The Financial Industry Regulatory Authority Inc. recently filed a complaint against a former broker for telling his clients to invest in risky exchanged-traded funds as a hedge against impending financial and economic doom.
According to a FINRA complaint, from at least March 2011 through July 2015, Richard William Lunn Martin recommended that his customers hold non-traditional ETFs in their accounts because of his prediction that the monetary and financial system was going to collapse. During that time period, he was a registered broker at GF Investment Services.
The ETFs that Mr. Martin was allegedly recommending, including leveraged and inverse funds, are risky and complex, making them unsuitable for the typical retail investors who plan to hold them for more than one trading session, particularly in volatile markets. They’re generally not intended as a long-term hedge against market forces.
In recommending non-traditional ETFs as hedge against a stock market drop, FINRA argues that he showed a lack of knowledge regarding several of their fundamental aspects of the investments. Finra listed ProShares UltraPro Short QQQ (SQQQ), ProShares UltraPro Short Russell 2000 (SRTY) and Direxion Daily Gold Miners Bear 2X Shares (DUST) among his recommendations.
FINRA also alleges that virtually all of his customers were heavily concentrated in non-traditional ETFs, which made up 75% to 99% of their accounts.
According to FINRA BrokerCheck, Mr. Martin was registered with GF Investment Services from July 2009 to July 2015. Finra recommended in its complaint that Mr. Martin disgorge any ill-gotten gains and make full restitution to his customers who suffered losses because of his alleged misconduct.
The foregoing information, which is publicly available, is being provided by The White Law Group. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee.
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