n particular, BFDS did not investigate nontraditional ETFs before allowing its registered representatives to recommend them to customers, train its personnel, or adequately monitor activity in client accounts. Without admitting or denying the facts, BDFS resolved the enforcement action and consented to a public censure and $75,000 fine.
FINRA’s Department of Enforcement investigated BDFS’s business activities between March 1, 2009 and April 30, 2012, and alleged it failed to establish and maintain an adequate system to monitor, supervise, and control its registered representatives’ solicitation and sale of leveraged or inverse exchange traded funds (collectively referred to as “nontraditional ETFs”). Specifically, FINRA alleged BDFS did not investigate nontraditional ETFs before allowing its registered representatives to recommend them to customers, did not train its personnel in the appropriate use of nontraditional ETFs, and did not adequately supervise and monitor nontraditional ETF activity in customer accounts.
BDFS’s supervisory systems were particularly deficient with respect to its reasonable basis and customer-specific suitability obligations, according to FINRA. For example, FINRA alleged BDFS did not assign a committee or persons to review or approve nontraditional ETFs before sale by the firm’s registered representatives, nor did it undertake any firm-wide measures to research nontraditional ETFs until the Firm had sold them to customers for nearly four years. In total, BFDS and its agents recommended nontraditional ETFs to more than 200 customers without a reasonable basis for the recommendations.
Based upon the foregoing conduct, FINRA alleged BDFS violated several financial industry rules and regulations, including but not limited to, NASD Conduct Rules 2310, 3010(a) and (b), as well as FINRA Rules 2010 and 2111. Specifically, NASD Rule 3010(a) requires each member to establish and maintain a system of supervision that is reasonably designed to achieve compliance with applicable securities laws and regulations and with applicable NASD and FINRA Rules. Whereas, NASD Rule 3010(b), requires each member firm to “establish, maintain and enforce written procedures to supervise the types of business in which it engages and to supervise the activities of registered representatives, registered principles, and other associated persons that are reasonably designed to achieve compliance” with FINRA Rules.
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 lost money investing in nontraditional ETFs through BDFS, 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.