Tag Archives: Etracs

Legal Remedies for ETF or ETN Losses

Call 1-866-817-0201 to speak to an attorney concerning legal remedies for ETF or 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.  The following investments are are just a small example of such investments and are only suitable if your are speculative investor, and only then if the investment is held less than one day:

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)

Invesco and ProShares QQQ derivations

Many other leveraged ETFs and ETNs exist that 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.

MLP Losses

Oil StockWe are investigating losses sustained by investors in Master Limited Partnerships (“MLP”).  This includes all MLP investments including but not limited to UBS ETRACS, Enbridge Energy Partners,  EV Enterprise Partners, and Eagle Rock Energy Partners.  If you have suffered such losses please call toll-free 1-866-817-0201.

MLPs are sometimes referred to as “SSPs” and other names.  There are limited types of investors to whom such investments could be legally sold.  Selling such high-commissioned investments when they contradict the objectives or needs of an investor, making them “unsuitable” for certain investors, is a form of fraud. In August 2015, the SEC conducted an examination of firms selling MLPs.

Among other things, the SEC regulatory examinations revealed several significant deficiencies in the areas of suitability and supervision with respect to all of the examined firms’ recommendations and sales of MLPs to retail investors. Specifically, all of the examined firms: “Failed to maintain and/or enforce adequate controls relating to determining the suitability of MLP recommendations;” and “Failed to conduct both compliance and supervisory reviews of registered representatives’ (“representatives”) determinations of customer suitability in the MLPs, as required by their internal controls.”

MLPs have been increasingly marketed to retail investors, who have been interested in generating income in the low-yield interest-rate environment that has persisted since the financial crisis.  Additionally, MLPs may offer attractive attributes such as partial or full “principal protection” or exposure to a particular asset class.

MLPs often provide for payments determined by reference to other assets or indices and may be more complex than a simple debt instrument with a stated interest rate.  However, these investments have always been known to carry a high degree of risk. A central aspect of a broker-dealer’s duty of fair dealing is the suitability obligation, which generally requires a broker-dealer to make recommendations that are consistent with the best interests of its customer.  So investments must be of the character and have the level of risk that is consistent with these wants and needs.  This “suitability” obligation is a requirement under the  antifraud provisions of the state and federal securities laws, and also requirement of a brokerage firm’s membership in FINRA.  

FINRA also requires brokerages to supervise their representatives, and the Exchange Act, the federal securities law, permits the SEC to sanction broker-dealers who fail reasonably to supervise, with a view to preventing violations of the state and federal securities laws by a person subject to their supervision.  In addition, FINRA has released guidance to help assess the adequacy of controls with respect to MLPs and complex products that members should include in their supervisory and compliance procedures.

For more information on MLPs containing LINN Energy, also known as LINE, see the following: www.jpedersonlaw.com/blog/linn-energy-losses/

Jeffrey Pederson has represented investors in Alabama, Arizona, Arkansas, California, Colorado, Connecticut , Florida, Hawaii, Massachusetts, Montana, New Jersey, New Mexico, New York, North Carolina, Minnesota, Missouri, North Dakota, Rhode Island, Texas, Utah, and Wyoming, in FINRA arbitration actions against securities brokerage firms for unsuitable investments.  Please call for a confidential and free consultation.