Regulators giving increased scrutiny to ETNs in wake of volatility

JPMorgan has announced that it has stopped issuing shares in its Alerian MLP exchange-traded note. Regulators at the Securities and Exchange Commission and the Financial Industry Regulatory Authority have already announced that they are giving increased scrutiny to the ways in which ETNs are sold to consumers, according to a report in Investment News. The regulatory interest came following the closure of another ETN. In that situation, Credit Suisse VelocityShares Daily 2X VIX Short-Term ETN (TVIX) stopped issuing new shares, the price doubled and subsequently dropped dramatically when the ETN began issuing shares again. Closing of the Alerian MLP exchange-traded note by JPMorgan is likely to increase the volatility of the ETN.

States’ financial stress may put pressure on municipal bonds

At Vernon Litigation, we are concerned that States in distress – such as California – will push their problems down to the local level, which will in turn put tremendous stress on municipal bonds issued by municipalities within those states. If California’s current effort to convince its constituency to accept a tax hike to help the state get out from underneath a $15.7 billion deficit fails, then the next steps may have a large effect on municipal bonds emanating from California. Comparisons to Greece abound. A few other states may not be far behind in similarly dealing with this crisis.

FINRA sides with Apple non-traded REIT investor and against David Lerner

A Financial Industry Regulatory Authority panel sided for the investor against David Lerner Associates Inc. in the first case involving Apple REITs to go to a hearing. The FINRA panel ordered David Lerner to pay full compensatory damages of $24,450 to the investors and reimburse the investors for the filing cost. The panel did not award punitive damages, costs or attorneys fees in the claim filed by attorney Keith Griffin.

Vernon Litigation has been investigating fraud involving non-traded REITs for more than three years and has filed more than $5 million in non-traded REIT claims on behalf of investors. For more information, see our blog,

SEC exec recognizes some brokers don’t even understand all the products they’re selling

Financial conflicts of interest are rampant with both big and small broker-dealers. This results in broker-dealers selling products without adequate due diligence or even reckless or fraudulent due diligence.   

This often leads to financial advisors selling products without adequate or accurate information and, at times, selling products they don’t even understand.  An SEC executive seems to now agree.  

According to a story in Investment News today, Julius Leiman-Carbia, associate director in charge of the National Broker-Dealer Examination Program in the SEC's Office of Compliance Inspections and Examinations, told a panel discussion at FINRA’s annual meeting that he wonders if brokers really understand all the products they are selling.

The complex products being sold today are often very lucrative for the broker-dealers and their sales force to sell. This often blinds the securities industry to the fact that they are pushing investors into products that lack both transparency and liquidity, which are two of the major culprits of the financial crisis we recently experienced. 

It is as if the securities industry focused on how to improve its sagging profits coming out of the financial crisis as opposed to fixing the platforms and products it recommended to investors.

Vernon Litigation files arbitration claim against Wells Fargo on Naples investor sold $4 million in auction rate securities

Vernon Litigation filed an arbitration claim against Wells Fargo on behalf of two daughters whose elderly Naples, Florida father was sold $4 million — almost half his portfolio — in risky auction rate securities. For more on the claim, see Vernon Litigation Protecting