Joseph Jacoby, Legend Securities, and ETFs
Have you lost money with financial advisor Joseph L. Jacoby from Las Vegas, Nevada? We are investigating allegations made by the Utah Division of Securities against Joseph Jacoby. Utah seeks to bar Jacoby from the securities industry after he engaged in unsuitable and aggressive trading, that he excessively traded or churned customer accounts, that he mismarked trade tickets as “unsolicited” when in fact they were “solicited”, and that he used unsuitable trading of ETFs (exchange traded funds).
According to Utah’s Complaint, Jacoby had aggressively traded an account for a retired Utah investor. Jacoby also ignored one of the investor’s investment objectives, which was “long term growth with safety”.
Joseph Jacoby was also alleged to have recommended to his customers to hold leveraged and inverse ETFs for longer than one trading period (or one day), even though they are not meant to be held for longer than one trading period. It was alleged that he had one investor hold these ETFs for an average of over 13 days, sometimes as long as 63 days.
Jacoby was also alleged to have excessively traded or churned customer accounts, and that he also used unauthorized discretion in customer accounts. Jacoby also was alleged to have mismarked trade tickets as being “unsolicited” when they were indeed “solicited”. Lastly, Jacoby was alleged to have admitted that he fabricated “happiness” notes regarding his customers. A hearing on this matter is set to take place on April 12, 2016.
Joseph L. Jacoby was a financial advisor and registered representative of Legend Securities Advisors from 2002 to May 2011. He worked in Legend Securities’ Las Vegas, Nevada branch office. Jacoby has at least 7 customer complaints on his record, as well as two other regulatory investigations.
In a related action, Utah also seeks to fine Legend Securities for failing to adequately supervise Joseph Jacoby.
Inverse ETFs and Leveraged 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 Legend Securities 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 the Seattle area. We represent investors in FINRA arbitration proceedings in all 50 states, including investors in Utah and Nevada. Our attorneys have represented over one thousand investors against many brokerage firms in the past, including Legend Securities, LPL Financial, Merrill Lynch, Morgan Stanley, Smith Barney, Stifel Nicolaus & Company, UBS Financial Services, Oppenheimer, Charles Schwab, GMS Group LLC, Ameriprise Financial Services, Raymond James Financial Services, ProEquities, Securities America, National Securities Corp., and many others.
If your advisor recommended investments, including leveraged or inverse ETFs, that caused you losses, either through Joseph Jacoby, Legend Securities, or another firm, please Contact Us at 720-599-3505 for a free evaluation of your case.
Click to view: Jacoby Utah Comp
Click to view: Jacoby BrokerCheck 3.30.16
Click to view: Legend Securities Utah Comp