Just this past week, two brokerages units of Stifel Financial were ordered by the Financial Industry Regulatory Authority (“FINRA”) to pay more than $1 million related to the sale of leveraged and inverse exchange-traded funds (“ETFs”). Of the more than $1 million to be paid, $550,000 comes in the form of a fine to be split by Stifel, Nicolaus & Co., Inc. and Century Securities Associates Inc. The firms were also ordered to pay more than $475,000 in restitution to 65 customers to compensate them for losses incurred on ETF purchases.
According to the Wall Street Journal, FINRA said that some of the brokers who were selling the ETFs did not have a full understanding of the products they were selling, including the risks associated with them.
Brokerage firms can be fined and/or sued when they allow their brokers to sell unsuitable, or inappropriate, investments to customers, especially when the brokers have not been properly trained. Industry regulations require that a broker understand both the product they are selling and the customer to whom they are selling the product. Most importantly a broker must understand the risks of the products being sold and appreciate the customer’s ability (or inability) to tolerate risk. Brokerage firms are also required to train their brokers properly, including what qualifies as a suitable, or appropriate, recommendation to a customer.
Regulators have been looking at the sale of ETFs, especially inverse and leveraged ETFs, in recent years. In the past few years, FINRA has reportedly fined multiple brokerage firms millions of dollars, including Citigroup, Morgan Stanley, UBS and Wells Fargo over the sales of ETFs.
These investments are complex and often not completely understood by the average investor. They use futures and/or derivatives to 1) multiply the return (and loss) of a given index on a given day and/or 2) cause the value of the ETF to rise when the index falls, or vice versa. However, they are largely designed as a product for day-traders and are not typically supposed to be recommended as “buy and hold” investments.
For example, below are twenty five ETFs that lost the most in the past 12 months per Yahoo Finance, many of which are inverse, leveraged, or both. Malecki Law is investigating and/or has recently pursued claims for customers who incurred losses in these ETFs.
1. Direxion Daily Gold Miners Bull 3X Shrs (NUGT)
2. VelocityShares Daily 2x VIX ST ETN (TVIX)
3. C-Tracks Citi Volatility Index TR ETN (CVOL)
4. Barclays Short B Lvgd Inv S&P 500 TR ETN (BXDB)
5. Direxion Daily Semicondct Bear 3X Shares (SOXS)
6. VelocityShares Daily 2x VIX MT ETN (TVIZ)
7. Direxion Daily Small Cap Bear 3X Shares (TZA)
8. ProShares UltraPro Short Russell2000 (SRTY)
9. VelocityShares Long VIX ST ETN (VIIX)
10. ProShares VIX Short-Term Futures ETF (VIXY)
11. ProShares UltraPro Short QQQ (SQQQ)
12. ProShares Ultra Silver (AGQ)
13. Direxion Daily Nat Gas Rltd Bear 3X Shrs (GASX)
14. Direxion Daily Mid Cap Bear 3X Shares (MIDZ)
15. ProShares UltraPro Short MidCap400 (SMDD)
16. Global X Gold Explorers ETF (GLDX)
17. Market Vectors Junior Gold Miners ETF (GDXJ)
18. Direxion Daily S&P500 Bear 3X Shares (SPXS)
19. Direxion Daily China Bear 3X Shares (YANG)
20. ProShares UltraPro Short Dow30 (SDOW)
21. ProShares UltraShort Russell2000 Growth (SKK)
22. Direxion Daily Technology Bear 3X Shares (TECS)
23. Market Vectors Gold Miners ETF (GDX)
24. ProShares UltraShort SmallCap600 (SDD)
25. ProShares UltraShort Health Care (RXD)
If you believe you have lost money as a result of an investment in these or any ETFs, or because of some other investment, contact an attorney at Malecki Law for a free consultation to determine if you may be able to recover your losses.