations, and advisements from FINRA regarding the need to put reasonable procedures and systems in place to detect potentially unsuitable transaction concerning non-traditional ETFs, given the added risks posed by this complex product, especially to risk-adverse investors.
For some background on the significant risks posed by inverse and leveraged ETFs, consider the article, "Volatile Complex Exchange Traded Products (ETFs, ETNs, Etc.) May Be Unsuitable for Conservative Investors."
During its investigation into Sigma's deficient supervisory systems, FINRA found that the firm failed to implement corrective actions it previously told FINRA it would address when the regulator first informed the firm about its concerns with the firm's supervisory systems and written supervisory procedures regarding non-traditional ETFs.
In 2014, FINRA censured and fined Sigma $185,000 for a slew of supervisory system and procedure deficiencies.
Growing impatient with non-compliance at Sigma, FINRA lawyers requested an update from Sigma on implementation in 2017 and again in 2018.
Investigators found that Sigma failed to alert its registered representatives about non-traditional ETFs until March 21, 2018, which is one day after FINRA's final request for an update, and that several months after that, the firm had yet to contact ETF customers whom the firm should have reached out to pursuant to Sigma's updated procedures.
In 2017, a Securities Litigation & Consulting Group study named Sigma Financial Corporation as the third-worst brokerage firm ranked by the firm's ratio of resolved complaints to average number of stockbrokers employed. Sigma trailed just Newbridge Securities Corp and Berthel, Fisher & Co with a ratio of 26.32% of resolved complaints to average number of stock brokers.
If you have invested with Sigma Financial Corporation or with any broker, financial adviser, or firm whose deficient supervisory procedures or failure to detect harmful trades, including excessive trading or unsuitably risky non-traditional ETF investment recommendations have resulted in damages or losses and are seeking Sigma FINRA arbitration or attorneys, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.