Arkadios Capital Sanctioned by FINRA for Reg BI Failures Involving Complex ETFs

A recent disciplinary action by the Financial Industry Regulatory Authority (FINRA) has placed Arkadios Capital, LLC (CRD #282710) under regulatory scrutiny for supervisory failures tied to the recommendation of complex exchange-traded funds (ETFs). The settlement, resolved through a Letter of Acceptance, Waiver, and Consent (AWC), highlights the critical nature of Regulation Best Interest (Reg BI) and the strict obligation of firms to protect retail investors from high-risk products.

The Core Issue: Supervision of Leveraged and Inverse ETFs

According to FINRA findings, from September 2022 through March 2024, Arkadios Capital failed to maintain a supervisory system reasonably designed to ensure compliance with the Care Obligation of Reg BI when recommending leveraged and inverse exchange-traded funds, also known as Non-Traditional ETFs.

Leveraged and inverse ETFs are complex instruments typically designed for short-term, intraday trading. Due to the effects of compounding, these products can behave unpredictably if held for longer than a single trading session, often making them unsuitable for retail investors with long-term goals or moderate risk tolerances.

Specific Regulatory Findings

The AWC details several key failures by Arkadios Capital during the period under review:

Inadequate Monitoring: The firm lacked the supervisory tools necessary to monitor whether Non-Traditional ETFs were being held for extended periods in retail customer accounts.

Lack of Training: Arkadios failed to provide adequate training to its registered representatives regarding the unique risks and features of these complex products.

Holding Period Violations: Representatives recommended these daily-reset products to retail investors, including seniors, who held them far longer than intended, sometimes for months, resulting in significant financial harm.

Sanctions and Restitution

As a result of these findings, Arkadios Capital consented to the following sanctions without admitting or denying the allegations:

– A Censure.
– A $25,000 Fine.
– Restitution of $20,571.29 plus interest, to be paid to impacted customers.

What This Means for Investors

While FINRA has ordered a specific amount of restitution, this regulatory settlement does not prevent individual investors from pursuing their own recovery options. In many cases, regulatory restitution represents only a portion of the total losses an investor may have sustained.

Investors who experienced losses involving leveraged or inverse ETFs at Arkadios Capital may still have the right to pursue additional recovery through FINRA Arbitration.

If you invested in Non-Traditional ETFs through Arkadios Capital and suffered losses, Sonn Law Group is available to review your situation and discuss potential recovery options.