Securities Lawyers Blog
According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor Jay Jordan (Jordan), in August 2017, was sanctioned by FINRA and had a permanent bar imposed in connections with allegations of unsuitable investments in leveraged exchanged traded funds (Non-Traditional ETFs) based on the investor’s investment objectives, financial situation, risk tolerance, experience, and investment needs. Jordan was previously terminated by his employer WFG Investments, Inc. (WFG). WFG stated that Jordan was terminated due to his failure to follow certain policies of the firm including reporting a customer complaint, unauthorized use of personal email, and mischaracterization of an outside business activity.
In addition, Jordan has been subject to 14 customer complaints concerning his securities activity. These investors have alleged millions in losses most likely stemming from FINRA’s allegations of unsuitable Non-Tradition ETF trading.
According to FINRA, Jordan become convinced that an economic crisis or stock market collapse was imminent and recommended concentrated Non-Traditional ETFs so that they clients could benefit from rising oil prices, rising interest rates, and declining equity values. FINRA alleged that in June 2012, Jordan made widespread recommendations to his customers that they purchase Non-Traditional ETFs including: (1) UWTI (three times the daily performance of the S&P GSCI Crude Oil Index ER); (2) BOIL (two times the daily performance of the Bloomberg Natural Gas Subindex); and UGAZ (three times the daily performance of the S&P GSCI Natural Gas Index); (3) TBT and TMV (two and three times, respectively, the daily performance of the inverse of the ICE U.S. Treasury 20+ Year Bond Index); (4) SDS (two times the inverse of the daily performance of the S&P 500); (5) QID (two times the inverse of the daily performance of the NASDAQ-100 index); and (6) VIXY (matches the performance of the S&P 500 Short-Term Futures Index, which seeks to measure short-term volatility).
As a background, Non-Traditional ETFs behave drastically different and have different risk qualities from traditional ETFs. While traditional ETFs seek to mirror an index or benchmark, Non-Traditional ETFs use a combination of derivatives instruments and debt to multiply returns on underlining assets, often attempting to generate 2 to 3 times the return of the underlining asset class. Non-Traditional ETFs are also used to earn the inverse result of the return of the benchmark.
However, the risks of holding Non-Traditional ETFs go beyond merely multiplying the return on the index. Instead, Non-Traditional ETFs are generally designed to be used only for short term trading as opposed to traditional ETFs. The use of leverage employed by these funds causes their long-term values to be dramatically different than the underlying benchmark over long periods of time. For example, between December 1, 2008, and April 30, 2009, the Dow Jones U.S. Oil & Gas Index gained two percent while the ProShares Ultra Oil and Gas, a fund seeking to deliver twice the index’s daily return fell six percent. In another example, the ProShares UltraShort Oil and Gas, seeks to deliver twice the inverse of the index’s daily return fell by 26 percent over the same period.
Because of these risks, The Securities Exchange Commission (SEC) has warned that most Non-Traditional ETFs reset daily and FINRA has stated that Non-Traditional ETFs are typically not suitable for most retail investors. Consequently these funds typically have very limited uses and in many cases are completely inappropriate for retail investors who have long term objectives. Increasingly, brokerage firms are prohibiting the solicitation of these investments to its customers due to suitability concerns.
Jordan entered the securities industry in 1987. From September 2005 until April 2016 Jordan was associated with WFG out of the firm’s Oklahoma City, Oklahoma office location.
The investment fraud attorneys at Gana Weinstein LLP represent investors who have suffered securities losses due to the mishandling of their accounts. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.