UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

INVESTMENT ADVISERS ACT OF 1940

Release No. 5627 / November 13, 2020

ADMINISTRATIVE PROCEEDING

File No. 3-20150

In the Matter of

SECURITIES AMERICA 

ADVISORS, INC.

Respondent.

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTIONS 203(e) AND 

203(k) OF THE INVESTMENT ADVISERS 

ACT OF 1940, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS AND 

A CEASE-AND-DESIST ORDER

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 

(“Advisers Act”) against Securities America Advisors, Inc. (“Respondent” or “SAA”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement of Securities America Advisors, Inc. (“Offer”), which the Commission has 

determined to accept. Solely for the purpose of these proceedings and any other proceedings 

brought by or on behalf of the Commission, or to which the Commission is a party, and without 

admitting or denying the findings herein, except as to the Commission’s jurisdiction over it and the 

subject matter of these proceedings, which are admitted, Respondent consents to the entry of this 

Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 203(e) 

and 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial 

Sanctions and a Cease-and-Desist Order (“Order”), as set forth below. 
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III.

On the basis of this Order and Respondent’s Offer, the Commission finds1that

Summary

1. This matter concerns SAA’s failure to adopt and implement policies and procedures 

reasonably designed to prevent investments in two volatility-linked exchange-traded products 

(“ETPs”) that were not suitable for SAA clients. SAA, among other things, failed to implement its 

policies and procedures that required SAA investment adviser representatives (“IARs”) to have an 

“adequate basis” to make recommendations to, and investments for, clients that were suitable in 

light of their investment profiles. SAA additionally failed to adopt reasonably designed policies 

and procedures directed specifically at volatility-linked ETPs. SAA clients suffered significant 

losses from investments in these products.

2. During the period from January 1, 2016, through February 28, 2018 (“Relevant 

Period”), SAA IARs invested clients in, or recommended for their clients, a volatility-linked 

security called the VelocityShares Daily Inverse VIX Short Term ETNs linked to the S&P 500 

VIX Short-Term Futures Index (“XIV”) and another volatility-linked security called the ProShares 

VIX Short-Term Futures ETF (“VIXY”). Like XIV, VIXY was tied to the performance of the 

S&P 500 VIX Short-Term Futures Index ER (“Index”). The Index offers exposure to futures 

contracts of specified maturities on the CBOE volatility index (“VIX”). The VIX attempts to track 

the expected volatility of the S&P 500, not the price level of the S&P 500 itself. XIV was an 

exchange-traded note (“ETN”) that was designed to provide a return that was based on the inverse 

of the daily performance of the Index. VIXY is an exchange-traded fund that unlike XIV, was 

designed to provide “results (before fees and expenses) that, both for a single day and over time, 

match the performance of the Index.” The offering materials for XIV provided that the product 

was for sophisticated investors to manage daily trading risks, and the offering materials for VIXY 

similarly provided that that product was for investors who understood the consequences of seeking 

exposure to VIX futures contracts and was for short-term investment horizons.

3. Throughout the Relevant Period, SAA failed to adopt and implement policies and 

procedures reasonably designed to prevent investments in, and recommendations of, volatilitylinked ETPs such as XIV and VIXY that were not suitable for SAA clients. SAA had no policies 

and procedures directed specifically at volatility-linked ETPs, even though it knew that certain of its 

IARs were investing in XIV and VIXY on behalf of retail clients or were recommending that retail 

clients buy and hold the products for extended periods. The firm also failed to implement existing 

policies and procedures to determine whether IARs were fulfilling their fiduciary obligations when 

investing clients in, or recommending, XIV and VIXY. Among other things, it failed to implement 

policies and procedures requiring that IARs have the training necessary for them to have an 

 

1 The findings herein are made pursuant to Respondent's Offer and are not binding on any other 

person or entity in this or any other proceeding.
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“adequate basis” to make recommendations to, and investments for, clients that were consistent 

with client investment objectives and risk profiles. SAA further failed to implement its policies and 

procedures that identified the products that could be traded in discretionary accounts, which did not 

include volatility-linked ETPs. SAA instead allowed discretionary trading in products such as XIV 

and VIXY. During the Relevant Period, SAA client accounts held XIV or VIXY for an average of 

32 days, and the total losses to clients who suffered losses from investments in XIV and VIXY

were significant.

4. Under the circumstances described above, SAA violated Section 206(4) of the 

Advisers Act and Advisers Act Rule 206(4)-7.

Respondent

5. SAA is a Nebraska corporation with its headquarters in La Vista, Nebraska. It is

and, during the Relevant Period, was an investment adviser registered with the Commission. 

