American Portfolios Financial Services Settles SEC Charges Related to the Sale of Volatility-Linked Exchange-Traded Products

Posted on November 18th, 2020 at 12:54 PM
American Portfolios Financial Services Settles SEC Charges Related to the Sale of  Volatility-Linked Exchange-Traded Products

From the Desk of Jim Eccleston at Eccleston Law LLC:

American Portfolios Financial Services, Inc. (“APFS”) has agreed to settle charges brought by the U.S. Securities and Exchange Commission (“SEC”). The SEC alleged that APFS failed to reasonably supervise its advisors who recommended that clients buy and hold a complex exchange-traded product (“ETP”) without a reasonable basis for believing the product was suitable for those clients. The SEC also alleged that APFS failed to reasonably implement its supervisory policies and procedures regarding the sale of ETPs.

According to an Order entered by the SEC, APFS advisors recommended that clients make long-term investments in a security called iPath S&P 500 VIX Short-Term Futures ETN (“VXX”). Between January 2016 and February 2020, approximately 60 APFS clients purchased VXX and held it for an average of just under one year. According to the SEC Order, those accounts lost more than 42% of the value invested in VXX. Due to the nature of VXX, its value was likely to decrease when held for longer than very short periods, the SEC said.

The SEC found that APFS did not subject VXX to a review process, and that the firm failed to identify VXX as complex “such that registered representatives and supervisors could properly assess suitability and other issues.” The SEC further found that APFS failed to adopt and implement policies and procedures which were reasonably designed to prevent advisors from making unsuitable recommendations of complex ETPs.

As part of the settlement, APFS was ordered to pay a civil penalty of $650,000, disgorgement of $2,588, and prejudgment interest of $484. The SEC also ordered that a Fair Fund be created, in which investors who lost money as a result of the aforementioned violations could be compensated from the monetary sanctions paid by the firm. APFS consented to the entry of SEC’s Order without admitting or denying the findings made in the Order.

Tags: eccleston, APFS, SEC, sales

Return to Archive



I am so glad I found you! Wow! I appreciate your help, concern and guidance.



February 22, 2024
Key Considerations for Advisors When Assessing the Financial Soundness of Annuities

While rating agencies like Fitch and S&P Global Ratings generally highlight the strength of annuity issuers, advisors still should scrutinize certain factors in their assessment process.

February 21, 2024
SEC Alleges Fraud Against Morgan Stanley and Former Executive in Block Trading Business

As reported by the Wall Street Journal, the Securities and Exchange Commission (SEC) has charged Morgan Stanley & Co. LLC and its former head of equity syndicate desk, Pawan Passi, with a multi-year fraud involving the disclosure of confidential information related to block trades.

February 20, 2024
Challenges Persist: Firms Struggle to Comply with Regulation Best Interest

FINRA's annual report for 2024 reveals a concerning trend among broker-dealers, with numerous instances of violations of Regulation Best Interest (Reg BI).