Tag Archives: GUSH Lawsuit

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.

Oil / Gas Investment and Tax Loss

Some Energy, Oil and Gas investments can only legally be sold to a limited section of the investing public.  If you suffered losses we may be able to  help.  Contact us at 303-300-5022 or 1-866-817-0201 (toll-free) for a free consultation.

Oil and gas investors do not have to sit and watch their life savings diminish.  These investors have rights though many are unaware of the recourse they have for such losses.

Many investors have received high pressure sales of oil and gas investments.  Brokers and other investment pNYSE pic 1rofessionals like to sell these types of investments because they usually pay a very high commission.  These commissions can be 10 to 20 times higher than the commission on your average stock sale.

The high commissions will often cause these individuals to ignore the rules in the sale of such investments. The two rules that are usually ignored are those concerning accreditation and suitability.

blog_gulf_mexico_oil_rig

Many investors were led to believe energy investments were safe, only to have their savings left adrift.

Oil and gas limited partnerships can generally only be sold to “accredited” investors.  Such investors are individuals whose liquid net worth, their net worth excluding their home, is in excess of $1 million.

The second rule that is commonly violated in the sale of such investments is the suitability rule.  Oil and gas investments are known by investment professionals to generally be very high risk investments.  Investments need to be consistent with the level of risk that an investor is willing or able to take.  For example, a person approaching or in retirement or who cannot otherwise afford to take high levels of risk with their investments could not legally be offered an oil and gas investment.

Likewise, an individual who expresses a desire for conservative or moderate investments would not be a suitable investor. There are many other rules that can potentially be violated in the sale of oil and gas investments.

FINRA, which acts under the oversight of the SEC to regulate securities brokers, confirms that oil and gas securities, such as oil and gas exchange traded products, are only suitable for highly sophisticated investors.  On May 18, 2020, FINRA released a notice that such exchange traded products cannot be sold to average investors unless the investor has been adequately warned and consented to the high level of risk associated with the investment.  This means a broker is liable for an investor’s losses when such investments are inappropriately sold to an average investor.

The greatest losses exist with oil and gas master limited partnerships, or MLPs.  The SEC has warned about such investments.  This includes not only rules which favor the sponsor of the MLP over the investor, but also includes concentration risk of the venture being entirely invested in a risky industry, and tax risk that comes with limited partnership investing.

As limited partnerships for federal tax purposes, MLPs generally do not pay federal taxes.  Instead, investors report on their tax returns their share of the MLP’s income, gains, losses, and deductions, and are taxed at their individual tax rates.  Each limited partner receives annually a Schedule K-1 showing its share of the MLP’s income, gains, losses, and deductions.   So when debt forgiveness is given the MLP the amount forgiven is treated as income of the investors.  The investors are then taxed on such income, which means they could owe, and thus lose, more than the investment is worth.  

Such investment losses also exist with leveraged and inverse ETFs tied to the price of oil and gas.  These investments, such as Direxion GUSH and DRIP, were intended to be held by for a very short period of time.  While the investments were meant to be held for a matter of hours, many brokers negligently held for months.

Problems exist not just with the investment losses, but also with the tax consequence of investing in these companies.  This tax consequence is referred to as CODI.  A detailed description is found in the following Link to Forbes.   In short, these investments are partnerships.  When debt is defaulted upon by a partnership, and the lender “writes off” the debt, the write off means that the owners (the investors) are taxed as if they received the amount written off as income.  Considering some limited partnerships defaulted on billions in loans, the tax obligation of investors is substantial.

Oil StockIf you have any questions, please feel free to give us a call.  These rules apply no matter if you invest in individual oil or gas investments or invest through a mutual fund or master limited partnership (MLP).

Common oil and gas investments we see recoverable losses include Linn Energy (“LINE” or “LNCO”) and more information can be found at www.jpedersonlaw.com/blog/linn-energy-losses/, Williams Companies (“WMB”), Penn West Petroleum (“PWE”), BP Prudhoe Bay Royalty Trust (“BPT”), Breitburn Energy Partners, LP (“BBEP”), Hawthorne, SandRidge Energy, Williams Ridgewood Energy, Apco, Atlas Energy, Midstates Petroleum, Peabody Energy, Resolute Energy, XXI Energy, Nobel, Permian Basin, Pioneer Energy, W&T Offshore, and Breitling Energy.  Some of these losses may be recoverable by class action while others may require individual FINRA arbitration suits.

More information on SandRidge can be found at this link.

Oil Stock II

Some oil investments are barely worth the paper they are written upon.

Jeffrey Pederson is an attorney who works with investors to recover losses in FINRA arbitration and has represented investors in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut , Florida, Hawaii, Illinois, Indiana, Massachusetts, Montana, New Jersey, New Mexico, New York, North Carolina, Maryland, Minnesota, Missouri, Montana, 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.