SEC Charges Broker-Dealers and Investment Advisory Firms for the Sales of Complex Exchange-Traded Products With More than $3 Million Returned to Retail Investors

November 13, 2020

The securities industry watchdog, the Securities and Exchange Commission (“SC”) filed settled actions against three investment advisory firms and two dually-registered broker-dealer and advisory firms for violations that related to unsuitable sales of complex exchange-traded products (“ETFs”) to retail investors for the period between January 2016 and April 2020.

According to SEC, “The actions were filed 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. – will result in the return of over $3 million to harmed investors’.  According to a news release by the SEC on November 13, 2020, “Without admitting or denying the findings, each firm agreed to cease and desist from future violations of the charged provisions, a censure, and to pay disgorgement and prejudgment interest. American Portfolios and Benjamin Edwards each agreed to pay a civil penalty of $650,000, Securities America and Summit each agreed to pay a civil penalty of $600,000 and Royal Alliance agreed to pay a civil penalty of $500,000”.

The five actions concern sales of volatility-linked exchange-traded products. As set forth in the orders, the value of the products attempted to track short-term volatility expectations in the market, typically measured against derivatives of the CBOE volatility index. According to the SEC, “the offering documents for the products made clear that the short-term nature of these products made investments in the products more likely to experience a decline in value when held over a longer period. The orders find that, contrary to these warnings, and without understanding the products, representatives of the firms recommended their customers and clients buy and hold the products for longer periods, including in some circumstances, for months and years. The orders further find that the firms failed to adopt or implement policies and procedures regarding suitability and volatility-linked exchange-traded products”.

KlaymanToskes is a leading securities law firm dedicated to the protection of investor rights.  Our Investment Litigation Blog entry is designed to alert investors of broker misconduct and the failure of brokerage firms to adequately supervise the handling of investor accounts.  The purpose of this release is Blog Post is to investigate whether recommendations made by brokerage firms were suitable for Complex Exchange Traded Funds, including leveraged, inverse correlated ETFs.  For investors  with investment losses that exceed $250,000 from accounts at full-service brokerage firms, and have information relating to the manner in which the firm handled their accounts are encouraged to contact Lawrence L. Klayman, Esq., at (561) 542-5131, and download our Special Investor Report.

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KlaymanToskes is a leading national securities law firm which practices exclusively in the field of securities arbitration and litigation, on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm represents high net-worth, ultra-high-net-worth, and institutional investors, such as non-profit organizations, unions, public and multi-employer pension funds. KlaymanToskes has office locations in California, Florida, New York and Puerto Rico.