Levin Law, P.A. Investigates Brokerage Firms for Recommendations of VIX-Related and Other Complex Exchange-Traded Products (ETPs)

December 3, 2020 Author: Brian Levin
Stock Market Graph

Unsuitable Sales of Complex Investment Products Prompts Statement From SEC Regarding Leveraged and Inverse Exchange-Traded Notes (ETNs) and Exchange-Traded Funds (ETFs)

Several investment advisory firms and registered broker-dealer firms have recently settled charges with the U.S. Securities and Exchange Commission (SEC) relating to unsuitable sales of complex exchange-traded products (ETPs), including leveraged, inverse, and leveraged inverse exchange-traded funds and exchange-traded notes. These enforcement actions prompted a public statement from the SEC’s Office of Compliance Inspections and Examinations. 

The national securities law firm Levin Law, P.A. is investing full-service brokerage firms that recommended VIX-related securities and other complex exchange-traded products (ETPs), including leveraged, inverse, and leveraged-inverse ETNs and ETFs. If your investment adviser, stockbroker, or other financial professional recommended one of these products resulting in losses, contact Levin Law to discuss your legal options.

SEC Public Statement on Recent Enforcement Matters 

The SEC’s Office of Compliance Inspections and Examinations has issued a public statement regarding the recommendation of complex investment products. In the statement, the staff reminder all registered investment advisers, broker-dealers, and other financial professionals that they must fully understand the risks and purposes of the products they recommend.

Further, the statement warns that a firm must design and implement policies and procedures designed to prevent federal securities violations or face regulatory action through the SEC. The statement was released after several firms were charged with making unsuitable recommendations of volatility-linked exchange-traded products.

The Risk Involved With Complex VIX-Related Investment Products

VIX-related exchange-traded products are intended to be short-term investments and have heightened risk if held longer than 1 trading session. Despite the risk related to the volatility-linked ETPs, several brokerage firms recommended a “buy and hold” strategy to clients. These complex investment products were not used as designed and resulted in substantial losses to investors.

The VIX-linked products are not suitable for the average investor and should only be invested in by sophisticated and professional investors. 

Firms Must Implement Policies and Ensure They Are Followed

The SEC found that multiple firms failed to design and implement policies and procedures related to the recommendation of risky products. Additionally, they found that when there were policies and procedures in place, some brokerage firms failed to ensure that their representatives were following them. The SEC filed actions against American Portfolios Financial Services/American Portfolios Advisors Inc., Benjamin F. Edwards & Company Inc., Royal Alliance Associates Inc., Securities America Advisors Inc., and Summit Financial Group Inc.,  resulting in the return of over $3 million to harmed investors.

At a minimum, the public statement issued by the SEC recommended that financial professionals must:

  • Understand the risks and purposes of products that are recommended and sold
  • Apply heightened scrutiny
  • Only recommend suitable products based on the risk-tolerance and objective of the client or customer; and
  • Engage in daily monitoring, if necessary

Contact Levin Law for a Free Case Evaluation

If your financial professional recommended VIX-related or other complex exchange-traded products or leveraged, inverse, or leveraged-inverse ETNs or ETFs, you might be able to recover some or all of your damages through a FINRA arbitration.  Contact Levin Law managing partner, Brian Levin at (305) 402-9050 or by emailing brian@levinlawpa.com. Most cases are accepted on a contingency fee basis, meaning you are not responsible for Levin Law’s attorney fees unless money is recovered on your behalf.

About Levin Law

Levin Law is a premier national securities, commodities, and class action law firm. Brian Levin, Levin Law’s managing attorney, has obtained settlements and recoveries in excess of $100,000,000 in assets through arbitration and litigation for individual and institutional investors throughout the country and the rest of the world. Levin Law represents retirees, individual investors, high-net-worth investors, ultra-high-net-worth investors, institutions, family offices, trusts, publicly held companies, and others.

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