After an SEC investigation found that unsuitable sales of volatility-linked exchange-traded products VelocityShares Daily Inverse VIX Short Term ETN linked to the S&P 500 VIX Short-Term Futures Index (XIV) and ProShares VIX Short-Term Futures ETF (VIXY) security resulted in losses in over 150 retail advisory accounts, Securities America Advisors agreed to settle SEC charges that it failed to adopt and implement policies and procedures designed to prevent investments in volatility-linked ETNs such as XIV and VIXY that were not suitable for retail clients.
In cease and desist order 3-20150, the Securities and Exchange Commission found that Securities America Advisors recommended, purchased, and sold XIV and VIXY exchange-traded products to clients for whom those risky products were not suitable, and that much of this activity resulted in losses.
Specifically, investigators found that while XIV and VIXY's offering material explicitly stated that the products were "for sophisticated investors to manage daily trading risks" and that the product was "intended to be used only for short-term investment horizons," Securities America investment advisors nonetheless purchased and sold XIV and VIXY in 283 client accounts, including customers whose risk tolerances and investment objectives were not suitable for the products.
In many cases, XIV and VIXY were held for long periods despite the products' clear indications of their design for short-term holding, such as day trades.
For instance, the SEC found that by failing to implement policies and procedures to address conservative-to-moderate risk tolerant clients, the firm failed to require its investment advisors have an "adequate basis" for certain investment decisions and recommendations, including recommendations of the complex XIV and VIXY ETPs.
In other cases, investigators discovered that some affected customer accounts accumulated excess concentration of Credit Suisse-issued XIV and VIXY such that these two products represented as much as 85% of the value of a client's account. That client, said SEC, lost approximately $167,000 from their Securities America advisor's trading in XIV and VIXY.
In total, the SEC found that 156 retail advisory accounts suffered "significant losses" from XIV and VIXY trading at Securities America.
In 2018, which is part of the SEC's relevant period for alleged misconduct at Securities America, we found that XIV lost over 90% of its value from the year before, leading a pack of volatility-focused ETPs that lost money. VIXY, meanwhile, lost 40% over the same period.
Ticker symbols such as VIXY also surfaced in several FINRA disciplinary proceedings, such as FINRA's 2017 decision to bar former WFG Investments broker Jay Dee Jordan for unsuitable recommendations and unauthorized use of discretions regarding a series of leveraged and/or inverse ETNs and ETFs.
If you are a conservative-to-moderate risk-tolerant investor who invested with Securities America in volatility-linked exchange-traded products such as VIXY or XIV, and such an unsuitable recommendation proved harmful to your investments or interests when VIXY or XIV lost value, 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.