Securities Lawyers Blog
According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor David Krumrey (Krumrey), in January 2018, was sanctioned by FINRA and barred from the financial industry concerning his failure to respond to an investigation into the sales of leveraged exchanged traded funds (Non-Traditional ETFs). Krumrey was previously terminated by his employer Oppenheimer & Co. Inc (Oppenheimer) because he attempted to settle a complaint away from the firm. In addition, Krumrey has been subject to five customer complaints concerning his securities activity. These investors have alleged in losses stemming allegations of unsuitable Non-Tradition ETF trading.
In January 2018 FINRA barred Krumrey for failing to respond to FINRA’s requests for information.
In January 2019 a FINRA panel rendered a ruling that Krumrey’s employer – Oppenheimer – was liable for investments he made to an investor. The claims involved claims of breach of fiduciary duty, negligence, negligent supervision, respondeat superior, unjust enrichment, and violations of the Louisiana Securities Law. The causes of action relate to securities including Amarin Corp. PLC ADR and Energy XXI Limited, and exchange-traded notes issued by Barclays.
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.
Some of the unsuitable investments appear to be in the Vixx volatility index (VXX). Trading in the Vixx is almost always unsuitable because the costs of the index over time causes it to fail to accurately track its benchmark volatility index. Thus, holding Vixx will almost always cause investment losses. Some of the claims also allege that personal loans were made to the broker that were never paid back.
Krumrey entered the securities industry in 2000. From March 2009 through September 2017 Krumrey was associated with Oppenheimer out of the firm’s The Woodlands, Texas office location.
The investment fraud attorneys at Gana LLP represent investors who have suffered securities losses due to the mishandling of their accounts. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.