Please contact us if you are or were with Union Capital and suffered losses despite being a conservative or moderate risk investor.
From January 2019 through at least December 2021, Union Capital failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with the suitability requirements of FINRA, the regulator overseeing brokerage firms, Rule 2111 and the Care Obligation of Rule 15l-1 of the Securities Exchange Act of 1934 (Regulation Best Interests or “Reg BI”) with respect to its financial advisors’ recommendations of leveraged and inverse exchange-traded funds and leveraged and inverse mutual funds (Non-Traditional Funds). This is the finding of the FINRA.
As of June 30, 2020, and continuing through at least December 2021, Union Capital also failed to comply with Reg BI’s requirements by not establishing, maintaining, and enforcing supervisory procedures reasonably designed to achieve compliance with Reg BI with respect to recommendations of Non-Traditional Funds.
Non-Traditional Funds are complex financial instruments designed to return a multiple of the performance of an underlying index or benchmark (leveraged funds), the opposite of the daily performance of the index or benchmark (inverse funds), or both (leveraged inverse funds), usually over the course of a single day. As such, Non-Traditional Funds typically rebalance their portfolios on a daily basis (also known as the daily reset), which means they are designed to achieve their stated objective on a daily basis.
It is generally inappropriate to hold such investments for more than a single day. The investments are intended to be a single-day hedge. The losses can accumulate exponentially if held for more than a single day. This means that the investment is only appropriate for investors willing to take the highest risks.
In June 2009, FINRA issued Regulatory Notice 09-31 to caution member firms that, due to the effect of compounding, the performance of leveraged and inverse products, like Non-Traditional Funds, for periods longer than the intended holding period “can differ significantly from the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time” and therefore “typically are not suitable for retail investors who plan to hold them for more than one trading session.” The Notice specified that this applies equally to leveraged and inverse exchange-traded funds and leveraged and inverse mutual funds, which raise many of the same issues. Non-Traditional Fund prospectuses typically provide similar warnings concerning the suitable holding period for retail investors.
The Law Offices of Jeffrey Pederson fights to protect investors. Please call for a free and confidential initial consultation.
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