LUBBOCK and AUSTIN, Texas — Lubbock-based Lowell & Company Inc. was fined $40,000 on Friday by state regulators according to official records from the Texas State Securities Board.
The TSSB also reprimanded Lowell & Company. President William H. Lowell and investment advisor Jody Bowers were mentioned by name in an official statement by TSSB.
A disciplinary order said the company invested money on behalf of two clients that were intended for the short term and needed to be monitored frequently. A prospectus from the investment warned that it should it should be actively managed “as frequently as daily.”
But the disciplinary order said Lowell & Company left the money unattended with one client losing 93 percent and a second client losing 98 percent.
The president signed the disciplinary order and a statement from the TSSB said the $40,000 fine has been paid.
CLARIFICATION: The TSSB issued an order which reprimanded Lowell & Company. Although the reprimand mentioned the names of two individuals, the reprimand was officially directed at the company.
CLICK HERE to see the order.
The following is an official statement from the Texas State Securities Board:
Lubbock Adviser Fined $40,000 for Failing to Supervise Accounts
Lubbock investment adviser Lowell & Company Inc. paid a $40,000 fine to the State of Texas for failing to supervise a representative who nearly wiped out the assets in two client accounts by holding onto an exchange-traded fund designed for short-term trading.
Besides the fine, the Aug. 2 Disciplinary Order entered by Texas Securities Commissioner Travis J. Iles reprimanded the firm. William H. Lowell is president of the firm.
Lowell & Co. violated its supervisory procedures by not reviewing the monthly account statements for the discretionary accounts managed by Jody Bowers, an investment adviser representative for the firm. Bowers has not been registered with the Securities Commissioner in any capacity since June 2018.
In two discretionary accounts for clients, Bowers was buying and selling shares of the Proshares Ultra VIX Short-Term Futures ETF, a leveraged fund.
Leveraged ETFs use financial derivatives and debt to magnify the returns of an underlying index.
The UVXY fund seeks to profit by capitalizing on volatility in the S&P 500 Index, which tracks the performance of 500 widely held large U.S. companies across the major sectors of the economy. The UVXY benefits when the S&P 500 index declines.
Although the prospectus for the UVXY states it is “intended for short-term use” and requires almost daily monitoring, Bowers held the fund in one client’s account for 987 days and sold the shares for a 93% loss.
In a second client’s account, Bowers held the UXVY for 356 days and lost 98% of the account’s value.
The firm failed to enforce its written supervisory procedures because neither William Lowell nor other supervisory personnel reviewed the monthly statements for discretionary accounts like the two accounts Bowers managed.
If the firm had reviewed the accounts monthly, it could have determined the UXVY was being held for longer than recommended and was causing losses in the two accounts.
NASAA Highlights Risks of Leveraged Exchange Traded Funds
The complexity and risk in leveraged and inverse ETFs “pose a great risk to investors,” according to a July 31 report by the North American Securities Administrators Association (NASAA). The report recommends tailored supervisory practices for broker-dealer firms that allow the sale of leveraged ETFs, but the report provides useful guidance for anyone registered to sell these types of ETFs.