On October 18, 2012, FINRA censured and fined Memphis, Tennessee Morgan Keegan & Co. (CRD# 4161) $365,000 for its failure to “establish and maintain a supervisory system” to achieve compliance with NASD/FINRA rules in connection with the sale of non-rraditional ETFs.
According to FINRA’s website, Morgan Keegan provided retail brokerage services and concurrently “failed to provide adequate training to its” representatives and supervisors “regarding the features, risk, and characteristics of non-traditional ETFs.”
ETFs are an investment vehicle that offers the flexibility of a stock with the diversity of a mutual fund. A traditional ETF is an index-tracking fund that trades like an individual stock on an exchange. A non-traditional ETF functions the same but also attempts to amplify, rather than match, the index it tracks. Non-traditional ETFs use complex strategies such as leverage, swaps, future contracts and other derivatives making them suitable only for sophisticated and speculative investors with a high risk tolerance.
The problem was that Morgan Keegan supervised the non-traditional ETFs in the same manner as it did the traditional ETFs. This supervisory system though was not tailored to address the unique features and risk of the non-traditional ETFs.
For more details, see FINRA Case #2009019113501.
Jason Doss is the owner of The Doss Firm, LLC, an Atlanta-based law firm devoted to representing consumers across the country in a variety of areas including investment disputes and consumer class action litigation. Mr. Doss earned his J.D. from Florida State University in 2002 and his B.A. from the University of Florida in 1997.