SEC Files Broker Fraud Charges Alleging Unsuitable Investments Involving Exchange Traded-Funds and Exchange Traded-Notes

The US Securities and Exchange Commission has filed charges against broker Demitrios Hallas accusing him of making unsuitable investments in five clients accounts and misappropriating over $170K from these customers. The regulator is seeking a permanent injunction and the return of ill-gotten gains, along with interest and penalties.

According to the SEC, Hallas repeatedly traded investments that were not appropriate for these customers. In just over a year, the broker allegedly traded 179 daily leveraged ETFs and ETNs. both of which are generally “risky, complex, and volatile.” The net loss involving all positions was about $150K.

His customers were not experienced or sophisticated investors and they could not handle the degree of volatility and risk to which he exposed them. Meantime, Hallas made about $128K in fees and commission.

The SEC also claims that Hallas misappropriated over $170K from one of the customers, placing the money in his own accounts to spend as he desired rather than investing the money for the client.

Exchange-Traded Notes
These are financial institution’s unsecured debt obligations. They are different from traditional corporate bonds because their return rates is determined by the performance of a benchmark or reference index instead of a stated interest rate Typically, holders are not paid interest with ETNs. Potential risks that come with investing in ETNs may involve: degree of complexity, a creditworthiness is subject to the financial institution issuing the ETN, market risks, leverage exposure, price volatility, and liquidity risks. ETN investments are not suitable for everyone. There also are certain fees and commissions that come with them of which you should be aware.

Exchange-Traded Funds
Although there are benefits to investing in exchange-traded funds, these investments are also not right for everyone. They too come with certain markets risk and may expose an investor to other areas of the market that that he/she wouldn’t normally be exposed to from investing in traditional, safer investments.

You want to make sure you know what you are getting into when investing in ETFs or ETNs. If you suspect your investment loses are due to ETF fraud or ETN fraud, contact our broker fraud law firm today.

Read the SEC’s Complaint in the Hallas Case (PDF)