Financial advisor, James William Flower (Flower), recently faced a department of enforcement action in connection with his recommendation of unsuitable iPath S&P 500 VIX Short Term Futures ETN (VXX) investments to 13 customers from 2013 to 2014. As a result of the enforcement action, Flower was suspended from FINRA for three (3) months and ordered to attend additional training for complex products.
Flower (FINRA CRD No. 2817701) entered the financial industry in 1997 as general securities representative. From 1997 to 2010, Flower was registered with fifteen different member firms between 1997 and 2010. From 2010 to 2014, during the relevant time period, Flower worked for Global Arena Capital Corp. (“Global Arena”). Flower currently works for Laidlaw & Company and has six (6) negative disclosures on his FINRA BrokerCheck report.
FINRA’s Department of Enforcement investigated Flower’s alleged misconduct and found he recommended 13 customers execute close to 100 VXX transactions in 2013 and 2014. VXX is an exchange-traded note that offers investors exposure to the returns of the CBOE Volatility Index, which is a short-term trading strategy.
Despite the short-term nature of the investment, Flower recommended that some of his customers hold the VXX positions for an extended period of time as a purported hedge against the S&P Index. In total, Flower’s customers suffered losses in excess of $249,000 after holding the investment for periods ranging from two weeks to over one year.
Based upon the foregoing alleged misconduct, FINRA found Flower violated FINRA Rules 2010 and 2111. Under FINRA Rule 2111, registered representatives 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 representative had a duty to recommend suitable investments; the representative breached the duty with unsuitable investments; and the representative’s unsuitable investments caused the investor damages.
Here, Flower’s recommendation that his customers invest in VXX as a hedge against the S&P Index (which it is not a direct inverse relationship) coupled with the extended, recommended holding periods, constituted an unsuitable investment strategy in violation of FINRA Rule 2111.
Lufrano Law, LLC is a national investment litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. Please contact us at (800) 627-2179 for more information if you have been the victim of investment negligence or fraud.