Stephens Inc. Fined $25,000 by State Regulator

by Gwen Moritz  on Thursday, Aug. 22, 2013 4:23 pm  

Arkansas Securities Commissioner Heath Abshure on Thursday fined Stephens Inc. $25,000 for failing to properly supervise agents who sold leveraged and inverse exchanged traded funds between January 1, 2008, and Aug. 7, 2009.

Stephens Inc. neither admitted nor denied the findings of fact by the Arkansas Securities Department, but it consented to the order (PDF) and agreed to the fine. A Stephens spokesman said the company would have no comment.

During the period in question, according to the consent order, Stephens didn't have a written compliance policy specifically addressing the sale of leveraged and/or inverse ETFs, which "have certain risks that are not found in traditional ETFs, such as the risks associated with leverage and compounding." As a result of this policy void, "Stephens' sales force was not properly educated about the specific risks… that needed to be communicated to the customers."

Stephens put a written policy in place on Aug. 7, 2009, according to the findings. "Unfortunately, for several months after this date, Stephens was unable to effectively enforce this written compliance policy," Abshure said in the order. "This supervisory failure was the result of the inability of the Stephens internal computer system to track the sale of leveraged and/or inverse ETFs and enforce said written policy."

No individual sales agent is named in the order and no harm to any investor is specifically described. Scott Freydll, staff attorney for the Securities Department, told Arkansas Business that no investors had come forward with complaints of harm specifically from leveraged or inverse ETFs sold by Stephens Inc.

In addition to the fine, which must be paid within 10 days, Stephens has agreed to hire an expert approved by the Securities Department to review the brokerage's written compliance policy on leveraged and inverse ETFs and to inform regulators on any recommendations made and implemented.

 

 

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