The Financial Industry Regulatory Authority or FINRA announced today the it had entered into a regulatory settlement agreement, or Letter of Acceptance, Waiver and Consent with Berthel Fisher & Company Financial Services, Inc.
As part of the settlement, FINRA found that from approximately 2007 through 2012, Berthel Fisher had an inadequate supervisory system and written procedures, including those concerning its suitability review of transactions in nontraded REITs, non-traditional inverse or leveraged exchange-traded funds (“ETFs”) and other alternative investments.
Non-traditional ETFs are complex products that differ from other ETFs in that they seek to return a multiple of the performance of the underlying index or benchmark, the inverse of that performance, or both, and use swaps, futures contracts, and other derivative instruments to achieve these objectives. In Regulatory Notice 09-31, FINRA reminded broker-dealers that non-traditional ETFs must be carefully analyzed before they are sold to customers and that reasonable basis suitability is based on understanding the terms and features of the products, “including how they are designed to perform, how they achieve that objective, and the impact that market volatility, the ETF’s use of leverage, and the customer’s intended holding period will have on their performance.”
The Inadequacy of Supervisory Systems & Procedures
According to FINRA, Berthel Fisher, acting through its registered representatives, recommended approximately $49.4 million worth of non-traditional ETFs in sales to more than 1,000 customers without adequate supervisory systems and procedures, without fully assessing the features or risks associated with these ETFs and without adequately training its registered representatives regarding the sale of these products or having a a reasonable basis for recommending the sale of these products.
For this “misconduct,” involving $49 million in transactions and more than 1,000 customers, Berthel Fisher agreed to pay a fine of $675,000 and make restitution in the amount of approximately $13,000 to nine investors.
Berthel Fisher currently has approximately 400 representatives and 285 branches located in about 40 states.
FINRA also found that from September 2008 to November 2010, Berthel Fisher did not implement a supervisory system reasonably designed to supervise a remote branch office by among other things, neglecting to conduct adequate audits of these branch offices.
Guiliano Law Group
Our Practice is limited to the representation of investors in claims against stockbrokers and investment professionals for fraud, the sale of unsuitable investments, breach of fiduciary duty, failure to supervise. National Practice. Contingent Fee. Free Consultation. If you have suffered losses a the result of the recommendation of inverse and leveraged ETFs by your stockbroker or investment professional and were unaware of the risk associated with these securities, contact us for a free confidential evaluation at (877) SEC-ATTY.