Western International Securities Settles with FINRA Over Sales of Inverse and Leveraged ETFs
Have you lost money investing in ETFs with Western International Securities? We are currently investigating allegations made against Western International Securities, Inc., a Pasadena, California-based securities brokerage firm. FINRA (the Financial Industry Regulatory Authority) brought a regulatory action against Western International Securities, making allegations that it failed to supervise the sales of non-traditional ETFs, which typically are inverse ETFs or leveraged ETFs.
FINRA alleged that Western International Securities failed to have procedures in place to adequately supervise the sales of inverse and leveraged ETFs, between January 2011 to November 2015. FINRA alleged that Western International Securities made over 10,800 transactions in inverse and leveraged ETFs between January 2011 to November 2015. Western International Securities settled the above-mentioned allegations with FINRA and agreed to pay a $125,000 fine.
ETFs
ETFs (or Exchange Traded Funds) have become increasingly popular over the last 15 years. ETFs are typically used to track and replicate the performance of an index, such as the S&P 500, the Russell 2000, or the Dow Jones. ETFs are popular, because investors can invest in a basket of securities that provides diversification but with the simplicity of being a single stock.
In recent years, many companies have also created leveraged or inverse ETFs. Leveraged ETFs try to replicate the performance of a particular index, but attempt to replicate the performance by doubling or even tripling the index. As an example, the Proshares Ultra Russell 2000 ETF seeks to double the performance of the Russell 2000 Index.
Inverse ETFs also try to replicate the opposite (or even multiple opposites) of a particular index. For example, Ultrashort QQQ Shares seeks a return of two times the inverse (-2x) of the daily performance of the NASDAQ-100 Index. Leveraged and inverse ETFs can be useful investment tools for investors seeking intra-day trading.
However, inverse and leveraged ETFs are often misused, by retail investors and even financial advisors. The regulators and others have long-warned the securities industry about the dangers of inverse and leveraged ETFs. These are designed to be day-trading vehicles, but often financial advisors recommend holding these ETFs in an investor’s accounts for weeks or even months.
FINRA has stated that “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.” See FINRA Regulatory Notice 09-31 at page 1. This Notice reminds members who sell these products to “make every effort to familiarize themselves with each customer’s financial situation, trading experience, and ability to meet the risks involved with such products and to make every effort to make customers aware of the pertinent information regarding the products.” Id. at 3, citing to NASD Notice To Members 05-26.
FINRA has punished other brokers and firms for using leveraged and inverse ETFs improperly. In an action against Michael Venable, FINRA barred a broker from the industry for using unsuitable leveraged and inverse ETFs with his clients. See In re Michael Douglas Venable. FINRA also fined Citigroup, Morgan Stanley, UBS, and Wells Fargo a combined $9.1 million for sales of inverse and leveraged ETFs, in May 2012.
Israels & Neuman PLC is a securities and investment fraud law firm with offices in Denver, Colorado; and Seattle, Washington. We represent investors in FINRA arbitration proceedings in all 50 states, including California. Our attorneys have represented over one thousand investors against many brokerage firms in the past, including several investors who lost money in ETFs through Western International Securities’ former advisor Dawn Bennett.
Click to view: Western International Securities FINRA AWC
If your advisor recommended investments in leveraged or inverse ETFs that caused you losses, through Western International Securities or another firm, please CONTACT US at 720-599-3505 for a free evaluation of your case.
Israels & Neuman, PLC is a private law firm and is not affiliated with any government or law enforcement agency. Any investigation referenced in this blog is independent in nature and is being conducted by our law firm privately, not in conjunction with any government or law enforcement agency. All information contained in this blog should be deemed statements of opinion derived from the author’s review of public records, not statements of fact. This blog is advertising material and does not create an attorney client relationship, nor does it constitute legal advice. Everyone’s situation is different and the question of whether or not you have a claim will vary on a case-by-case basis. In contingent representation, clients may still be liable for costs.