FINRA’s Department of Enforcement investigated Figueroa and found he recommended an unsuitable investment strategy primarily comprised of non-traditional ETFs to four customers. Exchange traded funds (“ETFs”) are typically registered investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index. ETFs come on various forms, including but not limited to leveraged ETFs, inverse ETFs and leveraged inverse ETFs.
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 alleged Figueroa recommended a revised strategy to the four customers with investments in leveraged and inverse-leveraged ETFs, including Proshares Ultra S&P 500, Proshares Ultrashort S&P 500 and Direxion ETF Daily Gold Miners Bull 3X shares. as well as related exchange-traded notes, including Barclay’s Ipath S&P 500 VIX Short Term Futures ETN and Credit Suisse Velocity Shares Daily Inverse VIX E-1N. The four customers suffered approximately $160,000 in combined losses.
In addition, FINRA asserted Figueroa exercised discretion in fourteen customer accounts, including three of the four aforementioned customers, between October 2011 and October 2013. Figueroa did not have the customers written authorization to execute the discretionary trades nor did he inform the GMS Group he was exercising discretion on behalf of the customers.
Based upon the foregoing misconduct, FINRA alleged Figueroa violated several financial industry rules and regulations including NASD Conduct Rules 2310(a) and 2510(b), as well as FINRA Rules 2010 and 2111. For example, NASD Conduct Rule 2310(a) provides that when “recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.”
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 in non-traditional ETFs through the GMS Group or Figueroa, 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.