Tag Archives: ETN

Demitrios Hallas investment loss

Hallas, a former stockbroker representative at a number of New York City broker-dealers, including PHX Financial, Santander, and Forefront Capital, is alleged by the SEC to have violated the multiple federal securities laws.  Investors should speak to a private attorney about their rights. We at PedersonLaw are currently investigating this matter.  Please call 1-866-817-0201.

The allegations contained in the SEC complaint are as follows:

First, Hallas is alleged to have purchased and sold daily leveraged Exchange-Traded Funds and Notes (ETFs and ETNs) in his customers’ accounts, knowingly or recklessly disregarding that these products were unsuitable for such customers.  Hallas had no reasonable basis for recommending daily leveraged ETFs and ETNs.  This constitutes a violation of the suitability requirement that a broker must only recommend investments that are suitable in light of an investors risk tolerance, objectives and that are within an investors level of sophistication.

Second, Hallas is alleged to have stolen funds from investors.  Under the guise of soliciting funds from one of his customers for investment purposes, misappropriated a total of $170,750 from that customer.

The products in which Hallas invested his customers’ hard-earned savings were daily leveraged ETFs and ETNs, and are characterized by a significant degree of volatility and risk. As alleged in the SEC complaint, these products were unsuitable, and Hallas had no reasonable basis for these recommendations.

ETFs are investment companies and ETNs are unsecured notes. Daily leveraged ETFs and ETNs seek to deliver a multiple, the inverse, or a multiple of the inverse of the performance of an underlying index or benchmark over the course of a single trading day. To accomplish their investment objectives, daily leveraged ETFs and ETNs pursue a range of investment strategies, though the strategies are mostly speculative, and only appropriate for investors willing to take the highest level of risk.

The strategies include swaps, futures contracts, and other derivative instruments. These products are inherently risky, complex and volatile, and are only appropriate for sophisticated, high-risk investors.

Unfortunately, Hallas’s customers were unsophisticated and not suitable for such investments. The investors had limited or no investing experience and their incomes, net worth levels, and assets were modest. “The risk and volatility in daily leveraged ETFs and ETNs was inconsistent with the investment profiles of Hallas’s customers, yet Hallas purchased and sold a total of 179 daily leveraged ETF and ETN positions in their accounts from September 2014 to October 2015.”

Hallas’s investors paid a total of approximately $128,000 in commissions and fees in connection with the purchase and sale of these 179 positions. The net loss across these 179 positions was approximately $150,000.

Hallas purchased and sold 22 different daily leveraged ETFs and ETNs in his customer accounts. These products sought to double or triple the performance, or the inverse of 2 Case 1:17-cv-02999 Document 1 Filed 04/25/17 Page 3 of 17 the performance, of over a dozen different underlying indices, including the S&P 500 VIX ShortTerm Futures Index, an investment based upon a volatility index, as well as certain gold mining, oil and gas and Russian, Chinese and Brazilian stock indices.

Finally, in a what the SEC has described as a “brazen and fraudulent scheme,” Hallas misappropriated $170,750 from an unsophisticated investor, who the SEC describes as “a truck driver with no trading or finance experience and no retirement resources outside of the funds that he provided to Hallas.”  The investor transferred funds to Hallas with the understanding that Hallas would make investments on his behalf; instead, Hallas spent Customer’s A’s funds on personal expenditures – a fact that he concealed from the investor.

A comprehensive article on the deeds of Mr. Hallas can be found in Investmentnews.com.

To speak to a private attorney about the recovery of losses with Mr. Hallas, call 1-866-817-0201 for a free and confidential initial consultation.

Attention Investors of Jeffrey Dragon

FINRA alleges that over a two-year period, Jeffrey Dragon, a registered representative of Berthel Fisher & Co. Financial Services. Inc., generated more than $421,000 in concessions for himself and his firm. at the expense of his customers, by recommending and effecting a pattern of unsuitable short-term trading of unit investment trusts ( UITs ).

Invest photo 2Specifically, between January 1, 2013 and December 31, 2014 (the ‘UIT Period’ ) Dragon recommended to 12 customers – many of whom were seniors, unsophisticated investors, or both – that they liquidate UIT positions that they had held for only a few months, and which they had purchased on Dragon s recommendations, and then use the proceeds to purchase other UITs. Because each UIT purchased carried a new sales load, and because UITs are designed not to be actively traded, Dragon s recommendations were excessive and unsuitable.

Dragon’s recommendations to these customers were further unsuitable. in that he designed his recommendations to prevent his customers’ UIT purchases from qualifying for sales-charge discounts. Despite regularly recommending that customers purchase UITs in amounts that exceeded volume-discount “breakpoints” of $50,000 and $100.000. Dragon routinely structured their investments – by spreading the amounts over smaller purchases and multiple days – in order to avoid reaching those thresholds. By doing so. Dragon sought to increase his concessions at his customers’ expense.

Berthel allowed this activity to occur – and. in fact, profited from it – as a direct result of its inadequate system for supervising UIT trading. Throughout the UlT Period. Berthei’s only regular supervisory review of UIT recommendations and customer activity consisted of manual reviews of daily trade blotters that did not indicate either how long UIT positions had been held before liquidation or the source of funds used to purchase new UITs. Thus, Berthel’s supervisory system was not reasonably designed to prevent short-tenn and potentially excessive UIT trading.

Berthel’s supervisory system was also inadequate because it was not reasonably designed to prevent short-term and potentially excessive trading in mutual funds. As with UlTs. the firm’s supervisory system lacked any methods, reports, or other tools to identify mutual-fund switching or trading patterns indicative of other misconduct between January 1. 2013 and December 31, 2015 (the ‘ Mutual Fund Period’ ).

Likewise, Berthel’s supervisory system was not reasonably designed to censure that the firm’s UIT and mutual-fund customers received all sales-charge discounts to which they were entitled during the UIT Period and Mutual Fund Period, respectively. Instead. Berthel relied 2 on its registered representatives and its clearing firm to determine whether UIT and mutual-fund purchases should receive sales-charge discounts, and conducted no review or supension to determine i f those discounts were applied correctly.

This not only allowed Dragon s breakpoint-manipulation scheme to go unchecked, it also resulted in further injury to Berthel s customers: from 2010 through 2014, Berthel failed to detect that more than 2,700 of its customers’ UIT purchases did not receive applicable sales-charge discounts. As a result, Berthel customers paid excessive sales charges of approximately $667.000, nearly all of which was paid to Berthel and its registered representatives as dealer concessions.