What Did Your Brokerage Firm or Investment Adviser Do Wrong With GWG
Published On: August 27, 2020

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses due to recommendations by financial advisors and brokers to invest in Exchange-Traded Products (ETPs). With market gyrations giving average investors motion sickness this year, it’s understandable for many to find ways of hedging volatility. When the market is up one day and down another, it’s pretty unnerving.

That’s why Wall Street invented Exchange Traded Products linked to volatility indexes, which track the nervy fears of the market at large. When anxiety is high, these indexes are high. One of the most popular such indexes is the so-called VIX, which is managed by the Chicago Board Options Exchange. Brokers and advisors often recommend ETPs based on the VIX for clients who want to hedge against market volatility.

ETPs are securities traded on stock exchanges that can track anything from baskets of bonds to precious metals. For many investors, they can be efficient ways of owning commodities or hedging prices on nearly any kind of security. But each have their own risk profile. Some are clearly unsuitable for unprepared investors.

One of the major issues with volatility products is that they follow complex rules. And when the market rises, they may lose money. Unless you have a broker-advisor who is skilled at monitoring and timing the market while using these products, they could be disappointing. Financial professionals who recommend these products without fully disclosing the downside could be subject to regulatory fines and penalties.

Like many brokerage/advisory firms, JP Morgan has been selling a suite of volatility products in recent years, which grew in appeal and number after the 2008 market crash and recession. “While markets may occasionally have their periods of calm, history shows that investors need to prepare for volatility, particularly in stocks. A new generation of ETFs can be useful to help take some of the bite out of the inevitable market swings,” the firm stated on its Web site.

FINRA, the securities industry regulator, fined JP Morgan Securities $658,000 on June 11, 2020 in connection with sales of volatility ETPs to customers. “While the firm was aware of the unique characteristics of volatility ETPs,” FINRA stated, “it made these products available for solicited purchases without having a reasonable system in place to ensure that its brokers and customers understood the nature and characteristics of these products or the risks inherent in holding them for long-term periods.”

In other words, JP Morgan, which also paid restitution to clients in this case, failed to disclose that clients could lose money holding volatility products and didn’t properly inform its clients on how they worked. Morgan agreed to the fine and stated it would improve its broker supervisory system.

Have you invested with brokers who have sold you inappropriate vehicles or tried to place you in volatility ETPs? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk, you may have a case for FINRA arbitration.

Firms are also legally required by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.

If you invested in ETPs with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices offers nationwide representation to aggrieved investors and is a contingency fee law firm which means we do not get paid until you do!


The posting on this site are mere OPINIONS and NOT statements of fact in any way whatsoever. The information should not be relied upon and there have been no findings made against the firms or individuals referenced on this site. In addition, this Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Stoltmann Law Offices (161 N Clark Street 16th Floor Chicago, IL 60601). The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


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