Oppenheimer & Co., Inc. Settles with FINRA for $2.25 Million Regarding Sales of ETFs

We are currently investigating allegations made against Oppenheimer & Co., Inc., a New York, New York-based securities brokerage firm.  FINRA (the Financial Industry Regulatory Authority) brought a regulatory action against Oppenheimer & Co., making numerous allegations regarding its conduct, including Oppenheimer’s failure to supervise the sale of non-traditional ETFs.

FINRA alleged that Oppenheimer effected $1.7 billion in the sale of non-traditional ETFs, which include leveraged ETFs or inverse ETFs.  FINRA provided a few examples of unsuitable uses of leveraged and inverse ETFs by Oppenheimer representatives, including in one situation where a client held non-traditional ETFs for over 700 days.  To settle these allegations, Oppenheimer agreed to pay a $2.25 million 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 the Seattle area.  We represent investors in FINRA arbitration proceedings in all 50 states, including investors throughout the east coast and New York.  Our attorneys have represented over one thousand investors against many brokerage firms in the past, including Oppenheimer, LPL Financial, Merrill Lynch, Morgan Stanley, Smith Barney, Stifel Nicolaus & Company, UBS Financial Services, Charles Schwab, Wells Fargo Advisors, Ameriprise Financial Services, Raymond James Financial Services, ProEquities, Securities America, National Securities Corp., and many others.

Click to view:  Oppenheimer FINRA AWC

HAS YOUR ADVISOR RECOMMENDED INVESTMENTS IN LEVERAGED OR INVERSE ETFs THAT CAUSED YOU LOSSES THROUGH OPPENHEIMER & CO. OR ANOTHER FIRM?

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