Broker-Dealers Pay $3 Million For ETP Claims (VXX) (VIXY)

Broker-Dealers Pay $3 Million For ETP Claims (VXX) (VIXY)

Investors have access to many more products now than ever. One of these products is ETPs (Exchange-Traded Products). Unfortunately, investigations by investment fraud law firms led to shocking findings concerning the sales practice of broker-dealers of iPath S&P 500 VIX Short-Term Futures ETNs (VXX) and VelocityShares Daily Inverse VIX Short Term ETNs and Proshares VIX Short-Term Futures ETFs (“VIXY”) to their clients. Customers alleged that between January 2016 and April, they were told to hold ETPs for long periods and were not aware of the risks.

In separate settlements with the United States Securities & Exchange Commission (SEC), these firms have been asked to pay a total sum of $3M for their actions. The firms did not deny or admit to allegations. Here is a list of the alleged firms:

  • Summit Financial Group
  • Royal Alliance Associates
  • American Portfolio Advisers/American Portfolio Financial Services
  • Royal Alliance Associates
  • Benjamin F. Edwards & Co.

What Investors Should Know About ETP & ETN Risks

ETPs are typically very volatile; the price will move dramatically with the stock market’s volatility. Also, when they are held on to for long, they depreciate.

The SEC held that the accused firms used their authority as experts to advise clients to make the purchase also told their clients to keep the ETPs for a long time. A further probe into the commission’s case found the firms guilty of not formulating and implementing policies suitable for these highly volatile ETPs.

Breach of Trust Allegations For VXX & VXXY

The brokers approved and sold iPath S&P 500 VIX Short-Term Futures ETNs (VXX) to their clients. It is an ETN (Exchange-traded notes) specifically structured to offer investors exposure to stock market volatility. The VXX, which can be purchased and sold just like stock shares, is designed to be a debt instrument.

The VXX mentioned above has been considered one of ETPs’ most volatile and probably the largest in 2019. Experts say it to be among the ETPs that performed the poorest from the past year.

The SEC alleged that the American Portfolio Advisors and the American Portfolio Financial Services were not properly bringing their registered ETPs sales reps. The firms decided to pay a penalty of $650k. They were also fined an extra $2500 for pre-judgment interest and disgorgement. The fine of $650k was ordered to be paid by Benjamin F. Edwards & Co. It is also meant to pay $35k for disgorgement and pre-judgment interests.

Securities America and Summit Financial were charged to pay $600k each. They made about ninety-two clients hold their ETPs for a very long period, making ninety-one of them incur heavy investment losses. Combining pre-judgment interest and disgorgement for Summit clients, a total of $3700 is to be paid as extra.

The accounts of 156 Securities America’s customers sustained heavy losses due to the ETPs during the period of issuance. Pre-judgment interest and disgorgement for Securities America hit an estimated $3,776.82.




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