FINRA fines broker $700K for churning

84 customers affected by the company’s misleading statements on leveraged and inverse ETFs

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.

The regulator determined that J. P. Turner did not establish and support a corresponding supervisory system and treated leveraged and inverse ETFs in the same way as traditional ETFs. The company’s representatives recommended these investments without performing an adequate analysis of the risks and the features of the investment products.

Some customers held leveraged products for several months and at least 27 of them who maintained a rather conservative investment profile have lost a total of more than $200,000.

The other count on which the company was sanctioned was that it failed to prevent mutual fund switching. The shares of these investment vehicles are suitable for long term investments and are not suitable for short term trading due to the associated high costs incurred from transaction fees and commissions.

J.P. Turner has failed to maintain a monitoring system to prevent such occurrences from happening. The bearers of consequences on this count were 66 customers of the company that paid commissions and sales charges totaling more than $500,000. The company has consented to pay back its customers but it neither admitted nor denied charges.

For the full press release visit FINRA’s website.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report. 

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