Legal
Georgia Broker-Dealer Charged By FINRA For Selling Unsuitable ETFs, Excessive Mutual Fund Switching
The Financial Industry Regulatory Authority has ordered Atlanta, BA-based broker-dealer JP Turner & Company to pay $707,559 in restitution to 84 clients for selling unsuitable exchange-traded funds, and for carrying out excessive mutual fund switches.
The Financial Industry
Regulatory Authority has ordered Atlanta, GA-based broker-dealer
JP
Turner & Company to pay $707,559 in restitution
to 84 clients for selling unsuitable leveraged and inverse
exchange-traded funds, and for carrying out “excessive” mutual
fund switches.
Leveraged and inverse ETFs
are designed to reach their objectives by resetting daily so
their performance
can quickly diverge from the performance of the underlying index
or benchmark.
“It is possible that
investors could suffer significant losses even if the long-term
performance of
the index showed a gain. This effect can be magnified in volatile
markets,”
FINRA said in a statement last week.
JP Turner “failed to establish and maintain a
reasonable supervisory system” and “supervised leveraged and
inverse ETFs in
the same manner that it supervised traditional ETFs,” the
authority added.
According to the
statement, JP Turner also failed to provide adequate training
regarding the
ETFs, while allowing registered representatives to recommend them
without fully
understanding the products.
The 84 clients include 27
who collectively lost more than $200,000 by holding leveraged and
inverse ETFs
for several months, while 66 paid commissions and sales charges
of some
$500,000 in unsuitable mutual fund switches.
“Mutual fund shares are typically suitable as long-term
investments and
are not proper vehicles for short-term trading because of the
transaction fees and commissions incurred from repeated buying
and
selling of mutual fund shares,” FINRA said. “JP Turner failed to
establish and
maintain a reasonable supervisory system designed to prevent
unsuitable
mutual fund switching and lacked sufficient procedures to
adequately
monitor for trends or patterns involving mutual fund switches.”
JP Turner consented to the
entry of FINRA's findings, but neither admitted nor denied the
charges.
