According to investment fraud lawyers, the Financial Industry Regulatory Authority (FINRA) will bring enforcement cases related to the selling of exchange-traded funds (ETFs) that were not appropriate for customers, against certain brokerages. Bradley Bennett, FINRA’s enforcement chief, said this month that the cases will involve leveraged and inverse exchange-traded funds, and the unsuitable sales of said funds. Furthermore, allegations of inadequate or improper training for brokers who sell exchange-traded funds will be involved in the cases.
Securities fraud attorneys say that leveraged and inverse ETFs amplify short-term returns. They do so by using derivatives and debt. These investments are more suitable for professional traders and are usually unsuitable for long-term retail investors. These investments only make up $29.3 billion of the $1.15 trillion United States ETF market. FINRA has raised concerns that these products are being sold to long-term retail investors, despite the risk involved when holding leveraged and inverse ETFs for more than one day.
“We don’t have a qualm with the product,” Bennett says. “We just want to make sure that people who are selling them understand them.”
Bennett opted not to name the firms involved in the upcoming enforcement cases. While leveraged and inverse ETFs have been investigated for years by FINRA and the SEC, there has been little enforcement action in the past. A Massachusetts securities regulator sued RBC Capital Markets LLC for selling leveraged ETFs to investors who did not properly understand them in July 2011. In addition, FINRA barred a former Morgan Keegan & Co. broker in March for making inappropriate and excessive trades in leveraged and inverse ETFs on behalf of clients.
Securities fraud attorneys say FINRA is also looking into the marketing and selling practices of firms who sell exchange-traded notes as a result of the significant loss of value of the VelocityShares Daily 2x Short-Term ETN, which was managed by Credit Suisse.
If you have suffered losses as a result of your investments in ETFs, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.