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Regulation and Compliance > State Regulation

Galvin Charges PKS Investments Over Reps' Leveraged ETF Sales

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What You Need to Know

  • PKS failed to supervise agents acting as dually registered reps for The Harvest Group Wealth Management, Galvin said.
  • Massachusetts investors lost more than $2.3 million through unsuitable investments in leveraged ETFs recommended by those reps, Galvin said.

William Galvin, Massachusetts’ top securities regulator, charged Purshe Kaplan Sterling Investments on Thursday for failing to supervise its dually registered broker-dealer agents’ outside business activities and their sales of leveraged ETFs.

According to an administrative complaint filed today by Galvin’s Securities Division, “PKS has for years failed to review transactions effected by agents whom the broker-dealer has allowed to act as dually-registered investment adviser representatives of the Harvest Group Wealth Management.”

While these transactions were conducted outside of the agents’ employment with PKS, “the employer had a duty to review these transactions as part of their supervisory responsibilities,” Galvin said.

Because of PKS’ failure to supervise agents’ outside business activities with the Harvest Group, Massachusetts investors have lost more than $2.3 million, according to Galvin’s office.

The losses were incurred as a direct result of unsuitable investments in leveraged exchange-traded funds, which are highly complex investments that should be monitored on a daily basis.

The Financial Industry Regulatory Authority has warned that leveraged ETFs “are typically unsuitable for average investors who plan to hold them for more than a day,” the complaint states. However, “the Harvest Group invested more than 340 client accounts in leveraged ETFs for days, weeks, months, and even a year,” Galvin said.

For years, PKS failed to review any of the private securities transactions of its dually registered agents at the Harvest Group, according to the complaint.

“After PKS finally amended its policies in 2019 to conduct risk-based reviews of dually registered advisers’ outside transactions, the company still failed to conduct any reviews that year, and conducted only one transaction review in 2020,” Galvin said.

PKS “utterly failed in its supervisory responsibilities of its [dually registered agents]. Massachusetts investors should not suffer because of PKS’ failures,” the complaint states.

Galvin is seeking to require PKS to provide full restitution to Massachusetts investors who suffered losses and also asking that PKS face censure and an administrative fine.