Our law firm is investigating the sales practices and supervision by Citigroup Global Markets (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC) and UBS Financial Services (NYSE: UBS), in connection with the sales of leveraged and inverse exchange-traded funds (“ETFs”). On May 1, 2012, the Financial Industry Regulatory Authority (“FINRA”) announced that it sanctioned these four firms a total of more than $9.1 million for selling these ETFs without reasonable supervision and for not having a reasonable basis for recommending the securities. The firms were fined more than $7.3 million and are required to pay a total of $1.8 million in restitution to certain customers who made unsuitable leveraged and inverse ETF purchases.
ETFs are typically registered unit investment trusts (UITs) or open-end investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index. Leveraged ETFs seek to deliver multiples of the performance of the index or benchmark they track. Inverse ETFs seek to deliver the opposite of the performance of the index or benchmark they track, profiting from short positions in derivatives in a falling market.
According to FINRA, from January 2008 through June 2009, these brokerage firms did not have adequate supervisory systems in place to monitor the sale of leveraged and inverse ETFs, and failed to conduct adequate due diligence regarding the risks and features of the ETFs. As a result, the firms did not have a reasonable basis to recommend the ETFs to their retail customers. The firms’ registered representatives also made unsuitable recommendations of leveraged and inverse ETFs to some customers with conservative investment objectives and/or risk profiles. Each of the four firms sold billions of dollars of these ETFs to customers, some of whom held them for extended periods when the markets were volatile.
Leveraged and inverse ETFs have certain risks not found in traditional ETFs, such as the risks associated with a daily reset, leverage and compounding. Accordingly, investors were subjected to the risk that the performance of their investments in leveraged and inverse ETFs could differ significantly from the performance of the underlying index or benchmark when held for longer periods of time, particularly in the volatile markets that existed during January 2008 through June 2009. Despite the risks associated with holding leveraged and inverse ETFs for longer periods in volatile markets, certain customers of these firms held leveraged and inverse ETFs for extended time periods during January 2008 through June 2009.
Investors who sustained substantial losses in leveraged and inverse ETFs, can contact KlaymanToskes to explore their legal rights and options. The attorneys at KlaymanToskes are dedicated to pursuing claims on behalf of investors who have suffered investment losses. KlaymanToskes, an experienced and nationally recognized securities litigation law firm, practices exclusively in the field of securities arbitration and litigation. It continues its representation of investors throughout the world in securities arbitration and litigation matters against major Wall Street brokerage firms.
If you sustained losses of $100,000 or more in leveraged and inverse ETFs, please contact our law firm for a fee consultation. You may be eligible to file a claim or lawsuit in order to recover your losses.