Broker Dealer Financial Services Corp. (“BDFS”), a FINRA member since 1979 headquartered in West Des Moines, Iowa, provides brokerage services throughout the United States via 270 of its registered reps operating out of 130 branch offices. BDFS was censured and fined for $75,000 by FINRA after consenting to FINRA findings regarding the firm’s failures in establishing and maintaining supervisory system and other written supervisory systems adequately designed to make sure that BDFS’s inverse or leveraged ETF sales were in compliance with securities laws along with FINRA and NASD rules. FINRA Letter of Acceptance, Waiver, and Consent No. 2012030436501 (May 21, 2015).
According to the FINRA Acceptance, Waiver, and Consent
From March of 2009 through April of 2012, Broker Dealer Financial Services had not implemented a supervisory system (which included written supervisory procedures) that could adequately be engineered to safeguard the suitability of inverse or leveraged ETF’s (referred to as non-traditional exchange traded funds).
The AWC stated that Broker Dealer Financial Services had failed to exercise due diligence in the research of such nontraditional ETFs prior to permitting the firm’s brokers to provide recommendations of these products to clients. According to the AWC, the firm had been selling the non-traditional ETFs to its customers for almost 4 years without any process involving persons or a committee to review/approve the sales by the registered reps.
Additionally, according to the AWC, BDFS had not provided its staff with reasonable training concerning the ETF products. Specifically, there was no method the firm utilized to make sure that the staff (including supervisors) were aware of how the products worked, including the risk factors which clients would be affected by. The AWC noted that there was no requirement that BDFS utilized for its principals or staff to undertake the training on such products prior to recommendations being made to clients. FINRA found that the firm’s supervisory failures in this regard had violated FINRA Rule 2010 along with NASD Rule 3010(a).
The AWC further noted that the firm’s registered reps recommended nontraditional ETFS to 200+ of their retail customer base in the relevant period, where customers purchased and sold roughly $170M of non-traditional ETFS. In some of the transactions, customers were purchasing these products notwithstanding having no intentions to invest aggressively, or where such customers, based on their profile, were not deemed by FINRA to be appropriately suited for such investments given the high risk of principle loss. The AWC indicated that several of these customers who had primary objectives of conservative growth & income lost nearly their entire investment value via the engagement into the non-traditional ETFS. FINRA founds BDFS to have violated FINRA Rules 2111 and 2010, along with NASD conduct Rule 2310.
Responsibilities of Securities Brokerage Firms
Securities brokerage firms have a duty to supervise their brokers and the sales practices of their brokers, and to review customer statements for, among other things, evidence of suitability, unauthorized trading, or excessive activity.
FINRA Conduct Rule 3010, specifically provides that each member shall establish and maintain a system to supervise the activities of each registered representative and associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with the Rules of this Association. Final responsibility for proper supervision shall rest with the member.
Guiliano Law Group
If you have been the victim of securities fraud and you have a complaint, you should consult with an attorney. The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.