SEC Fines Royal Alliance Associates Over Volatility Linked ETP Failures, Including iPath S&P 500 VIX ETN 'VXX'

Attorney Advising Disclaimer

Citing widespread losses by advisory clients who held the iPath S&P 500 VIX Short-Term Futures ETN known as VXX, the Securities and Exchange Commision fined Royal Alliance Associates more than $500,000 for failing to adopt and implement policies and procedures to prevent unsuitable investments in volatility-linked exchange-traded products (ETPs).

In cease-and-desist order 3-20152 imposing remedial sanctions, the SEC found that Royal Alliance Associates (RAA) investment adviser representatives used discretionary authority over client accounts to buy and hold a complex ETP—the VXX exchange-traded note (ETN)—for time periods inconsistent with the product's purpose as described in offering materials, resulting in significant losses for customers exposed to VXX.

Furthermore, investigators discovered that from 2016 through 2020, at least 108 RAA advisory client accounts held VXX for periods extending to several months and, in some cases, years, increasing risk from extended holding periods that ultimately resulted in losses.

SEC's report states that while RAA had some policies and procedures in place that cautioned against holding risky complex and structured products for extended periods, such as a written supervisory procedure calling for representatives to act in a manner "consistent with the fiduciary duty owed to their clients," RAA had no policies designed to track implied volatility of the S&P 500 and provided no training to its representatives on volatility ETPs like VXX, even though the firm knew that reps were trading VXX and similar products for their clients.

As we previously wrote, the volatility virus known as VIX has the propensity to harm investors whose objectives indicate long-term investment horizons and whose risk tolerance preferences are conservative or low-to-moderate.

For example, FINRA in 2017 suspended former Global Arena Capital broker James Flower for unsuitably recommending the very same Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) previously mentioned, causing 13 clients to lose more than $249,000, while regulators have similarly sanctioned brokers, advisers, and brokerage firms for unsuitably recommending volatility products that have proven harmful to customers, including VXX and Credit Suisse's VelocityShares Daily Inverse VIX Short-Term Exchange-Traded Note ("XIV").

If you have invested with a Royal Alliance Associates broker or financial adviser who unsuitably recommended a months-long hold strategy for a volatility-linked product, such as the iPath S&P 500 VIX Short-Term Futures ETN with a ticker symbol of VXX, and such a misuse of this risky and complex product has resulted in losses or otherwise proven harmful to your investments or interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

Related Posts
  • Fraudster Greg Lindberg, Owner of Northstar (Bermuda) and Colorado Bankers Life, Guilty of Bribery Read More
  • Jeffries Broker Cited for Using WhatsApp To Conduct Securities Business Read More
  • After $13 Million in Penalties for 'Widespread Failure,' Oppenheimer Fined $500,000 for Supervisory and Suitability Gaps Read More