CAMBRIDGE INVESTMENT RESEARCH Settles WITH FINRA
Cambridge Investment Research Settles with FINRA Over Sales of Inverse and Leveraged ETFs
We are currently investigating allegations made against Cambridge Investment Research, Inc., a Fairfield, Iowa-based securities brokerage firm. FINRA (the Financial Industry Regulatory Authority) brought a regulatory action against Cambridge Investment Research, making allegations that it failed to enforce its procedures regarding the sales of non-traditional ETFs, which typically are inverse ETFs or leveraged ETFs. FINRA also alleged that Cambridge Investment Research also failed to supervise redemptions of variable annuities.
FINRA alleged that Cambridge Investment Research failed to have adequate procedures in place to adequately supervise the sales of inverse and leveraged ETFs, between June 2012 and June 2015. FINRA alleged that Cambridge Investment Research bought and sold over $127 million in inverse and leveraged ETFs during this time period. Cambridge Investment Research settled the above-mentioned allegations with FINRA and agreed to pay a $150,000 fine.
In recent years, many companies have created leveraged or inverse ETFs. Leveraged ETFs try to replicate the performance of a particular index, but attempt to replicate the performance by doubling or even tripling the index. As an example, the Proshares Ultra Russell 2000 ETF seeks to double the performance of the Russell 2000 Index.
Inverse ETFs also try to replicate the opposite (or even multiple opposites) of a particular index. For example, Ultrashort QQQ Shares seeks a return of two times the inverse (-2x) of the daily performance of the NASDAQ-100 Index. Leveraged and inverse ETFs can be useful investment tools for investors seeking intra-day trading.
However, inverse and leveraged ETFs are often misused, by retail investors and even financial advisors. The regulators and others have long-warned the securities industry about the dangers of inverse and leveraged ETFs. These are designed to be day-trading vehicles, but often financial advisors recommend holding these ETFs in an investor’s accounts for weeks or even months.
FINRA has stated that “inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.” See FINRA Regulatory Notice 09-31 at page 1. This Notice reminds members who sell these products to “make every effort to familiarize themselves with each customer’s financial situation, trading experience, and ability to meet the risks involved with such products and to make every effort to make customers aware of the pertinent information regarding the products.” Id. at 3, citing to NASD Notice To Members 05-26.
FINRA has punished other brokers and firms for using leveraged and inverse ETFs improperly. In an action against Michael Venable, FINRA barred a broker from the industry for using unsuitable leveraged and inverse ETFs with his clients. See In re Michael Douglas Venable. FINRA also fined Citigroup, Morgan Stanley, UBS, and Wells Fargo a combined $9.1 million for sales of inverse and leveraged ETFs, in May 2012.
Israels & Neuman PLC is a securities and investment fraud law firm with offices in Denver, Colorado and Seattle, Washington. We represent investors in FINRA arbitration proceedings in all 50 states. Our attorneys have represented over one thousand investors against many brokerage firms in the past, including Cambridge Investment Research.
Click to view: Cambridge Investment Research FINRA AWC
If your advisor recommended investments in leveraged or inverse ETFs that caused you losses, please CONTACT US at 720-599-3505 for a free evaluation of your case.
Israels & Neuman, PLC is a private law firm and is not affiliated with any government or law enforcement agency. Any investigation referenced in this blog is independent in nature and is being conducted by our law firm privately, not in conjunction with any government or law enforcement agency. All information contained in this blog should be deemed statements of opinion derived from the author’s review of public records, not statements of fact. This blog is advertising material and does not create an attorney client relationship, nor does it constitute legal advice. Everyone’s situation is different and the question of whether or not you have a claim will vary on a case-by-case basis. In contingent representation, clients may still be liable for costs.