Erez Law files FINRA Arbitration Case Against Wells Fargo Advisor Jose Antonio Vidal for Unsuitable Recommendations in ETFs
Posted on Friday, April 7th, 2017 at 8:41 am
Erez Law recently filed a FINRA claim against Wells Fargo financial advisor Jose Antonio Vidal (CRD# 2858442) regarding unsuitable investments between 2009 through 2016. Vidal has been registered with Wells Fargo in Coral Gables, Florida since 2009 and was previously with Merrill Lynch in Miami, Florida between 1997 and 2009.
The Erez Law client, a couple with seven children, entrusted Vidal with a substantial portion of their liquid savings. According to the claim filed with FINRA, Vidal invested the couple’s savings in risky leveraged (exchange traded funds) ETFs and inverse leveraged ETFs. The ETFs that Vidal concentrated the couple’s investments were so bad that Wells Fargo admitted that they stopped selling them to their clients, but only the clients lost hundreds of thousands of dollars. Vidal also recommended the couple move their investments out of a managed account to a commission-based account.
ETFs are typically registered unit investment trusts (UITs) or open-end investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index. Leveraged ETFs seek to deliver multiples of the performance of the index or benchmark they track. Inverse ETFs seek to deliver the opposite of the performance of the index or benchmark they track, profiting from short positions in derivatives in a falling markets. Wells Fargo sold billions of dollars of these ETFs to customers, some of whom held them for extended periods of time when the markets were volatile. Leveraged and inverse ETFs have certain risks not found in traditional ETFs, such as the risks associated with a daily reset, leverage and compounding.
The couple was allegedly looking for low-risk and non-speculative investments that would grow their retirement savings and inheritance without risk. Despite this, it is alleged that Vidal decided to speculate and take undue risks with the couple’s money, implementing a reckless and unsuitable strategy of wagering on leveraged ETFs and leveraged inverse ETFs. He also employed a “leverage on leverage” strategy where he advised the couple to take a credit line against their investments for liquidity needs, and advised the couple to purchase investments that added to the risk of their savings. A leverage on leverage strategy is dangerous and was not suitable for the couple in light of their financial needs, circumstances, objectives, risk tolerance and other factors. With this strategy, if an investment goes south, the customer is forced to liquidate investments at a loss so they can pay down the loan. This result means that the customer did not have sufficient funds to bear the risk of the loan or the investment that collateralized the loan.
Despite the risks associated with holding leveraged and inverse ETFs for longer periods in volatile markets, certain customers of Wells Fargo and other firms, including the Erez Law client, held leveraged and inverse ETFs for extended time periods in 2008 and 2009. Vidal invested the client’s money in ProShares Ultra Dow 30, which seeks to return 200% of the Dow 30 Index, Direxion Daily Large Cap Bear 3X, which seeks the return of 300% of the opposite of the S&P 500 Index, and ProShares Ultra Short S&P500, which seeks the return of 200% of the opposite of the S&P 500. He also advised the purchase of other investments that failed to properly diversity the couple’s risk in a way that was suitable for their needs and objectives. It is alleged that by Erez Law that these recommendations were neither conservative nor moderate investments for the unsophisticated investors. Vidal and Wells Fargo failed to disclose the extreme risk and features of leveraged and inverse ETFs to the Erez Law client.
In 2012, FINRA sanctioned Wells Fargo and other brokers more than $9.1 million for selling leveraged and inverse ETFs without reasonable supervision and for not having a reasonable basis for recommending the securities, according to a statement on their website. Wells Fargo was sanctioned to pay a $2.1 million fine and $641,489 in restitution to its customers.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Wells Fargo may be liable for investment or other losses suffered by Vidal’s customers.
Erez Law represents investors in the United States for claims against Wells Fargo financial advisor Jose Antonio Vidal, who is alleged to make unsuitable investments. If you were a client of Wells Fargo financial advisor Jose Antonio Vidal or another firm, and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.