Manager fined for failing to supervise ETF sales

By Staff | September 7, 2012 | Last updated on September 7, 2012
2 min read

FINRA has fined and suspended a U.S. branch manager, Keith Leon Bobo, Jr., for failing to supervise the sale of leveraged ETFs.

Read: U.S. regulator takes on leveraged ETFs

Bobo was registered by Morgan Keegan, and worked at its Texas branch. He was in charge of supervising six registered reps and three operations staff, as well as servicing his own accounts.

When it came to ETF sales, the company required all managers to do a monthly review of customer accounts. He had to keep an eye out for irregular or increased activity, and had to ensure customers were suited for their purchases by looking at their ages, risk tolerances and finances, among other factors.

For more than a year, however, Bobo failed to supervise one of the reps under his charge.

Read: Advisors must understand ETF risks

From February 2009 to April 2010, FINRA says rep Michael Douglas Venable sold both leveraged and inverse leveraged Direxion ETFs to “14 Firm customers. [It was considered] a highly speculative and volatile exchange traded fund. Venable exercised improper discretion in 12 of the 14 accounts, effected excessive transactions in one account, and recommended unsuitable transactions in ten of them.”

Read: Broker in hot water over leveraged ETFs

The case agreement says Bobo—who claimed to be reviewing customer accounts—should have flagged the frequency and volume of Venable’s trading, as well as the risks associated with the particular fund. He failed to take adequate steps to determine if clients’ best interests were being considered, only questioning Venable lightly about the transactions.

Read: 9 best practices for selling ETFs

As a result, Bobo was handed a $10,000 fine and 30-business-day suspension in any principal or supervisory capacity with any FINRA regulated firm.

In light of this and similar cases, SEC and FINRA issued an alert about the performance and objectives of leveraged and inverse ETFs. Regulators say investors should be aware the performance of these funds over a period longer than one day could differ significantly from their stated daily performance objectives. Read more.

Read: Laurentian fined for insufficient ETF training staff


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