No Reasonable Basis. No Registration. Commissioner Denies Adviser’s Registration Due to Unsuitable Trading in leveraged ETFs

Dec 2

Lyle Boudreaux of Houston, Texas consented to the denial of his registration as an investment adviser and agent with the Securities Commissioner. The denial is part of a consent order that Texas Securities Commissioner, Travis J. Iles, entered on December 1, 2020.

From February 2016 through April 2017, as an investment adviser representative of Independent Financial Group, LLC, Boudreaux traded leveraged ETFs in client accounts.

Leveraged ETFs are securities that use financial derivatives and debt to amplify the returns of an underlying index.

UVXY is a leveraged ETF that 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 daily monitoring, Boudreaux held shares in UVXY for an average of eleven months, or 335 days, across client accounts. Boudreaux did not have a reasonable basis for holding the UVXY shares for such a long time and despite the warning contained in the prospectus.

He also concentrated clients’ accounts in UVXY, breaching the risk tolerances clients were willing to endure.

For one client, Boudreaux held UVXY shares for 316 days, resulting in a loss of 92% of the client’s investment in UVXY and 66% of the client’s account value.

In addition to the denial of his registration, Boudreaux agreed to not reapply for registration as a dealer, investment adviser, agent, or investment adviser representative in Texas for a period of one year and to abide by additional supervisory requirements related to the purchase of non-traditional ETFs in connection with any future registration.