FINRA Accuses Broker of Encouraging Clients to Invest in High-Risk Exchange-Traded Funds Because He Anticipated Financial Turmoil

The Financial Industry Regulatory Authority has filed a case against Richard William Lunn Martin, a former broker. According to the self-regulatory organization, from at least 3/11 through 7/15, and while he was a GF Investment services broker, Martin encouraged clients to invest in high-risk non-traditional exchange-traded funds so he could hedge against what he anticipated would be a pending financial crisis. Martin purportedly believed that the financial and monetary system was going to fail. FINRA said that he lost customers $8M as a result of the bad investment advice he gave them.

Because of his fears, said FINRA, Martin recommend that clients put their money in inverse and leveraged funds, which are typically not suitable for retail investors. This is especially true when the market is volatile and the investor intends to hold the funds for longer than one trading session. Examples of recommendations that he made:

· Direxion Daily Gold Miners Bear 2x Shares (DUST)

· Proshares UltraPro Short Russe112000 (SRTY)

· Proshares UltraPro Short QQQ (SQQQ)

The SRO said that such recommendations to hedge against a fall in the stock market exhibit a lack of awareness about non-traditional ETF fundamentals. By about March ’11, nearly all of Martin’s customers were heavily involved in these risky funds, which comprised 75-99% of what they held in their accounts.

FINRA is asking that Martin disgorge his ill-gotten gains and provide customers with full restitution for losses they may have sustained because of his alleged misconduct.

Meantime, Martin refuses to admit to any wrongdoing. He said that each client signed a form to set up an account and indicated the desire to take part in speculative trading. Martin claims that any losses that they are merely a result of losses that can be incurred from ETF trades andshort-selling.

ETF Fraud Claims
Our ETF fraud lawyers and nontraded ETF fraud attorneys are here to work with retail investors and other investors to recover their losses. Call or email Shepherd Smith Edwards and Kantas, LTD LLP today to request your free case consultation.

FINRA Says Adviser Lost $8M On Doomsday ETF Trades, Law360, June 28, 2016

Finra alleges former broker put clients in risky ETFs to hedge against financial doom, InvestmentNews, June 28, 2016