Exchange Traded Funds

Protecting Alzheimer’s Patients from Financial Fraud

July 18, 2018 | Silver Law Group

Individuals suffering from Alzheimer’s can be prime targets for financial predators

Unfortunately, we become more susceptible to financial scams from a wide range of offenders as we age. These include trusted advisors such as lawyers, accountants, and financial managers – as well as healthcare providers, caregivers, and even close family members.

Recent studies show that as our brains age, we become less able to detect deception and focus more on the potential for positive outcomes, especially when it comes to trusting people in our own social environment.

Even the Rich and Famous Can be Victims of Elder Financial Fraud

June 13, 2018 | Silver Law Group

This is one accusation comic book legend Stan Lee has made against his former manager

The latest proof that elder financial fraud could affect anyone comes courtesy of 95-year-old comic book legend Stan Lee. The creator of such notable characters as Spider-Man, Thor, and the Hulk recently filed a lawsuit against Jerardo Olivarez, his former manager and a former business associate of Lee’s daughter. In addition to fraud and misappropriation of his name and likeness, Lee has accused Olivarez of elder financial abuse.

Lee’s lawsuit – which was filed in April – calls Olivarez one of several “unscrupulous businessmen, sycophants and opportunists” who tried to take advantage of Lee after his wife Joan died in 2017. The suit alleges that shortly after Joan’s death, Olivarez coerced Lee into firing his long-time banker and lawyer and signing power of attorney over to him. He also convinced Lee to hire his own son as Lee’s attorney.

FINRA Fines LPL Financial LLC $11.7 Million for Failures to Supervise and Monitor Trades

June 9, 2015 | Silver Law Group

FINRA announced on May 6^th that it censured and fined LPL Financial LLC (“LPL”) $10 million for supervisory failures in a number of different complex investment areas, including the sales of non-traditional exchange-traded funds (“ETFs”), certain variable annuity contracts, non-traded real estate investment trusts (“REITs”) and other products, as well as its failure to monitor trades and deliver to customers more than 14 million trade confirmations. Moreover, FINRA ordered LPL to pay $1.7 million in restitution to certain customers who purchased non-traditional ETFs, and the firm may be fined additional compensation to ETF purchasers, pending a review by FINRA of its ETF systems and procedures.

With these sanctions, “FINRA reaffirms that there is little room in the industry for lax supervision and that it will not hesitate to order firms to review and correct substandard supervisory systems and controls,” stated Brad Bennett, Chief of Enforcement at FINRA.

FINRA stated that concerning non-traditional ETFs, LPL did not have a system in place to monitor the length of time that customers held these securities in their accounts, did not enforce its limits on the concentration of the products in customer accounts, and failed to make sure that its brokers were adequately trained on the risks of these products. Additionally, LPL permitted sales of variable annuities without disclosing surrender fees. Furthermore, LPL failed to supervise non-traded REITs by failing to identify accounts for volume sales charge discounts. FINRA determined that LPL’s systems to review trading activity in customer accounts were inundated by many deficiencies including failing to alert for certain high-risk activity.

Why Are Financial Advisors Clueless About Risks of Leveraged & Inverse ETFs: The Stifel Nicolaus Story

January 17, 2014 | Silver Law Group

The Stifel Nicolaus & Company story about financial advisors’ lack of training and supervision concerning exchange traded funds (ETFs) is not much different than other Wall Street giants, including Morgan Stanley, UBS, Citigroup and Wells Fargo who were fined for similar violations. On December 17, 2013 Stifel Nicolaus & Company agreed to a Letter of Acceptance, Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA) and fined $1 million for violation of FINRA rules related to the sale of non-traditional ETFs to retail investors. FINRA determined in the AWC violations related to a failure to supervise the unsuitable investment advice provided by its financial advisors to retail investors.

Non-traditional exchange traded funds are investments designed to achieve investment returns that are a multiple (leveraged) of an underlying benchmark or the inverse (negative correlation) to an underlying benchmark. The leveraged or inverse ETFs are designed to track an underlying basket of securities, indexes, currencies or commodities. In order to achieve these investment results derivatives, swaps and futures contracts must be used which makes non-traditional ETFs complex investments rarely understood by the financial advisors who recommend them.

Non-traditional ETFs use derivatives, swaps and futures contracts to accomplish the intended performance objectives and requires a daily reset of the portfolio holdings which results in a tracking error over time. In other words, most non-traditional ETFs are only managed to meet the investment objectives on a daily basis. Due to the tracking errors over time and the effects of leverage, the performance of an ETF can differ greatly from the performance of the underlying basket of securities, indexes, currencies or commodities. According to a FINRA regulatory notice, “While the customer-specific suitability analysis depends on the investor’s particular circumstances, inverse and leveraged ETFs typically are not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.” For buy-and-hold investors, non-traditional exchange traded fund investments have experienced investment results much different from the projections made by their financial advisors.