American Portfolios Financial Services and American Portfolios Advisors Settle Charges

On November 13 2020, American Portfolios Financial Services and American Portfolios Advisors settled charges that it recommended and advised customers buy and hold a complex exchange-traded product (“ETP”) without a reasonable basis for believing the recommendation was suitable for their customers. Those customers lost significant portions of their investment. The representatives did not understand the product, misrepresented its risks and recommended it for a purpose inconsistent with that described in the product’s offering materials. APFS failed reasonably to implement its supervisory policies and procedures to address whether the registered representatives understood the product sufficiently to be able to form a reasonable basis to recommend that retail brokerage customers buy and hold the ETP. In addition, APA failed to adopt and implement policies and procedures regarding the suitability of complex ETPs for advisory clients.  APA maintained a compliance manual, but failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and its rules regarding the suitability of recommending investments in complex ETPs for retail advisory clients in light of their investment objectives, risk tolerance, and financial condition. Additionally, APA failed to dedicate adequate resources to the training of investment adviser representatives and their supervisors concerning complex ETPs even though it knew certain investment adviser representatives were recommending that their retail clients buy and hold VXX for extended periods.  APA’s compliance manual contained no policies and procedures regarding complex products other than ETFs; no training requirements for ETPs; no provisions mandating a process by which the firm reviews or approves new products; and no procedures by which the firm could identify and track holding periods. APA also had no policies and procedures for documenting suitability assessments, no process to track holding periods, and no process for identifying products that posed special risks. In all, 62 APA retail advisory accounts invested in VXX lost a portion of their investment in the product. On average, APA advisory clients held VXX in their accounts for just under a month with some holding VXX for up to 17 months.  APFS and APA agreed to pay a total of $653,072 of disgorgement, which $600,000 is a penalty and disgorgement of about $3,000.  []