FINRA Bars Former Wedbush Broker Over $3.5 Million in Complex ETP Losses
From the desk of Jim Eccleston at Eccleston Law
The Financial Industry Regulatory Authority (FINRA) barred former Wedbush Securities broker William H. Sandeman after finding that his recommendations involving complex exchange-traded products caused 81 retail customers more than $3.5 million in losses.
According to a finalized FINRA Acceptance, Waiver and Consent (AWC) letter, Sandeman recommended the investments between December 2020 and January 2025 without adequately understanding their risks or considering his customers' investment profiles.
The Seattle-based broker recommended volatility-linked and non-traditional ETPs designed for short-term trading, according to AdvisorHub. Most of the affected customers had moderate or conservative risk tolerances, and 59 were senior investors. Most customers held the products for at least one year, while some held them for nearly four years.
FINRA found that Sandeman violated federal securities laws, including Regulation Best Interest (Reg BI), as well as FINRA Rule 2010, which requires brokers to observe high standards of commercial honor and just and equitable principles of trade.
Sandeman agreed to the bar without admitting or denying FINRA's findings, AdvisorHub reports.
Wedbush terminated Sandeman's registration in January 2025 over a "lack of confidence related to performance," according to FINRA. AdvisorHub reports that
FINRA began its investigation following an examination of Wedbush. The regulator did not name or sanction the firm.
Regulators have scrutinized recommendations involving volatility-linked and leveraged ETPs as long-term investments for years. Volatility-linked ETPs seek exposure to the Chicago Board Options Exchange Volatility Index by tracking VIX futures. Maintaining that exposure requires the products to sell futures and replace them with more expensive contracts, which can cause the investments to lose value over time.
Non-traditional ETPs seek leveraged or inverse returns over a single trading session.
FINRA said daily compounding can cause their longer-term performance to differ significantly from the underlying benchmark. FINRA said the prospectuses for the products Sandeman recommended disclosed those risks.
Sandeman's BrokerCheck record lists one customer dispute during the past 10 years involving ETF holdings. The customer sought $350,000, and the matter settled for $30,000. Sandeman did not contribute to the settlement.
According to AdvisorHub, Sandeman entered the securities industry in 1977 with Foster & Marshall. He later worked at PaineWebber from 1993 through 2000 before joining Wedbush, where he spent roughly half of his 48-year career.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
Tags: eccleston, eccleston law, finra, broker misconduct, complex etps, wedbush securities, finra disciplinary action
