Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) sanctioned broker Daniel Grieco (Grieco) concerning allegations that Grieco made recommendations of non-traditional exchange-traded funds (Non-Traditional ETFs) to various customers without having reasonable grounds to believe his recommendations were suitable.
Non-Traditional ETFs are behave drastically different and have different risk qualities from traditional ETFs. While traditional ETFs simply 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.
In addition, regular ETFs can be held for long term trading, but Non-Traditional ETFs are generally designed to be used only for short term trading. 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. Increasingly, brokerage firms are prohibiting the solicitation of these investments to its customers due to suitability concerns.
Daniel Grieco entered the securities industry in 1983. Since August 13, 2010, Grieco has been registered with First Allied Securities, Inc. (First Allied). FINRA alleged that from July 21, 2008, through July 19, 2013, Grieco recommended the purchase of transactions of various Non-Traditional ETFs in 15 customer accounts. The ETFs were designed to achieve their objectives over the course of a single day only but instead the ETFs were held long periods and in some cases for more than five years. By holding onto the Non-Traditional ETFs for so long FINRA found that Grieco failed to appreciate the nature of the ETFs at the time of his recommendations and that they were not designed to achieve their objectives for extended holding periods. Accordingly, FINRA found his recommendations to be without reasonable grounds to believe his recommendations were suitable.
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of unsuitable investments. Our consultations are free of charge and the firm is only compensated if you recover.