Suing To Recover Leveraged Exchange Traded Funds

Leveraged and inverse exchange traded funds (ETFs) are almost always unsuitable and inappropriate for investors when recommended by a financial adviser.  Hundreds of clients have filed class action lawsuits or FINRA arbitration claims to recover the losses sustained with these investments.

A leveraged exchange-traded fund (ETF) is a fund that uses financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETFs are available for most indexes, such as the Nasdaq 100 and the Dow Jones Industrial Average. These funds aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio.  These tend to be extremely high risk investments that simply shouldnt be pitched to investors.  Most brokerage firms have hightened suitablity standards for clients who are pitched these investments.  Unfortunately, financial adviusors still tend to recommend these investments despite these heightned procedures.

The main regulator of brokerage firms, FINRA, has published extensive Notice To Members warning brokerage firms about sales of inversed and leveraged ETFs.  For example, in a release entitlted Non-traditional ETFs FAQ, FINRA disclosed the following in response to the question Can leveraged and inverse ETFs be suitable for a retail investor? “While it is not FINRA’s position that all leveraged and inverse ETFs are unsuitable for all retail customers, firms that recommend them must carefully consider their suitability for each customer. Of particular concern, in light of their reset feature, is whether one is recommended as an intermediate or long-term investment rather than as part of a closely monitored trading or hedging strategy.”

FIRNA has fined over a dozen brokerage firms for abusive sales of these products.  For example, in June of 2016, FIRNA fined Oppenheimer & Co. Inc. $2.25 million and ordered the firm to pay restitution of more than $716,000 to affected customers for selling leveraged, inverse and inverse-leveraged exchange-traded funds (non-traditional ETFs) to retail customers without reasonable supervision, and for recommending non-traditional ETFs that were not suitable.  FINRA found Oppenheimer brokers solicited retail customers to purchase non-traditional ETFs and continued to execute unsolicited non-traditional ETF transactions even though the customers did not meet Oppenheimer’s stated suitability criteria. From August 2009 through September 30, 2013, more than 760 Oppenheimer representatives executed more than 30,000 non-traditional ETF transactions totaling approximately $1.7 billion for customers (please see the entire release here:
The ETFs below have all sustained massive investment losses in the last 12 months.  To learn whether your broker might be liable for losses in these securities on a contingency fee basis, please call our investment fraud law firm in Chicago.

JDST Direxion Daily Junior Gold Miners Index Bear 3x Shares ETF
DUST Direxion Daily Gold Miners Index Bear 3x Shares ETF
GDXS UltraShort Gold Miners ETF
DRIP Direxion Daily S&P Oil & Gas Exp. & Prod. Bull and Bear 3x Shares ETF
GASL Direxion Daily Natural Gas Related Bull 3x Shares ETF
SOXS Direxion Daily Semiconductor Bear 3x Shares ETF
RUSS Direxion Daily Russia Bear 3x Shares ETF
WDRW Direxion Daily Regional Banks Bear 3x Shares ETF
UBIO UltraPro NASDAQ Biotechnology ETF
LABU Direxion Daily S&P Biotech Bull 3x Shares ETF
SOP UltraShort Oil & Gas Exploration & Production ETF
ERY Direxion Daily Energy Bear 3x Shares ETF
LABD Direxion Daily S&P Biotech Bear 3x Shares ETF
FINZ UltraPro Short Financials ETF
SSG UltraShort Semiconductors ETF
TZA Direxion Daily Small Cap Bear 3x Shares ETF
SRTY UltraPro Short Russell2000 ETF
MIDZ Direxion Daily Mid Cap Bear 3x Shares ETF
SMDD UltraPro Short MidCap400 ETF
EDZ Direxion Daily Emerging Markets Bear 3x Shares ETF
PILL Direxion Daily Pharmaceutical & Medical Bull 2x Shares ETF
TECS Direxion Daily Technology Bear 3x Shares ETF
BIB Ultra Nasdaq Biotechnology ETF
SDD UltraShort SmallCap600 ETF
YANG Direxion Daily FTSE China Bear 3x Shares ETF
FAZ Direxion Daily Financial Bear 3x Shares ETF
EURL Direxion Daily FTSE Europe Bull 3x Shares ETF
GUSH Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3x Shares ETF
SDP UltraShort Utilities ETF
SDOW UltraPro Short Dow30 ETF
SMN UltraShort Basic Materials ETF
TWM UltraShort Russell2000 ETF
SIJ UltraShort Industrials ETF
SPXS Direxion Daily S&P 500 Bear 3x Shares ETF
DUG UltraShort Oil & Gas ETF
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