The Financial Industry Regulatory Authority (FINRA) sanctioned broker Michael Zukowski (Zukowski) concerning allegations that Zukowski recommended unsuitable transactions in inverse and inverse-leveraged Exchange Traded Funds (Non-Traditional ETFs) in the accounts of his customers.
Zukowski first became registered with FINRA as a securities representative in 1989. Thereafter, from July 2005 to November 2010, he was registered in that same capacity through RBC Capital Markets, LLC (RBC) where he worked in the firm’s Massachusetts office. On December 23, 2010, RBC filed a Termination Notice (Form U5) stating that Zukowski was permitted to resign for “failure to meet Firm expectations.”
On August l8, 2011, RBC filed a an amended disclosure stating that an Administrative Complaint filed by the Massachusetts Securities Division (MSD) stated that: “The Massachusetts Securities Division alleged Michael Zukowski made unsuitable recommendations to brokerage and advisory clients regarding the purchase and sale of leveraged, inverse and inverse-leveraged exchange traded funds.” Thereafter, on November 12, 2012, Zukowski entered into a Consent Order with the MSD concerning the allegations of unsuitable recommendations where Zukowski consented to sanctions including a Cease and Desist and a five year bar to act as a “broker-dealer agent, investment adviser, investment adviser representative and issuer-agent” in the State of Massachusetts. Finally, on November 16, 2012, RBC filed another amended Form U5 and disclosed a written complaint by two customers indicating that the “Clients allege material omissions and unsuitable advice regarding non-traditional ETFs, in period 2/2009 to 12/2009.”
According to Zukowski’s BrokerCheck Zukowski has had at least nine complaints filed against him. Generally only a small fraction of all brokers have customer complaints filed against them. Moreover, the number of brokers who have multiple complaints filed against them is extremely small.In this case, FINRA found that from about October 2007, through about September 2009, Zukowski recommended approximately 976 purchase and sell transactions involving Non- Traditional ETFs to 28 customers without performing reasonable due diligence to understand the risks and features of the Non-Traditional ETFs. FINRA has stated on numerous occasions that these speculative products contain substantial and unusual risks including the risks associated with the daily reset and leverage components. Accordingly, FINRA found that Zukowski’s transactions lacked a “reasonable basis” and were unsuitable.
Additionally, FINRA found that certain of the 976 recommendations were also unsuitable on a customer-specific basis. Specifically, FINRA alleged that Zukowski recommended 488 Non-Traditional ETF purchase transactions to the 28 customers who had investment objectives of conservative growth and long-term growth. Where the prospectuses for the Non-Traditional ETFs sold highlighted that the funds sought investment results for a single day only and outlined several risks to investors who held their funds for more than one trading session. Notwithstanding these disclosures, 271 of Zukowski’s Non-Traditional ETF recommendations were purchases that were held in the accounts of the 28 customers for periods of longer than seven business days and had an average holding period of 27 days. FINRA found that the 28 customers lost approximately $1,094,490 on these investments.
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