Securities Fraud and Mismanagement

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Did the actions/inactions of my broker fall below the required standard of care?

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Smith Brown & Groover, a brokerage firm headquartered in Macon, Georgia, settled allegations by FINRA, the Financial Industry Regulatory Authority, the regulator overseeing brokerages, that the firm recommended a trading strategy that the firm did not understand and that caused near-total losses for 350 clients.

The FINRA states the firm had consented to $2 million payment, with only a portion of this going to pay its investors, to and a censure, and fines. censures and suspensions against key officers and employees participating in this failed investment strategy.

Raymond Hill Smith, president of a Smith Brown & Groover, developed and implemented a trading strategy for their investors of using exchange traded notes (“ETNs”). This was done without fully understanding the features and risks of the strategy or the ETN that the strategy primarily invested in, and without having a reasonable basis to recommend the strategy to any investor despite appetite for risk. FINRA stated that the ETN was high-risk, complex, and designed to manage daily trading risk and not to be help more than a few days, at most.

Despite developing and implementing the trading strategy at the firm, Smith and others at the firm did not fully understand the ETN, and thus, did not understand the strategy. This includes the ETN’s basic features, such as how the issuer maintained its inverse exposure to the underlying volatility index or that the ETN was designed to achieve its stated investment objective on a daily basis. The issuers of these investments designed the investments as intra-day hedges. Holding longer than this created substantial exposure to exponential loss.

Furthermore, contrary to the guidance in the ETN’s disclosure documents, the firm and Smith invested customers in the ETN for extended periods of time, an average of 72 days, including through periods of high volatility.

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Smith, Brown & Groover is alleged to have mismanaged investor money.
Smith, Brown & Groover is alleged to have inappropriately invested in a strategy it did not understand.