Sanctuary Wealth To Pay $530K Over Alleged Supervisory Failures Involving Exchange-Traded Fund Sales

Sanctuary Wealth Ordered To Pay Over $370K in Restitution to ETF Customers

Independent broker-dealer Sanctuary Wealth, formerly David A. Noyes & Co., has been censured by the Financial Industry Regulatory Authority (FINRA). It must now pay a $160K fine and over $370K in restitution for its failure to supervise certain financial products, including leveraged and inverse exchange-traded funds (ETFs), and its brokers’ external activities.

According to the self-regulatory organization (SRO), going as far back as 2014 through the end of 2018 the brokerage firm failed to address in a “reasonable” manner the “unique features and risks” involving selling inverse and leveraged ETFs, which Sanctuary was required to do according to FINRA’s Rule 2111 regarding suitability. 

Because of this, contends FINRA, about 30 brokers recommended some $5M in ETF purchases to customers, who ended up holding them for extended periods and suffering significant financial losses.  

Meanwhile, through these approximately 600 purchases in 150 customer accounts, Sanctuary Wealth earned $60K in commissions. It wasn’t until late 2018 that the brokerage firm barred its financial advisors from buying ETFs for its customers. 

FINRA also found that Sanctuary Wealth did not have a reasonable system in place, nor did it properly train brokers so that the suitability of non-traditional ETF recommendations for customers could be properly determined. 

While inverse and leveraged exchange-traded funds can magnify returns, they can also increase losses. They are not meant to be long-term investments and ideally, should be held for only a day. This makes them unsuitable for most retail and conservative investors who cannot handle huge losses.  

Ex-David A Noyes Broker Stuart Pearl Unsuitably Sold ETFs to Investors 

The censure and fine come just days after FINRA settled with ex-David A. Noyes broker, Stuart Pearl, for improperly selling leveraged ETFs that cost customers $80K after they held these investments for too long.  In addition to a three-month suspension, Pearl was fined $5K. Sanctuary Wealth let him resign from the firm in 2019. 

FINRA also said that the broker-dealer didn’t properly review its brokers’ outside business activities to make sure that there were no conflicts that could harm brokers and that it committed private placement-related violations that could have harmed investors. 

Leveraged and Inverse ETFs Are Not Suitable for All Investors 

If you suffered ETF losses while working with a Sanctuary Wealth broker or another financial advisor, contact Shepherd Smith Edwards and Kantas (SSEK Law Firm at invesetorlawyers.com) today. We have successfully helped investors from the United States and abroad recoup losses they suffered after being unsuitably recommended exchange-traded funds by their financial advisors. 

Call us at (800) 259-9010 or contact us online.