WASHINGTON, D. C. – The U.S. Securities and Exchange Commission (SEC) says retail investors who suffered losses after a Syracuse, New York, broker/dealer and investment advisers steered them toward a leveraged oil-linked exchange-traded note (ETN) without a reasonable basis, will be fully reimbursed.
The SEC alleges representatives from Cadaret, Grant & Company's president Arthur Grant and senior vice president Beda Lee Johnson did not supervise their firm's registered representatives. The lack of supervision resulted in recommendations to customers to buy and hold leveraged oil-linked ETN without reasonably researching or understanding the risks of the ETN or the index it tracked, the SEC said.
According to the SEC, brokers mistakenly believed the ETN's value would increase along with oil prices and recommended to retail customers to buy and hold the ETN indefinitely.
“Brokers have an obligation to understand complex products and their risks before recommending them to customers,” said SEC Enforcement Division’s Complex Financial Instruments Unit chief Daniel Michael in a statement. “As this action shows, we will continue to hold people accountable at every level for unsuitable recommendations that harm investors and for the failures that allow those recommendations to be made unchecked.”
Cadaret Grant has agreed to pay a $500,000 penalty, $13,194 in disgorgement and interest as well as being censured.