Rogue Broker at Stephens Inc. Caused Penalty, $1.9M Claim

by George Waldon  on Monday, Feb. 17, 2014 12:00 am  

Stephens Building (Photo by Mauren Kennedy)

“It’s common to push non-traditional investments during times of market fears. Sometimes it’s customer-driven; sometimes it’s broker-driven.”

Concerns about the proliferation of ETF trading outside the normal investor pool prompted the Securities & Exchange Commission and FINRA to issue a joint alert on Aug. 18, 2009.

“The SEC staff and FINRA are issuing this Alert because we believe individual investors may be confused about the performance objectives of leveraged and inverse exchange-traded funds (ETFs). Leveraged and inverse ETFs typically are designed to achieve their stated performance objectives on a daily basis.

“Some investors might invest in these ETFs with the expectation that the ETFs may meet their stated daily performance objectives over the long term as well.

“Investors should be aware that performance of these ETFs over a period longer than one day can differ significantly from their stated daily performance objectives.”

The ASD consent order with Stephens gave the firm the benefit of the doubt that the ETF problem was isolated to LaRue and not widespread.

“We decided we wouldn’t do further investigation,” Abshure said. “Had we not done that, it would’ve been a potential violation for every agent who sold ETFs over there. It might be that no agents were selling ETFs [inappropriately].”

Stephens General Counsel David Knight has characterized the choice of settling or undergoing further investigation as a threat.

Previous Consent Orders

The Aug. 22, 2013, consent order with Stephens Inc. marks only the third time the Arkansas Securities Department has fined the Little Rock firm since 1976.

Feb. 8, 1980: Stephens Inc. was fined $357 as part of a consent order settlement agreement.

The company was ordered to improve certain supervisory procedures in connection with a separate ASD order entered against a former salesman and in connection with the review of securities registration and exemption procedures.

 

 

Please read our comments policy before commenting.