According to a recent settlement filed by the Financial Industry Regulatory Authority, a former WFG Investments Inc. representative has been sanctioned for recommending trades in risky, nontraditional exchange-traded funds (ETFs) that resulted in losses of $8.4 million. He has agreed to be barred from the securities industry.
Leveraged and inverse leveraged ETF are very risky and can be difficult to understand. For that reason, many brokerage firms prohibit their brokers from recommending and selling these securities to retail customers.
WFG Broker Accused of Several FINRA Violations
The WFG Investments Inc. representative is Jay Dee Jordan. Without admitting or denying FINRA’s findings, he has agreed to the bar. Jordan is accused of recommending unsuitable transactions of leveraged and inverse exchange-traded funds that resulted in customer losses of $8.4 million. In addition, FINRA also claims that Jordan failed to report customer complaints to WFG Investments, and failed to produce requested documents, among other violations.
FINRA alleges that Jordan failed to understand the "extraordinary risks" associated with the products he was recommending and on numerous occasions failed to get signed risk disclosures. Jordan allegedly improperly exercised discretion in some of his client accounts, making unauthorized trades, and mislabeling trades he had solicited as "unsolicited."
FINRA also said in the settlement documents that Jordan failed report to client complaints to WFG Investments. Instead, Jordan decided not to involve the firm, and attempted to settle the complaints on his own.
Settlement Document Reveal Risky ETF Trade Activities
In settlement documents filed in federal court, FINRA said that Jay Dee Jordan recommended hundreds of unsuitable purchases of unsuitable, nontraditional ETFs to customers between June 1, 2012 and March 31, 2016, just before he was terminated by WFG in April 2016.
During this period, Jordan allegedly was convinced that an economic crisis or stock market collapse was near and that concentrating his customers' portfolios in nontraditional ETFs would allow them to benefit from rising oil prices, rising interest rates, and declining equity values. According to FINRA, the advisor recommended investments in funds that delivered twice the inverse of the daily performance of the S&P 500, three times the performance of an S&P crude oil index, and three times the inverse of the daily performance of an index of Treasury bonds, among other ETFs.
FINRA alleges that Jordan made trades in nontraditional ETFs in 84 of the 153 accounts he oversaw, recommending clients purchase more than $22 million in risky products. According to the settlement documents, Jordan failed to sell the funds the same day they were purchased, and on many occasion, his customers held the ETFs for years.
In one instance, a married couple claims that they sustained $3.8 million in losses. In a letter submitted to WFG, the couple alleges that Jordan improperly exercised discretion in trust accounts owned by the couple, both 76 years old, who had moderate risk tolerances, selling their holdings and investing almost exclusively in nontraditional ETFs. FINRA said that Jordan then maintained those positions for years, even as the funds sharply declined.
FINRA Actions Relating to ETF Investments
The settlement with Jordan and WFG Investments comes shortly after FSC Securities Corp. settled with FINRA regarding allegations that it failed to supervise trades in similar ETFs. FSC Securities Corp. agreed to pay a $100,000 fine and $492,485 in restitution.
FINRA has brought several cases over ETF investments in recent years against companies including FSC Securities, Morgan Stanley Smith Barney, Oppenheimer & Co. Inc. and LPL Financial LLC. In these cases, FINRA found the absence of compliance efforts and the failure to supervise from the firms and required both a settlement fine and payouts of restitution. FINRA recently has made efforts to more closely regulate ETF investments.
Did You Lose Money in ETF Trades?
If you believe that WFG Investments or your WFG broker sold you investments that were too risky you may have certain legal rights that require your immediate attention.
Call an Investment Fraud Attorney Today
If you are looking for an investment fraud attorney to review your rights and options, the investment fraud lawyers at Dimond Kaplan & Rothstein, P.A. have recovered more than $100 million from banks and brokerage firms for their wrongful actions. Among other cases, we have obtained financial recoveries for investors who lost money after their brokers sold them unsuitably risky ETFs.