[ by Melanie Gretchen ]

A New Hampshire investment adviser must pay $1.8 million to a group of investors, a FINRA arbitration panel found liable. All told, 9 investors, some of whom are in their fifties and sixties, including 2 widows, were defrauded in the sale of risky ETFs.

FINRA Findings and Allegations. Nicholas Rowe and his firm, Focus Capital Wealth Management Inc, of Bedford, NH, managed $23.9 million in assets at the end of 2011, according to regulatory filings.  Since August, the New Hampshire Bureau of Securities Regulation has been trying to revoke the licenses of Rowe and his firm, after the Bureau received complaints from some of Rowe's customers about heavy losses caused by trading in the leveraged and inverse ETFs.

According to Craig McCann, a Fairfax, Virginia-based expert witness who testified on the investors' behalf, Rowe's strategy was doomed.

• Rowe increased the investors' risk by buying and holding the ETFs for as long as a few months
• The investment adviser effectively require betting on whether the market is going up or down

FINRA Sanctions. The $1.8 million award includes:

• $1.29 million for damages
• about $500,000 for legal fees, interest and costs that the investors collectively received

In a separate case, a New Hampshire court last week issued a temporary order barring Rowe and Focus from conducting business, other than to transfer or liquidate accounts, according to Jeff Spill, deputy director of the New Hampshire Securities Bureau.

"The rule of thumb is that if you plan on holding these funds any longer than a day, then they are not going to do what you think." -- Ben Johnson, director of ETF research at Morningstar Inc.

[C-I Note: Leveraged and inverse ETFs compose  $27 billion of the $1.29 trillion U.S. ETF market, according to Lipper, a mutual fund information company owned by Thomson Reuters.  However, selling buy-and-hold investors is risky business and courts have not been kind to investors.  Are investors to blame, as lawyers say many do not understand the magnitude of the risks, or do adivsers have enough precedent to steer clear?]

For further details, go to [Reuters, 12/3/12].