SEC Charges Firms Regarding Sales of Volatility Linked ETFs

The U.S. Securities Exchange Commission charged multiple Investment Advisory Firms and Broker-Dealers with unsuitable sales of exchange traded products to their customers.

According to the SEC Press Release, the firms recommended the purchase and holding of these products, despite the fact that the products were only supposed to track the short term volatility in the market, and would likely decline if held long term.

The exchange traded funds (ETFs), attempted to track the short term volatility expectations of the market. Examples referenced in the SEC Orders were iPath S&P 500 VIX Short–Term Futures ETN (“VXX”), Velocity Shares Daily Inverse VIX Short Term ETNs linked to the S&P 500, VIX Short-Term Futures Index (“XIV”), and another volatility-linked security called the ProShares VIX Short-Term Futures ETF (“VIXY”).

The firms that reached a settlement of the SEC charges were 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.

The SEC also alleged that the firms failed to implement written policies and procedures to prevent violation of the Investment Advisers Act and its Rules, and several firms failed to supervise their representatives.

FINRA securities firms and Investment Advisory firms have duties to supervise their financial advisors, and implement reasonable supervisory systems to detect and prevent unsuitable sales and recommendations.  Such firms can be held liable in FINRA arbitrations and other forums for the wrongful acts of their agents, and for their failures to supervise.  If you were sold unsuitable ETFs, or were the victim of other wrongful activity relating to investments, and you would like to discuss your potential claims for free with an attorney, please contact W. Scott Greco at Greco & Greco, P.C.  W. Scott Greco has decades of experience recovering monies lost through the wrongful acts of financial advisors.



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