Stifel Nicolaus & Company Inc. and Century Securities Associates Inc. have agreed to pay $550,000 in fines and $475,000 in restitution to 65 customers in settling Finra charges over the sale of leveraged and inverse ETFs.
In announcing the settlement today, Finra said the firms made unsuitable recommendations of leveraged and inverse ETFs between January 2009 and June 2013. Stifel customers bought $641 million, and Century customers $31 million, of non-traditional ETFs over the period.
The two broker-dealers are units of St. Louis-based Stifel Financial Corporation. Stifel Nicolaus has about 2,900 representatives and Century Securities, an independent contractor firm, has about 190.
Brokers at the firms “did not fully understand the unique features and specific risks” associated with non-traditional ETFs, Finra said.
Broker-dealers must “sufficiently train their sales force and have adequate supervisory systems in place before offering them to retail investors,” added Brad Bennett, head of Finra enforcement, in a statement.
In its announcement, Finra reiterated prior warnings that leveraged and inverse ETFs are reset daily and will not track an underlying benchmark for longer periods of time.
“It is possible that investors could suffer significant losses even if the long-term performance of the index showed a gain,” Finra said.
In settling the case, the firms neither admitted nor denied the charges.
“Stifel and Century are pleased to have resolved this matter,” said Tim Beecher, a spokesman for the firms. “We will continue to serve our clients consistent with their investment goals.”
Regulators have been concerned about a growing number of risky and complicated products.
In June 2009, Finra issued a regulatory alert to its members about the dangers of non-traditional ETFs, noting that the products were generally not suitable for investors who planned to hold them for more than one day. Two months later in August, Finra and the SEC issued a joint investor alert about the risky ETFs.
Complex structured products and leveraged ETFs have continued to be an area of focus for Finra examiners.