Securities Lawyers Blog
Between March 16, 2009, and September 21, 2012, FINRA alleged that Sunset Financial Services, Inc., (Sunset) failed to establish and maintain a supervisory system regarding the sale of leveraged or inverse exchange-traded funds, otherwise known as nontraditional ETFs, that was reasonably designed to comply with NASD Conduct Rule 3010.
Sunset has its principal offices in Kansas City, Missouri and is wholly-owned by Kansas City Life Insurance Company, Inc., an insurance company. Sunset has approximately 302 branch offices, 504 registered individuals and 197 non-registered individuals associated with the firm.
FINRA alleged that Sunset’s written supervisory procedures did not address the selling of nontraditional ETFs in any fashion. A leveraged ETF employs financial debt in order to amplify the returns of an underlying stock position. Leveraged ETFs are generally available for most indexes like the S&P 500 and Nasdaq 100. For example, a leveraged ETF with 300% leverage will return 3% if the underlying index returns 1%. Nontraditional ETFs can also be designed to return the inverse of the benchmark.