FINRA Taking Actions Against Brokers for Exchange-Traded Funds

by Wall Street Fraud on April 27, 2012

Philadelphia securities fraud lawyerThe Financial Industry Regulatory Authority will bring enforcement cases against several brokerages for selling exchange-traded funds that were unsuitable for their customers, according to regulator. As we discussed in a prior post, FINRA listed ETFs as one of its regulatory and examination priorities for 2012.

FINRA enforcement chief Bradley Bennett told Reuters that the cases will be related to unsuitable sales of leveraged and inverse exchange-traded funds. The cases will also involve allegations of improper or inadequate training for brokers who sell ETFs, he said. Bennett declined to name the firms involved.

FINRA is concerned that brokers are selling these products to long-term retail investors, despite the associated risks. While professional traders frequently purchase ETFs, they are often inappropriate for retail investors, particularly given that they are generally not held for more than one day.

"We don't have a qualm with the product," Bennett told Reuters. "We just want to make sure that people who are selling them understand them."

Bennett told lawyers who attended a presentation at the Practising Law Institute, a training organization for lawyers, that the cases would "make statements" about what brokerages need to do to make sure their brokers are adequately trained and sell the securities to appropriate customers.

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