FINRA Orders J.P. Turner to Pay $707,559 in Exchange-Traded Fund Restitution to 84 Clients

The Financial Industry Regulatory Authority Inc. says that J.P. Turner & Co. has to pay restitution of $707,559 to 84 clients over the sale of inverse and leveraged ETFs that were unsuitable for them, as well as for excessive mutual fund switches. The SRO says that the broker-dealer did not set up and keep up a supervisory system that was reasonable but instead oversaw inverse and leveraged ETFs the same way it did traditional ones. It also accuses the financial firm of providing inadequate training regarding ETFs. By settling, J.P. Turner is not denying or admitting to the charges.

Leveraged and Inverse Exchange Traded-Funds
Inverse and leveraged ETFs “reset” every day. They are supposed to meet their objectives daily so their performance can rapidly diverge from that of the benchmark or underlying index. Unfortunately, even if long-term index performance exhibits a gain, investors can be susceptible to substantial losses. Markets, when they are volatile, can only exacerbate the situation. Also, leveraged and inverse ETFs are not suitable for all investors.

According to FINRA, J.P. Turner let registered representatives recommend inverse and leveraged ETFs without conducting adequate diligence to comprehend the risks and features involved or determining whether the investments were appropriate for at least 27 customers, who included conservative investors and retirees. Because of this, contends the SRO, a lot of J.P. Turner clients held these ETFs for a number of months and they sustained collective net losses of over $200,000.

FINRA is also accusing J.P. Turner is of taking part in mutual fund switches that were not suitable. The agency believes that the broker-dealer did not set up a supervisory system that could prevent this type of mutual fund switching and lacked the adequate procedures to properly monitor for such patterns or trends. The regulator says that even when there were red flags, the brokerage firm did not reject any of over 2,800 mutual fund switches that showed up in its reports regarding switch exceptions. Because of this, FINRA notes, 66 clients paid over $500,000 in sales charges and commissions.

Adequate supervision of representatives, proper training, and the designing, maintenance, and implementation of the proper systems to detect unsuitable and improper activities are the responsibility of brokerage firms. When failure to provide any of these results in investors getting involved in investments that are inappropriate for them and they end up sustaining losses, there may be an opportunity for legal recourse through securities arbitration or by filing a financial fraud lawsuit.

Contact our exchanged-traded fund fraud lawyers to request your free case consultation. Shepherd Smith Edwards and Kantas, LTD LLP represents investors that have sustained losses and are seeking to get their money back.

FINRA Orders J.P. Turner to Pay More Than $700,000 in Restitution for Unsuitable Sales of Leveraged and Inverse ETFs and for Excessive Mutual Fund Switching, Yahoo, December 5, 2013

Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors, FINRA

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