Calton & Associates president Dwayne Calton said in a March 2021 interview that the firm anticipates it will pay approximately $500,000 in restitution to resolve a handful of legal proceedings related to its sale of leveraged exchange-traded funds (ETFs).
According to an InvestmentNews report, Calton & Associates had previously anticipated $507,000 would be needed for future legal costs associated with the ETF proceedings, but in November 2020, upped that estimate to over $1 million in costs.
In describing the increase in anticipated costs related to the complex ETF complaints, Calton said succinctly, "We routinely have legal issues. It's part of the business."
Inverse and Leveraged ETFs are complex products that utilize certain features such as swaps, futures contracts and additional derivatives to return the inverse or a multiple of an underlying index's performance. Because the interaction of these complex features may be unsuitable for certain retail investors, regulators have admonished firms for unsuitable ETF recommendations to customers with conservative investment objectives or lower risk tolerance levels.
For example, FINRA in February 2020 fined Wells Fargo Advisors $35 million for supervisory failures related to unsuitable recommendations that clients buy and hold inverse ETFs, resulting in millions of dollars in customer losses. In November 2020, the SEC issued a cease and desist order to Securities America Advisors after that firm unsuitably sold volatility-linked exchange traded products, including the VelocityShares Daily Inverse VIX Short Term ETN and similar volatility-linked exchange-traded products not suitable for retail clients.
In 2017, a Securities Litigation & Consulting Group study found that Calton & Associates ranked eighth on a list of brokerages employing the greatest percentage of brokers with resolved customer complaints: 14.56% of brokers at Calton at the time had a resolved complaint in their BrokerCheck file, wedged in between Independent Financial Group (14.70%) and Centaurus Financial (14.08%).
If you have invested with Calton & Associates in a complex exchange-traded fund or with any broker or financial adviser whose recommendation to invest in an inverse and/or leveraged ETF has proven harmful to your interests due to the excess risk associated with such a product not suitable given your stated investment objectives and risk tolerance preferences, 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.