Benjamin Edwards Settles Enforcement Action

On November 13, 2020, Benjamin Edwards settled an enforcement action whereby he failed reasonably to supervise certain of its representatives who made unsuitable recommendations to its retail brokerage customers and advisory clients that they buy and hold for extended periods two complex exchange traded products that were intended for short-term holding (the “Complex ETPs”). These Benjamin Edwards representatives made these recommendations to buy and hold the Complex ETPs without having a reasonable basis to do so. Similarly, the Benjamin Edwards representatives failed to make a reasonable determination that these investments were suitable for certain of the customers and clients to whom they recommended the Complex ETPs, based on those retail customers’ and clients’ investment objectives, risk tolerance, and financial condition. A number of these representatives also misled their customers and clients about the Complex ETPs’ benefits and risks. Benjamin Edwards failed reasonably to implement its supervisory policies and procedures to prevent and detect these violations. In addition, Benjamin Edwards failed to implement policies and procedures reasonably designed to prevent its advisory representatives from making unsuitable recommendations to its clients. The Complex ETPs were: (1) the iPath S&P 500 VIX Short–Term Futures ETN, which traded under the ticker symbol VXX, (“VXX”); and (2) the ProShares VIX Short-Term Futures ETF, which traded under the ticker symbol VIXY (“VIXY”). The offering documents for VXX and VIXY generally disclosed that the products carried a higher risk of significant losses if held for extended periods. Benjamin Edwards’s brokerage and advisory representatives misunderstood the Complex ETPs, or ignored these disclosures, and made unsuitable recommendations to customers and clients that they buy and hold the Complex ETPs in a way that was contrary to the offering documents’ warnings about long-term holding periods, and at times, in a way that was unsuitable for certain of their retail customers and clients in light of their investment objectives and risk tolerances. Edwards agreed to pay disgorgement, prejudgment interest, and a civil monetary penalty totaling $685,134 of which $650,000 is a penalty and disgorgement of about $30,000.  []