SAA is owned by Securities America Financial Corporation. During the Relevant Period, 

Securities America Financial Corporation was a wholly owned subsidiary of Ladenburg 

Thalmann Financial Services Inc. (“Ladenburg Thalmann”), a financial services firm. On or 

about February 14, 2020, Advisor Group Holdings, Inc., which is owned by AG Parent 

Corporation, completed a merger with Ladenburg Thalmann, and Ladenburg Thalmann became 

a wholly owned subsidiary of Advisor Group Holdings, Inc.

Background

6. During the Relevant Period, IARs associated with SAA recommended, purchased,

and sold two volatility-linked ETPs, XIV and VIXY, for SAA-client accounts. The offering 

materials for XIV provided that the product was “for sophisticated investors to manage daily 

trading risks.” The offering materials for VIXY provided that “[a]n investor should only consider 

an investment in a Fund [including VIXY] if he or she understands the consequences of seeking 

exposure to VIX futures contracts” and that the product generally was “intended to be used only 

for short-term investment horizons.”

7. XIV and VIXY were both tied to the performance of the Index. The Index offers 

exposure to futures contracts of specified maturities on the VIX. The VIX attempts to track the 

expected volatility of the S&P 500, not the price level of the S&P 500 itself. Futures contracts on 

the VIX allow investors to invest in forward volatility based on their view of the near-future 

direction of the VIX. The performance of XIV and VIXY are, therefore, not linked directly to the 

VIX. The performance of the Index is based on a rolling portfolio of one-month and two-month 

futures contracts to target a constant weighted average of one month maturity. Thus, the Index 

does not purport to track or measure implied volatility in the medium or long term, as its name—

“Short-Term”—implies. Each day, the Index takes the prices of the two nearest-dated VIX futures 

contracts and uses them to calculate a hypothetical position that rolls the nearest month VIX 

futures contract to the next month.
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The XIV Volatility-Linked ETP

8. XIV was an ETN issued by Credit Suisse AG (“Credit Suisse”). It was designed to 

provide a return that was based on the inverse of the daily performance of the Index. XIV, 

however, had a feature that, under specified circumstances, allowed Credit Suisse, in effect, to 

accelerate and redeem the notes early and pay investors an amount equal to the “Closing Indicative 

Value” as of a designated valuation date. On February 5, 2018, those circumstances occurred, and, 

on February 6, 2018, Credit Suisse announced that it was accelerating, i.e., redeeming, the notes. 

The redemption price was $5.99 per note compared to the Closing Indicative Value of $108.2681

on the prior trading day.

9. The pricing supplement for each issuance of XIV included the following warning 

on the cover page:

The ETNs . . . are intended to be trading tools for sophisticated investors to manage daily 

trading risks. They are designed to achieve their stated investment objectives on a daily 

basis, but their performance over longer periods of time can differ significantly from their 

stated daily objectives. The ETNs are riskier than securities that have intermediate or longterm investment objectives, and may not be suitable for investors who plan to hold them for 

longer than one day. Accordingly, the ETNs should be purchased only by knowledgeable 

investors who understand the potential consequences of investing in volatility indices and 

of seeking inverse or leveraged investment results, as applicable. Investors should actively 

and frequently monitor their investments in the ETNs, even intra-day.

The summary of the key terms further included a description of circumstances under which Credit 

Suisse could accelerate and redeem the notes early: “[A]n Acceleration Event includes . . . if the 

Intraday Indicative Value is equal to or less than 20% of the prior day’s Closing Indicative Value.”
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The VIXY Volatility-Linked ETP

10. VIXY is an exchange-traded fund sponsored by ProShare Capital Management 

LLC. In contrast to XIV, VIXY was designed to provide “results (before fees and expenses) that, 

both for a single day and over time, match the performance of the Index.”

11. Similar to the pricing supplements for XIV, the prospectus for each issuance of 

VIXY included warnings about the product and the investors for whom it was intended, including 

a statement that 

[a]s with all investments, an investor in any of the Funds could potentially lose the full 

principal value of his/her investment, even over periods as short as one day. However, 

investors holding Shares of the Ultra Fund and the Matching Fund [VIXY] beyond shortterm periods have an increased risk of losing a substantial portion of their investment.

SAA Failed to Adopt and Implement Policies and Procedures

Concerning the Suitability of Volatility-Linked ETPs for Advisory Clients

12. Throughout the Relevant Period, SAA’s policies and procedures manuals were not 

reasonably designed to prevent violations of the Advisers Act, and the firm failed to implement its

existing policies and procedures.

13. SAA had no policies and procedures directed specifically at volatility-linked ETPs 

even though it knew that certain IARs were investing in XIV and VIXY on behalf of retail clients 

or were recommending that retail clients buy and hold the products for extended periods. 

