According to FINRA, non-traditional ETFs, such as leveraged and inverse-leveraged ETFs, are designed to be held by customers for a short period of time – usually a single trading day. In FINRA Regulatory Notice 09-31, FINRA advised broker-dealers and their representatives that Non-Traditional ETFs “are typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.”
Here, FINRA’s complaint focuses on several areas of potential misconduct. FINRA alleged Martin solicited and recommended to his 44 customers approximately 334 Non-traditional ETF transactions in approximately 15 non-traditional ETFs. According to FINRA, Martin claimed to believe that the world economy was on the precipice of catastrophe and that his customers should invest in and hold non-traditional ETFs to hedge against the impending catastrophe. As a result, Martin recommended that most of customers invest in non-traditional ETFs and hold them for long periods of time.
Indeed, according to FINRA, most of Martin’s customers held above 75% of their accounts in non-traditional ETFs. The following is a list of some of the investment Martin recommended to his customers:
- ProShares UltraPro Short QQQ (SQQQ)
- ProShares UltraPro Short Russell 2000(SRTY)
- Direxion Daily Gold Miners Bear 2X Shares (DUST)
- Direxion Daily Large Cap Bear 3X Shares (BGZ)
- Direxion Daily Small Cap Bear 3X Shares (TZA)
- Direxion Daily China Bear 3X Shares (CZI)
- Direxion Daily Emerging Markets 3X Shares (EDZ)
- Direxion Daily Energy Bear 3X Shares (ERY)
- Direxion Daily Financial Bear 3X Shares (FAZ)
- Direxion Daily Real Estate Bear 3X Shares (DRV)
Based upon the foregoing misconduct, FINRA alleges Martin violated NASD Conduct Rule 2310, FINRA Rules 2010, 2111, and 2210(d). FINRA Rule 2111, for example, requires financial advisors to recommend suitable investments and investment strategies to their clients (known as the suitability rule) based upon the client’s unique financial situation, including investment objectives and risk tolerance.
Lufrano Law, LLC is a national securities litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. If you suffered investment damages investing with Martin through GF Investment, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please contact one of our attorneys at (800) 627-2179 to schedule a free consultation or complete our free case evaluator.