FINRA Sanctions Western International Securities for Supervisory Issues
According to the Financial Industry Regulatory Authority (FINRA), on February 28, 2018 an AWC was issued in which Western International Securities, Inc. (CRD #39262, Pasadena, California) was censured, fined $125,000 and ordered to pay $521,098.10, plus interest, in restitution to customers.
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and WSPs reasonably designed to ensure that registered representatives’ recommendations regarding leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs) complied with applicable securities laws and regulations, and FINRA rules.
An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day.
Many of these investments are packaged as a way for investors to avoid the volatility of the market or capture growth in a particular sector. In reality, these structured investments are just ways for the industry to increase revenues generated from the creation, sale, and management of these products.
FINRA’s findings stated that Western International allegedly failed to reasonably supervise its solicitation of non-traditional ETF transactions in retail accounts.
Additionally, Western International Securities purportedly did not have written policies or procedures in place that addressed the unique features and risks associated with non-traditional ETFs, although it provided education regarding these products during annual compliance meetings.
In addition, the firm reportedly lacked any system that enabled supervisory personnel to adequately monitor the risks peculiar to non-traditional ETFs, most particularly the risk posed by the long-term holding of a product that resets daily.
According to FINRA, the firm allegedly had no exception reports or alerts specific to non-traditional ETFs, let alone any supervisory tool that could detect the divergence of a non-traditional ETF from its linked index, and had no automated method of calculating and monitoring holding periods.
The findings also stated that the firm, through its representatives, allegedly failed to perform on an adequate basis suitability analysis of nontraditional ETFs to understand the risks and features associated with these products before offering them for sale to retail customers (or particularly, recommending these products as long-term investments to retail customers).
Investigating Potential Claims
The White Law Group is investigating the liability that Western International Securities may have for losses sustained by their clients. Brokerage firms are required to adequately supervise their agents to ensure they are complying with FINRA rules. If it is determined that the broker dealer failed to supervise their agents, they can be held responsible for losses in a FINRA arbitration claim.
Are you concerned about your investments with Western International Securities? The attorneys at The White Law Group may be able to help you. For a free consultation with a securities attorney, please call (888) 637-5510.
The foregoing information, which is all publicly available on FINRA’s website, 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.
For more information on The White Law Group, please visit www.whitesecuritieslaw.com