Call 303-300-5022 to speak to an attorney concerning legal remedies for exchange traded funds (ETF) or exchange traded note (ETN) losses. Many individuals lost savings in leveraged, inverse and other ETFs or ETNs their financial advisor should have never recommended to such investors. Call to speak to an attorney about your legal options. Initial consultations are free and confidential.
If you have significant losses in leveraged or inverse ETFs or ETNs and you are not a sophisticated, day-trading investor, you may be entitled to legal remedies for your loss. Brokers and advisers have the obligation to recommend only suitable investments. On November 13, 2020, the Securities and Exchange Commission fined the following five firms for recommending inappropriate exchange traded funds to its investors:
American Portfolios Financial Services / American Portfolios Advisors, Inc.
Benjamin F. Edwards & Co.;
Royal Alliance Associates, Inc.;
Securities America Advisors;
Royal Alliance Associates; and
Summit Financial Group.
These are just some of the companies that inappropriately sold these highly risky investments. Many others have been the subject of private suits concerning the sale of ETFs and ETNs.
Many, if not most, ETFs and ETNs should never have been sold to everyday or “retail” investors. This year, at least 15 ETNs managed by UBS have been taken off the market after tumbling in value. ETNs run by Citigroup, Wells Fargo, UBS, JPMorgan and other firms have suffered significant losses. When troubled funds are taken off the market, investors typically are paid just a fraction of what they initially put in. Regulators have confirmed that such investments should not be recommended to retail investors.
FINRA, the regulator that oversees the actions of brokers, has stated that these investments are toxic for average investors. The investments reset every day. As a result, the investments compound in their losses and the nature of them can change drastically over the course of a few days. The following was stated by FINRA in NTM: 09-31:
“Exchange-traded funds (ETFs) that offer leverage or that are designed to perform inversely to the index or benchmark they track—or both—are growing in number and popularity. While such products may be useful in some sophisticated trading strategies, they are highly complex financial instruments that are typically designed to achieve their stated objectives on a daily basis. Due to the effects of compounding, their performance over longer periods of time can differ significantly from their stated daily objective. Therefore, inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.”
The daily resetting can be devastating for an investor that hold these investments for more than one day. So a broker or advisor who recommends the investment and then allows the investment to sit more than 24 hours takes a legally impermissible chance with the savings of his/her investors.
The resetting can cause the investment to lose money even if the underlying index is stable or increasing. This is due to many factors including cost drags of compounding interest.
On March 19, 2020, the resetting function caused UBS to manditorily redeem MORL and MRRL. These were both UBS ETRACS investments. These investments were to leveraged ETNs tied to an index following 37 REITs. The ETN lost 95% of its value.
History has supported this. In February 2018 many inverse and leveraged ETF investors, for such investments tied to the VIX index, lost 80% to 100% of the value of these investments in the period of 48 hours.
As quoted in the Wall Street Journal, “If institutions aren’t buying this, the retail investor shouldn’t be either. Otherwise they’re the sucker at the poker table that doesn’t know it,” said Larry Swedroe, chief research officer at Buckingham Wealth Partners.
The risk of these investments may not be something you know, but they are something your broker or advisor knew or should have known. If you suffered such losses please call 1-866-817-0201 for a free and confidential consultation.
A common, but non-exhaustive, list of ETFs and ETNs that are especially risky include the following: CREDIT SUISSE NASSAU X LINKS MONTHLY PAY 2X LEVERAGE (AMJL); UBS AG LONDON ETRACS 2X MONTHLY LEVER S&P MLP (MLPZ); DBX ETF TRUST DIREXION DAILY HOMEBUILDERS SUPP BULL 3X (NAIL); DIREXION SHARES ETF TRUST DAILY REGIONAL BKS BULL 3X SHS (DPST); UBS AG LONDON ETRACS 2X MONTHLY LEVER LNG AL (MLPQ); PROSHARES ULTRAPRO QQQ ETF (TQQQ); DIREXION DAILY S&P 500 BULL 3X SHARES (SPXL); DIREXION DAILY GOLD MINERS BEAR 3X AND 2X SHARES (DUST); DIREXION DAILY GOLD MINERS BULL 3X AND 2X SHARES (NUGT); DIREXION DAILY S&P OIL AND GAS (GUSH); PROSHARES ULTRAPRO S&P 500 (UPRO); ETRACS MONTHLY PAY 2X LEVERAGED S&P DIV. ETN (SDYL); ETRACS MONTHLY PAY 2x LEVERAGED MORTGAGE REIT ETN (MORL and MRRL); UNITED STATES OIL FUND (USO); and all Invesco and ProShares QQQ derivations.