RBC Capital Markets LLC has agreed to pay US$2.9 million in restitution to investors over alleged unsuitable sales of inverse and leveraged exchange traded funds in a settlement with securities authorities in Massachusetts.
According to a consent order published Wednesday by the Massachusetts Securities Division, RBC settled with the state regulators, resolving allegations of unsuitable sales of inverse and leveraged ETFs, and supervisory failures. It neither admitted nor denied the allegations against it.
The order alleges that RBC allowed its registered reps to sell these sorts of non-traditional ETFs to clients without the reps completely understanding how the products worked, and whether they were suitable for clients with conservative or moderate investment objectives. Regulators have warned that these products carry risks that are not found in traditional ETFs.
In this case, regulators allege that the firm, and one of its reps, recommended unsuitable products to clients. It also says that the firm failed to supervise reps’ sales of these products.
In settling the case, RBC agrees to offer to reimburse clients for their losses, pay an administrative fine of $250,000, and to permanently cease and desist from securities law violations. Allegations remain outstanding against the former rep in the case.
The deal comes on the heels of settlements between the Financial Industry Regulatory Authority and four Wall Street firms for similar violations that was announced Tuesday.