FINRA’s Department of Enforcement investigated Grieco and found he unsuitably recommended leveraged and inverse-leveraged ETFs in 15 customer accounts. Exchange-traded funds (ETFs) are registered investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index (in some instances a basket of commodities or currencies). Nontraditional ETFs are designed to return a multiple of an underlying index or benchmark, the inverse of that benchmark, or both. Nontraditional ETFs fall into several categories, including: leveraged, inverse and inverse leveraged funds.
Here, FINRA alleged Grieco “failed to appreciate the nature of the ETFs” because he recommended that his customers hold the ETFs for an extended period of time. 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.” According to FINRA, in some instances, Grieco recommended that his customers hold the leveraged and inverse-leveraged ETFs for as long as 5 years. As a result, FINRA alleged Grieco’s recommendations to these 15 customer accounts were unsuitable.
Based upon the foregoing misconduct, FINRA alleged Grieco violated several financial industry rules and regulations, including NASD Conduct Rules 2110 and 2310, as well as FINRA Rules 2010 and 2111. Under NASD Conduct Rule 2310, financial advisors are required to recommend suitable investments and investment strategies to their clients (known as the suitability rule). Typically, a claim for unsuitable investments is brought as a form of a negligence claim with the theory: the financial advisor had a duty to recommend suitable investments; the financial advisor breached the duty with unsuitable investments; and the financial advisors unsuitable investments caused the investor damages.
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 losses investing with Grieco through First Allied, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please complete the contact form or contact one of our attorneys at (800) 627-2179 to schedule a free consultation.