Massachusetts charged Purshe Kaplan Sterling for failing to supervise brokers who unsuitably recommended and sold leveraged exchange-traded funds (ETFs), namely Proshares Ultra QQQ and Proshares Ultra S&P 500 leveraged ETFs, resulting in $2.3 million in losses for investors, according to a complaint filed in Boston. Regulators stressed that most violations occurred with Purshe Kaplan Sterling brokers who sold leveraged ETFs while simultaneously serving as investment adviser representatives of Harvest Group Wealth Management and that Purshe Kaplan Sterling failed to supervise their brokers' outside business activities and/or private securities transactions.
The complaint alleges that Purshe Kaplan Sterling failed to have reasonable policies and procedures in place that would have detected, flagged, and potentially mitigated unsuitable or otherwise inappropriate private securities transactions such as complex ETF sales.
Citing "massive losses" for Purshe Kaplan Sterling investors in the millions of dollars, the regulator's complaint also references a decade-old FINRA warning regarding leveraged ETFs, which specifically cautioned firms that leveraged ETFs are "typically unsuitable for average investors who plan to hold them longer than one day."
Thus, for most investors with mid-to-long term investment time horizons, the leveraged ETF recommendations would be unsuitable, pursuant to FINRA's 2009 warning.
Regarding Proshares Ultra QQQ (stock symbol QLD), the leveraged ETF's prospectus warns of the product's riskiness: "The Fund may not be suitable for all investors and should be used only by knowledgeable investors who understand the consequences of seeking daily leveraged (2x) investment results."
Even more cryptic, the Proshares Ultra QQQ (QLD) prospectus concludes, "An investor in the Fund could potentially lose the full principal value of their investment within a single day." This warning is printed in the prospectus in bold text.
Similarly, the Proshares Ultra S&P 500 (SSO) prospectus states, "The Fund uses leverage and is riskier than similarly benchmarked funds that do not use leverage." The risk assessment similarly warns investors that they could lose their entire principal within a single day.
Regulators charge that Purshe Kaplan Sterling brokers who simultaneously served as Harvest Group investment reps sold leveraged ETFs as long-term investments, despite prospectus and similar disclaimers warning of the product's risk and unsuitability for use as a long-term holding option.
Massachusetts found that many of the investors recommended QLD and SSO had investment preferences and risk tolerance levels that were clearly indicative of a risk-averse objective incongruent with the leveraged ETFs they were recommended, including disabled and elderly clients (including a now-deceased client) whose risk tolerance preferences should have flagged or otherwise indicated that these ETFs were unsuitable for them.
Furthermore, according to the complaint, Harvest Group representatives used discretion to purchase some of the leveraged ETFs for their customers and purchased additional shares that may have over-concentrated some client accounts in the unsuitably risky leveraged ETFs.
The reps then purportedly held the QLD and SSO investments for longer than a year, well in excess of the single-day trading disclaimer included in prospectus documents, and additionally failed to review these transactions on a regular monthly or even quarterly basis.
If you invested with a Purshe Kaplan Securities broker or financial adviser at any firm that also served as investment adviser representatives at Harvest Group Wealth Management or another firm that unsuitably sold you Proshares Ultra QQQ and/or Proshares Ultra S&P 500 leveraged ETFs, and improperly held these complex and risky products in your account over a long term, resulting in losses to your brokerage accounts or financial interests, 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.