Matthew Jason Childs, of San Francisco, California, a stockbroker registered with Portsmouth Financial Services, has been suspended for two months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity because Childs made the unsuitable investment recommendation of non-traditional exchange-traded funds ETFs to customers during the time that he was associated with Portsmouth Financial Services. Letter of Acceptance, Waiver, and Consent No. 2019063931601 (August 2024).
According to the AWC, NT-ETPs are complex financial instruments designed to achieve their stated objective, such as inverse or leveraged performance relative to an index, on a daily basis. These products are usually not suitable for long-term holding because of the effect of compounding, which can cause deviations from the performance of the underlying index over longer periods.
According to the AWC, from March of 2017 through May of 2020, Childs recommended that nine customers purchase NT-ETPs and hold those products for periods ranging from eight to 1,034 days. These recommendations resulted in total net realized losses of $31,667.02 for these customers.
Childs did not fully understand the risks of NT-ETPs, including the compounding losses that could occur. FINRA stated that he recommended these products to retail customers without having a reasonable basis for doing so, violating FINRA Rules 2111 and 2010.
Portsmouth Financial Services was censured and fined $25,000.00 for failing to create a reasonable supervisory system to ensure that NT-ETP recommendations were suitable for customers. Portsmouth’s written supervisory procedures indicated that NT-ETPs were typically unsuitable for customers holding them for more than one trading session, especially in volatile markets. However, the firm did not clarify how to review NT-ETP recommendations, nor did it enforce training or monitoring procedures for its stockbrokers. The firm’s failure to supervise allowed Childs to make unsuitable recommendations to customers, leading to financial losses. Therefore, Portsmouth violated FINRA Rules 2010 and 3110.
FINRA Public Disclosure reveals that Childs has been identified in four customer initiated investment related disputes containing allegations of his conduct in the securities industry. On October 2, 2012, a customer initiated an investment related complaint involving Childs’ conduct was settled for $33,123.48 in damages based upon alleged misrepresentations of material fact in connection with the sale of foreign bonds when Childs was associated with Morgan Stanley Smith Barney.
Childs was also referenced in a customer initiated investment related complaint filed on March 26, 2015, in which the customer requested $26,475.00 in damages based upon alleged unsuitable investment recommendations of stocks during the time that Childs was associated with Oppenheimer Co. Inc. The complaint was denied.
On December 9, 2015, a customer initiated an investment related FINRA securities arbitration claim involving Childs’s conduct, which was settled for $200,000.00 in damages based on alleged unsuitable recommendations and misrepresentations in connection with the sale of municipal bonds when Childs was associated with Morgan Stanley. FINRA Arbitration No. 15-00340.
Childs is also referenced in a customer initiated investment related FINRA securities arbitration claim that was settled for $76,459.63 in damages based on alleged due diligence failures and misrepresentations of material fact in connection with the sale of GWG Holding Class L Bonds when Childs was associated with Portsmouth Financial Services. FINRA Arbitration No. 23-00405 (April 16, 2024).
Childs has been associated with Portsmouth Financial Services in San Francisco, California, since February 3, 2016.
