FINRA’s Department of Enforcement recently investigated ProEquities and determined it did not establish, maintain and enforce a reasonable supervisory system, including written supervisory procedures to supervise Non-Traditional ETFs. In June 2009 FINRA issued Regulatory Notice 09-31 highlighting the unique characteristics and risks of non-traditional ETFs, including tracking error and the effect of daily resets, and cautioned members that non-traditional ETFs are typically not suitable for retail investors who plan to hold the funds longer than a single trading session.
Specifically, FINRA alleged, from 2008 to April 2012, ProEquities permitted its registered representatives to solicit transactions in non-traditional ETFs, though the Firm did not have in place written procedures relating to suitability and supervision of recommendations involving non-traditional ETFs. ProEquities also failed to conduct adequate due diligence on Non-Traditional ETFs and failed to adequately train its registered representatives on the unique risks associated with these products. Moreover, ProEquities allegedly sold these non-traditional investments to retail customers for periods that exceeded one trading session.
FINRA alleged ProEquities engaged in multiple violations of federal securities laws and industry rules and regulations, including but not limited to NASD Rules 2110, 3010(b) and FINRA Rules 2010 and 2330(d). Specifically, under NASD Rule 3010, a brokerage firm owes a duty to all of its clients to monitor and supervise its employees properly. The rule states: “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…”
If a FINRA-member fails to supervise its employees or conduct proper due diligence on investment products, then the firm may be liable to the customer for damages or disciplined by FINRA, or both. Here, FINRA censured ProEquities and ordered it to pay $200,000 for other supervisory failures.
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 ProEquities, 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.