FINRA Orders Fines Totaling More Than $1 Million in Unsuitable Sales of Inverse and Leveraged ETFs

On January 9th., 2014, the Financial Industry Regulatory Authority (FINRA) ordered two St. Louis-based broker/dealers, Stifel, Nicolaus & Company, Incorporated and Century Securities Associates, Inc., to pay fines of $550,000 and $475,000 in restitution to 65 customers in connection with sales of leveraged and inverse exchange traded funds (ETFs). Stifel and Century are affiliates and are both owned by Stifel Financial Corporation. Stifel and Century neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

FINRA Executive Vice President and Chief of Enforcement, Brad Bennett said, "The complexity of leveraged and inverse exchange-traded products makes it essential for securities firms and their representatives to understand these products before recommending them to their customers. Firms must also conduct reasonable due diligence on these and other complex products, sufficiently train their sales force and have adequate supervisory systems in place before offering them to retail investors."

Investors need to understand that leveraged and inverse ETFs reset daily. This means that they are designed to achieve their objectives on a daily basis so their performance can quickly diverge from the performance of the underlying index or benchmark. Investors could suffer significant losses, especially in volatile markets.

FINRA reported that from January 2009 until June 2013, Stifel and Century made unsuitable recommendations of non-traditional ETFs to certain customers. Customers with conservative investment objectives who bought non-traditional ETFs based on recommendations made by the firms' representatives, and who held those investments for longer periods of time, may have experienced significant net losses. Also, Stifel and Century did not have reasonable supervisory systems in place.

ETFs are highly speculative investments that may have not been suitable for some investors. If you have suffered losses due to the recommendation of a broker or brokerage firm, you may have a claim for damages. Please contact our securities attorneys to discuss your rights at: (888) 760-6552.