Lubbock Adviser Fined $40,000 for Failure to Supervise Accounts

Aug 5

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.  "Bill"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 (symbol: UVXY).

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 it 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 Bill 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.

Leveraged ETF Risks

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 NASAA 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.