The Securities and Exchange Commission ordered American Portfolios Financial Services and American Portfolios Advisors to pay a $653,072 penalty for unsuitable exchange-traded product sales of the volatility-linked note known as VXX, Barclays' iPath Series B S&P 500 VIX Short-Term Futures ETN that attempts to track the implied volatility of the S&P 500 Index through short-term futures contracts.
In describing how these unsuitable recommendations harmed American Portfolios' clients, the SEC wrote, "these accounts lost more than 42% percent of the amounts they invested in VXX pursuant to the representatives' recommendations."
VXX's prospectus documents indicated this risky product may not be suitable for conservative or risk-averse investors, and in disciplining American Portfolios Financial, SEC investigators dinged the firm's representatives for lacking a reasonable basis for their VXX recommendations.
For example, even though VXX is a complex product designed for short-term holding (e.g., day trading), 60 American Portfolios customers reportedly purchased VXX after their registered representatives recommended it and then held VXX, on average, for nearly 12 months, resulting in losses.
The SEC determined that American Portfolios, as a firm, failed to adopt and implement policies and procedures that would have prevented their stockbrokers' unsuitable recommendations of complex ETPs, including VXX.
The report also found that American Portfolios failed to reasonably supervise registered representatives with respect to the aforementioned unsuitable recommendations for brokerage customers to invest in VXX.
If you have invested with an American Portfolios Financial Services broker or financial adviser in VXX or another volatility-linked complex product, such as an inverse or leveraged exchange-traded note or fund, that has proven harmful to your investments or interests due to an unsuitable recommendation or holding period, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.