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Greco & Greco, P.C.

W. Scott Greco

Fight Investment Fraud

Greco & Greco's lawyers represent investors to recover losses caused by securities fraud, churning, lack of suitability, negligence, sales of unregistered securities, unauthorized trading, and other misconduct by stock brokers, investment advisors, financial planners and their firms.

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ETF

FINRA fines JP Turner for Leveraged and Inverse ETF sales

The securities industry self-regulatory body, FINRA, recently required JP Turner & Company to pay $700,000 in restitution to customers who lost money in unsuitable leveraged and inverse exchange traded funds (ETFs).Press Release here.

According to FINRA:

“FINRA found that J.P. Turner failed to establish and maintain a reasonable supervisory system and instead, supervised leveraged and inverse ETFs in the same manner that it supervised traditional ETFs. The firm also failed to provide adequate training regarding these ETFs. In addition, J.P. Turner allowed its registered representatives to recommend these complex ETFs without performing reasonable diligence to understand the risks and features associated with the products. As a result, many J.P. Turner customers held leveraged and inverse ETFs for several months. J.P. Turner also failed to determine whether the ETFs were suitable for at least 27 customers, including retirees and conservative customers, who sustained collective net losses of more than $200,000.”

In June of 2009, FINRA issued a Regulatory Notice (09-31) regarding these Non-Traditional ETFs.  The Notice states:  ‘inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.’

If you suffered losses in your brokerage accounts resulting from your broker’s trading in ETFs, and you would like to discuss your potential claim with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 12/13/13.
ArbitrationBrokerage FirmsJ.P. TurnerETFFINRAFraudSecurities FraudSuitabilityPermalink

FINRA Fines Multiple Firms for Leveraged and Inverse ETF Sales

As noted in this press release from FINRA, Wells Fargo, Citigroup, Morgan Stanley, and UBS were fined for failing to supervise sales of leveraged and inverse ETFs.  FINRA also alleged failures of a reasonable basis to recommend the securities (i.e. suitability).

FINRA found that:  “from January 2008 through June 2009, the firms did not have adequate supervisory systems in place to monitor the sale of leveraged and inverse ETFs, and failed to conduct adequate due diligence regarding the risks and features of the ETFs. As a result, the firms did not have a reasonable basis to recommend the ETFs to their retail customers.”

Many inverse and leveraged exchange traded funds, including some by Proshares and Direxion, were designed to seek multiples of the exchange they were designed to track.  However, many of these ETFs were designed to reset daily, thereby creating drastic differences in their performance over time compared to the index they were designed to track.  We have seen many situations where many of the risks of these funds were not disclosed to customers.

The prospectus for the Proshares leveraged and inverse ETFs from September 2007 makes clear that these investments were an aggressive day-trading tool, not an investment appropriate or suitable for most retail investors.  Specifically, the prospectus stated:

p. 7:  ‘The Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results.’
p. 8:  ‘The Funds use investment techniques that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments.’
p. 9:  ‘Certain Funds are ‘leveraged’ funds in the sense that they have investment objectives to match a multiple of the performance of an index on a given day. These Funds are subject to all of the correlation risks described above. In addition, there is a special form of correlation risk that derives from these Funds’ use of leverage, which is that for periods greater than one day, the use of leverage tends to cause the performance of a Fund to be either greater than or less than the index performance times the stated multiple in the fund objective, before accounting for fees and fund expenses’

In June of 2009, FINRA issued a Regulatory Notice (09-31) regarding these Non-Traditional ETFs.  The Notice states:  ‘inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.’

If you suffered losses in your brokerage accounts resulting from your broker’s trading in ETFs, and you would like to discuss your potential claim with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 05/24/12.
ArbitrationBrokerage FirmsCitigroupMorgan StanleyUBSWells FargoETFFINRASecurities FraudSuitabilityPermalink

Unsuitable ETF trading results in large losses for investors

Greco & Greco’s attorneys have represented a significant number of investors over the past several years who have suffered large amounts of losses in their securities accounts due to the improper and unsuitable trading of ETFs by their brokers.  Many inverse and leveraged exchange traded funds, including some by Proshares and Direxion, were designed to seek multiples of the exchange they were designed to track.  However, many of these ETFs were designed to reset daily, thereby creating drastic differences in their performance over time compared to the index they were designed to track.  We have seen many situations where many of the risks of these funds were not disclosed to customers. 

The prospectus for the Proshares leveraged and inverse ETFs from September 2007 makes clear that these investments were an aggressive day-trading tool, not an investment appropriate or suitable for most retail investors.  Specifically, the prospectus stated:

? p. 7:  ?The Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results.?
? p. 8:  ?The Funds use investment techniques that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments.?
? p. 9:  ?Certain Funds are ?leveraged? funds in the sense that they have investment objectives to match a multiple of the performance of an index on a given day. These Funds are subject to all of the correlation risks described above. In addition, there is a special form of correlation risk that derives from these Funds? use of leverage, which is that for periods greater than one day, the use of leverage tends to cause the performance of a Fund to be either greater than or less than the index performance times the stated multiple in the fund objective, before accounting for fees and fund expenses.?

In June of 2009, FINRA issued a Regulatory Notice (09-31) regarding these Non-Traditional ETFs.  The Notice states:  “inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.”

If you suffered losses in your brokerage accounts resulting from your broker’s trading in ETFs, and you would like to discuss your potential claim with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 01/23/11.
ArbitrationBrokerage FirmsUBSETFFINRASuitabilityPermalink

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