Recovery of Losses in Volatility-linked Investments
By Attorney Jared Levy
Morgan & Morgan’s Business Trial Group and its securities attorneys are investigating financial losses in volatility-linked investments.
The SEC recently settled enforcement proceedings against five investment advisory and/or brokerage firms for selling customers unsuitable volatility products. The firms include Securities America Advisors Inc., Summit Financial Group Inc., American Portfolios Financial Services/American Portfolios Advisors Inc., Benjamin F. Edwards & Company Inc., and Royal Alliance Associates Inc. The settlements will return $3 million to harmed investors.
All five settlements relate to the firms’ sales of volatility-linked products from 2016 to April 2020. These products try to track short-term market expectations of volatility. According to the settlement orders, the offering documents for these products make clear that they are best held only for short time periods because they are likely to decline when held for the long term. The orders find the firms did not understand the volatility products they sold, as they recommended that customers buy and hold them for long periods, sometimes for months and years. The orders also find that the firms didn’t have proper procedures regarding suitability and volatility products.
The volatility-linked products include the following exchange-traded products: (1) iPath S&P 500 VIX Short-Term Futures ETN (VXX); (2) ProShares VIX Short-Term Futures EFT (VIXY); and VelocityShares Daily Inverse VIX Short-Term ETNs linked to the S&P 500 VIX Short-Term Futures Index (XIV).
Stephanie Avakian, Director of the SEC's Division of Enforcement, stated: "It is important for firms to put the appropriate protections in place to ensure complex products are properly evaluated and understood by their representatives. Failing to do so puts investors at risk. We take these failures seriously, and we will continue to look for sales that expose customers to unsuitable investments."
Each of the firms agreed to pay civil penalties ranging from $500,000 to $650,000. The Orders can be found here:
- American Portfolios Financial Services/American Portfolios Advisors Inc.
- Benjamin F. Edwards & Company Inc.
- Summit Financial Group Inc.
- Securities America Advisors Inc.
- Royal Alliance Associates Inc.
There has been extreme market volatility throughout 2020, which has resulted in substantial losses for many exchange-traded products tied to volatility. If your financial advisor or stockbroker recommended a volatility-linked product for your portfolio, you may have suffered significant losses. The securities attorneys at Morgan & Morgan’s Business Trial Group are here to help. Please contact us at 888.744.0142 for a free consultation.
The Business Trial Group at Morgan & Morgan helps investors recover their losses on a contingency basis. We are only paid if we successfully recover money for you. We have helped investors recover tens of millions of dollars of investment losses.
The Business Trial Group is part of the largest contingency law firm in the nation, with over 700 lawyers.