BROKER REPORT: FINRA Files Case Against Financial Advisor Richard William Martin for Recommending Non-Traditional ETFs

The securities fraud attorneys at Malecki Law are interested in hearing from investors who have complaints against stockbroker Richard William Martin.  Mr. Martin was most recently employed and registered from July 2009 to July 2015 with G.F. Investment Services, LLC from an office in Penang, Malaysia, according to his publicly available BrokerCheck, as maintained by the Financial Industry Regulatory Authority (FINRA).  According to BrokerCheck records, Mr. Martin was permitted to resign amid allegations concerning FINRA’s Case No. 20150445876 which “appears to be centered around ETF trades.”

According to the FINRA Complaint, Mr. Martin violated FINRA Rules 2310 and 2111 related to suitability of recommendations by “not having a reasonable basis to recommend, for long-term holding, non-traditional exchange traded funds (‘Non-traditional ETFs’).”  The FINRA Complaint details that Mr. Martin believed the world economy was “on the precipice of catastrophe and his customers should invest and hold Non-traditional ETFs to hedge against the impending catastrophe.”

The FINRA Complaint detailed that ETF shares generally represent an interest in a portfolio of securities that tracks an underlying benchmark or index, such as the S&P 500.  Non-traditional ETFs differ in that they are more complex investment products that rely on strategies, such as interest rate swap agreements, futures contract, and other derivative instruments, to attempt to return a multiple and/or inverse of an underlying benchmark.  This would generally make non-traditional ETFs subject to more risk, and therefore may not be suitable for certain investors.

According to the FINRA complaint, “virtually all of his customers were heavily concentrated, ranging from 75% to 99%, in Non-traditional ETFs by approximately March 2011, and Mr. Martin recommended that these customers hold the positions from 2011 through 2015.

In statements made to InvestmentNews in article published on June 28, 2016, Mr. Martin said:

“Every single client had signed an account opening form indicating his desire to engage in speculative trading,” he said, adding that “clients, very simply, lost money” in ETF trades and short selling.

Brokers are obligated by FINRA Rule 2111 to recommend securities that are suitable for their customers.  To ensure recommendations are suitable, each broker must consider a client’s age, tax status, net worth, investment experience, and risk tolerance, among other factors.

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