FINRA fines broker $700K for churning
The Financial Industry Regulatory Authority (FINRA) has made an announcement today that it has mandated Atlanta-based brokerage J.P. Turner to pay back $707,559 to 84 customers who were sold leveraged and inverse exchange traded funds (ETFs) plus for excessive mutual fund switches. Apparently the firm failed to inform their retail customers about the associated risks with leveraged products and did not provide its employees with adequate training about ETFs.
According to the regulator the complications associated with leveraged and inverse ETFs are that their value is reset on a daily basis and their performance can diverge quickly from the performance of the underlying asset. A magnification of the effect is observed in more volatile markets.
FINRA’s Executive Vice President Brad Bennett was quoted to say that every firm that is dealing with securities and its employees must understand the nature of the products that they are offering and the risks that are associated with them. He goes on to elaborate on the topic of mutual funds saying that companies have an obligation to ensure that such conservative investments have to be protected from excessive trading practices.