14. SAA also failed to implement existing policies and procedures detailing the IARs

fiduciary obligations owed to clients. These policies and procedures provided that an investment 

adviser had an obligation “to make suitable recommendations to clients in light of their needs, 

financial circumstances and investment objectives” and “to have an adequate basis in fact for its 

recommendations.”

15. These policies and procedures, among other things, required IARs to consider a 

client’s risk tolerance, investment objective, age, net worth, and annual income. The policies and 

procedures included definitions and descriptions of various suitability criteria. Thus, for example, 

the policies and procedures set forth the criteria for clients with risk tolerances ranging from 

“conservative” to “speculative” and investment objectives ranging from “current income” to 

“maximum growth.” As reflected infra in paragraph 21, these policies and procedures were not 

reasonably implemented.

16. SAA further failed reasonably to implement the “adequate basis” element of its

policies and procedures concerning its fiduciary obligations. The firm did not extend its structured 

products training requirement to IARs who only engaged in secondary market purchases of 
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products such as XIV and VIXY, i.e., structured products that were not 100% principal-protected. 

The trading in XIV and VIXY at issue in this Order took place in the secondary market. In 

addition, SAA lacked other policies and procedures, such as ones requiring appropriate 

documentation, certification, or monitoring, to require that IARs had an “adequate basis” for their 

investment decisions and recommendations in light of their clients’ investment criteria.

17. SAA’s policies and procedures also did not authorize discretionary trading in 

products such as XIV and VIXY. The policies and procedures provided that “[a]s long as the SAA 

IAR [investment adviser representative] is properly licensed, discretionary trading is allowed on 

no-load mutual funds, load funds at net asset value, variable annuity sub-accounts, stocks, bonds 

and covered equity options.” XIV and VIXY thus were not among the products that IARs were 

authorized to trade on a discretionary basis, but SAA nevertheless failed to implement these 

policies and procedures to prevent discretionary trading in XIV and VIXY.

18. SAA’s failure to adopt and implement reasonably designed policies and procedures 

subjected retail advisory clients to significant risk, and many of them sustained significant losses 

from investments in XIV and VIXY.

Purchases and Sales of XIV and VIXY

19. During the Relevant Period, 56 SAA IARs purchased and sold XIV and VIXY in 

approximately 283 SAA client accounts.

20. Notwithstanding that SAA’s policies and procedures did not allow for trading in 

XIV and VIXY in discretionary accounts, there were more than 1,400 purchase and sale, i.e., 

round-trip, transactions in XIV and VIXY in at least 130 discretionary accounts.

21. SAA IARs who traded XIV and VIXY frequently did so without regard to SAA’s 

suitability criteria. IARs, for example, invested in or recommended XIV, VIXY, or both for clients 

with low risk tolerances or who had high concentration levels of the products. IARs, moreover, 

could change a client’s risk tolerance in SAA’s books and records without prior notice to the client. 

Although sometime after such a change, SAA typically sent the client a letter with the client’s 

updated profile information, the letter did not identify the specific change that had been made to 

the client’s profile. As a result, the client was not on notice of the change to which his or her 

attention should be directed.

a. In one instance, for example, SAA’s trade monitoring system generated an 

alert as a result of a trade in XIV of more than $118,000 that an investment adviser 

representative (“IAR”) had made for a client. The alert was issued because the trade meant 

that the standard deviation for the client’s portfolio exceeded SAA’s threshold for the 

client’s risk tolerance. The IAR, who had discretionary authority, was notified of the alert. 

Without prior notice to the client, the IAR then changed the client’s risk tolerance to 

“speculative,” and the trade was allowed with no further inquiry. Following the trade, SAA 

sent the client a letter that included the client’s updated profile information. The letter did 
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not identify the specific change to the client’s profile, and the client otherwise was unaware 

of the change to a “speculative” risk tolerance. The client in whose account the IAR 

purchased XIV was a couple in their mid-seventies with a net worth (exclusive of their 

home) of approximately $700,000. After changing the client’s risk tolerance, the IAR 

continued to trade XIV and VIXY in the account. For the Relevant Period, the client lost 

approximately $125,000 from the IAR’s trading in XIV and VIXY.

b. In another example, SAA’s trade monitor system generated multiple alerts 

for the size of trades in both XIV and VIXY for a client with an annual income of 

approximately $125,000 and a net worth of approximately $250,000. The IAR for the 

account had discretionary authority. The size of the IAR’s trades in XIV and VIXY 

typically exceeded $100,000. Throughout most of the Relevant Period, the holdings in 

XIV or VIXY represented approximately eighty-five percent of the value of the account. 

Notwithstanding the client’s income, net worth, and account holdings, the trades were 

allowed. For the Relevant Period, the client lost approximately $167,000 from the IAR’s 

trading in XIV and VIXY.

22. SAA IARs further traded XIV and VIXY without regard to the risks of holding 

these products for periods longer than those identified in the offering materials for these products. 

