Broker Investigation: Financial Advisor James Dresselaers

shutterstock_185582-300x225According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker James Dresselaers (Dresselaers) is under FINRA investigation and subject to one customer complaint.  Dresselaers is currently employed by H. Beck, Inc. (H. Beck).  The FINRA investigation is looking into potential violations of NASD Rules 2310 and 2110 or Rules 2111 and 2010 relating to the suitability of recommendations to purchase securities made to one customer.  In December 2015 a customer filed a complaint alleging Dresselaers that recommended unsuitable investments in exchange traded funds and equity securities.

A common problem with exchange traded funds is a subset of investments called leveraged exchanged traded funds (Non-Traditional ETFs).  As a background, Non-Traditional ETFs behave drastically different and have different risk qualities from traditional ETFs.  While traditional ETFs seek to mirror an index or benchmark, Non-Traditional ETFs use a combination of derivatives instruments and debt to multiply returns on underlining assets, often attempting to generate 2 to 3 times the return of the underlining asset class.  Non-Traditional ETFs are also used to earn the inverse result of the return of the benchmark.

However, the risks of holding Non-Traditional ETFs go beyond merely multiplying the return on the index.  Instead, Non-Traditional ETFs are generally designed to be used only for short term trading as opposed to traditional ETFs.  The use of leverage employed by these funds causes their long-term values to be dramatically different than the underlying benchmark over long periods of time.  For example, between December 1, 2008, and April 30, 2009, the Dow Jones U.S. Oil & Gas Index gained two percent while the ProShares Ultra Oil and Gas, a fund seeking to deliver twice the index’s daily return fell six percent.  In another example, the ProShares UltraShort Oil and Gas, seeks to deliver twice the inverse of the index’s daily return fell by 26 percent over the same period.

Because of these risks, The Securities Exchange Commission (SEC) has warned that most Non-Traditional ETFs reset daily and FINRA has stated that Non-Traditional ETFs are typically not suitable for most retail investors.  Consequently these funds typically have very limited uses and in many cases are completely inappropriate for retail investors who have long term objectives.  Increasingly, brokerage firms are prohibiting the solicitation of these investments to its customers due to suitability concerns.

The number of complaints against Dresselaers are unusual compared to his peers.  According to newsources, only about 7.3% of financial advisors have any type of disclosure event on their records among brokers employed from 2005 to 2015.  Brokers must publicly disclose reportable events on their CRD customer complaints, IRS tax liens, judgments, investigations, and even criminal matters.  However, studies have found that there are fraud hotspots such as certain parts of California, New York or Florida, where the rates of disclosure can reach 18% or higher.  Moreover, according to the New York Times, BrokerCheck may be becoming increasing inaccurate and understate broker misconduct as studies have shown that 96.9% of broker requests to clean their records of complaints are granted.

Dresselaers entered the securities industry in January 1983.  Since 2003 Dresselaers has been associated with H. Beck out of the firm’s Bethesda, Maryland office location.

At Gana LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts.  Claims may be brought in securities arbitration before FINRA.  Our consultations are free of charge and the firm is only compensated if you recover.