May 20, 2012

LEVERAGED EXCHANGE TRADED FUNDS OR ETF’s RESTRICTED BY BROKER-DEALERS

July 25, 2009 By

On July 24, 2009, it was reported that LPL Investment Holdings Inc. of Boston and Ameriprise Financial Inc. (AMP) of Minneapolis were following in the footsteps of Edward Jones & Co. by placing restrictions or entirely prohibiting the sale of leveraged exchange-traded funds or ETFs. ETFs trade daily on exchanges. Leveraged versions of ETF’s somtimes called “ultra” use futures or derivatives to multiply the daily returns of an index. The ETFs include short funds which can be used to bet against the market. The funds use derivatives to increase market exposure.

One commentator has raised particular concerns that retail investors may not understand how leveraged ETFs work, particularly short ETFs.

Filed Under: FINRA Arbitration, Suitability Tagged With: , , , , , , , , , ,

SECURITIES CLASS ACTION FILINGS FALL 22.3%

July 25, 2009 By

According to a report by Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research, the number of federal securities class action filings fell significantly during the first half of 2009. In the first half of 2009 there were 87 filings represented a 22.3 percent decrease in activity from the 112 filings in each half of 2008. Further, during the second quarter of 2009 there were only 35 filings which was the lowest quarterly total since the first quarter of 2007. According to the report, financial services firms are defendants in 66.7 percent of these filings, an increase over the 50.0 percent share of all filings in 2008.

Filed Under: Class Actions, PSLRA Tagged With: , , , ,

FINRA FINES BROKER-DEALER $1 MILLION FOR FAILURE TO SUPERVISE

July 25, 2009 By

On July 22, 2009, FINRA announced that it has fined a broker-dealer $1 million for supervisory violations that primarily involved the failure to supervise its approximately 130 OSJ branch managers. Between January 2005 and November 2006, the firm permitted its OSJ branch managers to self-supervise their own handling of customer accounts without adequate review. In November 2006, the firm adopted a system to provide principal review of the OSJ managers’ transactions. However, this system was also “unreasonable” because it required three regional managers to “review thousands of transactions each month with limited access to client suitability information”.

FINRA found that the “the lack of reasonable policies and written procedures resulted in the firm’s failure to detect churning of customer accounts by an OSJ manager … as well as excessive markups and markdowns on corporate bond trades by another two brokers.”

FINRA also stated that “the firm failed to reasonably satisfy its obligations because, among other failures, it did not adequately test the firm’s supervisory systems or provide adequate review of OSJ branch managers.” According to FINRA, “firms must appoint one or more principals to ‘establish, maintain, and enforce a system of supervisory control policies and procedures.’”

FINRA further found that the firm’s systems and procedures governing variable annuity exchanges were not reasonable because the firm’s written supervisory procedures did not provide adequate guidance concerning the criteria that should be considered in recommending variable annuity exchanges to its customers including, for example, a comparison between the features, costs and benefits of the old and new products.

FINRA also found that the firm failed to apply its written heightened supervision procedures and failed to fingerprint firm employees resulting in it hiring a statutorily disqualified person.

In settling this matter, the broker-dealer neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Filed Under: Churning, Disciplinary Actions, Failure to Supervise, Markups, Suitability Tagged With: , , , , , , , , , ,