The average holding period in SAA client accounts was 32 days, and in several instances, the 

holding period exceeded 100 days.

23. In total, approximately 156 retail advisory accounts suffered significant losses from 

the trading in XIV and VIXY during the Relevant Period. 

SAA’s Violations

24. Section 206(4) of the Advisers Act and Advisers Act Rule 206(4)-7 require 

investment advisers to adopt and implement written compliance policies and procedures 

reasonably designed to prevent violations, by the investment adviser and its supervised persons, of 

the Advisers Act and its rules.

25. SAA willfully2violated Section 206(4) of the Advisers Act and Advisers Act Rule 

206(4)-7.

 

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“Willfully,” for purposes of imposing relief under Section 203(e) of the Advisers Act, “‘means no 

more than that the person charged with the duty knows what he is doing.’” Wonsover v. SEC, 205 F.3d 

408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)). There is no 

requirement that the actor “also be aware that he is violating one of the Rules or Acts.” Tager v. SEC, 

344 F.2d 5, 8 (2d Cir. 1965). The decision in The Robare Group, Ltd. v. SEC, which construed the term 

“willfully” for purposes of a differently structured statutory provision, does not alter that standard. 922 

F.3d 468, 478-79 (D.C. Cir. 2019) (setting forth the showing required to establish that a person has 

“willfully omit[ted]” material information from a required disclosure in violation of Section 207 of the 

Advisers Act).
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Remedial Efforts

In determining to accept the Offer, the Commission considered remedial acts promptly undertaken 

by SAA and cooperation afforded the Commission staff. In particular, SAA adopted policies and 

procedures that, with a few narrow exceptions, prohibited trading in volatility-linked ETPs.

IV.

In view of the foregoing, the Commission deems it appropriate, and in the public interest,

to impose the sanctions agreed to in SAA’s Offer.

Accordingly, pursuant to Sections 203(e), 203(i), 203(j), and 203(k) of the Advisers Act, it 

is hereby ORDERED that

A. SAA cease and desist from committing or causing any violations and any future 

violations of Section 206(4) of the Advisers Act and Advisers Act Rule 206(4)-7;

B. SAA is censured for violation of Section 206(4) of the Advisers Act and Advisers 

Act Rule 206(4)-7;

C. SAA shall pay disgorgement of $3,399.42 and prejudgment interest of $377.40, and 

a civil money penalty in the amount of $600,000, totaling $603,776.82 to the Securities and 

Exchange Commission. If timely payment is not made, additional interest shall accrue pursuant 

to SEC Rule of Practice 600. 

Payment must be made in one of the following ways:

1. SAA may transmit payment electronically to the Commission, which will 

provide detailed ACH transfer/Fedwire instructions upon request;

2. SAA may make direct payment from a bank account via Pay.gov through 

the SEC website at https://www.sec.gov/paymentoptions; or

3. SAA may pay by certified check, bank cashier’s check, or United States 

postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169
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Payments by check or money order must be accompanied by a cover letter identifying SAA as 

Respondent in these proceedings, and the file number of these proceedings; a copy of the cover 

letter and check or money order must be sent to Andrew B. Sporkin, Assistant Director, Division 

of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549-

6013, or such other address as Commission staff may provide.

D. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair 

Fund is created for the penalties, disgorgement, and prejudgment interest described above for 

distribution to affected client accounts. Amounts ordered to be paid as civil money penalties 

pursuant to this Order shall be treated as penalties paid to the government for all purposes, 

including all tax purposes. To preserve the deterrent effect of the civil penalty, SAA agrees that in 

any Related Investor Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or 

reduction of any award of compensatory damages by the amount of any part of SAA’s payment of 

a civil penalty in this action (“Penalty Offset”). If the court in any Related Investor Action grants 

such a Penalty Offset, SAA agrees that it shall, within thirty (30) days after entry of a final order 

granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of 

the Penalty Offset to the Commission. Such a payment shall not be deemed an additional civil 

penalty and shall not be deemed to change the amount of the civil penalty imposed in this 

proceeding. For purposes of this paragraph, a “Related Investor Action” means a private damages 

action brought against SAA by or on behalf of one or more clients based on substantially the same 

facts as alleged in the Order instituted by the Commission in these proceedings.

E. SAA shall cooperate fully with the Commission staff and shall provide the 

Commission staff with files, records, and/or supporting documentation as the Commission staff 

may request for the purpose of any distribution from the Fair Fund. 

F. SAA shall pay all administrative costs and expenses of any distribution from the 

Fair Fund, including, but not limited to, the fees and expenses of a fund administrator and tax 

administrator, within thirty (30) days after receipt of an invoice for such services and amounts.

By the Commission.

Vanessa A. Countryman

Secretary