According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Raymond Smith (Smith), currently associated with Smith, Brown & Groover, Inc., has at least one disclosable event. These events include one regulatory, alleging that Smith recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on November 06, 2024.
Without admitting or denying the findings, Smith and his member firm consented to the sanctions and to the entry of findings that they recommended a trading strategy, developed by Smith, to their customers without fully understanding the features and risks of the strategy or the exchange-traded note (ETN) that the strategy primarily invested in, and without having a reasonable basis to recommend the strategy to any customer. The findings stated that the ETN was high-risk, complex, and designed to manage daily trading risk. The ETN’s prospectus and pricing supplement disclosed that it May not be suitable for investors who planned to hold it for longer than one day and that investors could lose all of their investment during a spike in volatility. Despite developing and implementing the trading strategy at the firm, Smith did not fully understand the ETN, including its basic features, such as how the issuer maintained its inverse exposure to the underlying volatility index or that the ETN was designed to achieve its stated investment objective on a daily basis. Furthermore, contrary to the guidance in the ETN’s disclosure documents, the firm and Smith invested customers in the ETN for extended periods of time, an average of 72 days, including through periods of high volatility. In addition, prior to its implementation, the firm and Smith conducted flawed testing of the trading strategy that relied on incomplete data and that over-estimated potential returns. As a result, the firm and Smith had a mistaken understanding of the risk/reward profile of the strategy. Customer accounts participating in the trading strategy were fully invested in the ETN when a surge in market volatility caused the ETN to drop in price and the issuer, in turn, to call the ETN. As a result, holders of the ETN, including the firm’s customers, suffered near total losses on their investments. The firm discontinued the strategy shortly thereafter. The findings also stated that the firm and Smith failed to reasonably supervise the suitability of the trading strategy by failing to establish and maintain a system, including WSPs, reasonably designed to achieve compliance with their suitability obligations. Smith was the firm’s only principal and solely responsible for its supervision. Despite recommending to its customers a trading strategy that invested in a high-risk ETN, the firm had no policy or procedure for conducting a reasonable-basis analysis for such a product. The firm also had no procedures to evaluate whether customers’ concentration in the strategy created a risk of loss inconsistent with the customers’ investment profiles. Although the firm had an informal concentration limit of 10 percent, that limit was not documented in the firm’s procedures and certain customers’ concentration limits exceeded that threshold. In addition, the firm and Smith did not reasonably train registered representatives regarding the trading strategy or the ETN.
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