Leveraged ETF Cases Lawyer

If you lost money after your broker advised you to invest in a leveraged ETF, contact Erez Law, PLLC immediately. You could be entitled to compensation if they fraudulently or negligently managed your investment.

At Erez Law, PLLC, we understand how devastating it can be to lose money because your broker did not adequately explain the risks of a leveraged ETF. We believe you deserve the opportunity to pursue action against them and recover your losses. Call or contact us online today for a free consultation with an experienced investment fraud attorney.

What Is a Leveraged ETF?

An Exchange Traded Fund (ETF) is a type of pooled investment security. It can be structured to track a specific sector, index, commodity, or another type of asset. A leveraged exchange-traded fund is a group of securities that tracks a particular index and uses debt and derivatives to increase the returns by a factor of two or three.

A leveraged ETF is a marketable security using financial debt and derivatives to boost an underlying index’s daily returns. Investors can trade the shares like stocks. However, the shares represent partial ownership of the fund rather than its underlying investments. Unlike traditional ETFs that track securities on a one-to-one basis, leveraged ETFs aim for ratios of two-to-one or three-to-one, amplifying both the potential returns and the potential risks.

Leveraged ETFs have been created for most indexes, including the Dow Jones Industrial Average, the Nasdaq-100, and the S&P 500.

Risks of Leveraged ETFs

Most leveraged ETFs reset daily, so the objective of the investment is to reach a specific goal on the date of purchase. Leveraged ETFs come with various risks, including:

  • Amplified daily returns can prompt significant losses in a short timeframe.
  • Investors may be constricted to trading shares since some leveraged ETFs aren’t heavily traded.
  • Extreme market volatility can make them very risky to invest in.
  • They are less likely to track an underlying asset or index closely because they use derivatives to boost returns.
  • They are at greater risk of losing some or all value over time.

Why Are Leveraged ETF Cases Complex?

Brokerage firms must supervise brokers to ensure they comply with industry regulations. A firm might be liable if an investor loses money due to a broker’s negligent or fraudulent acts, such as investing in a leveraged ETF without their client’s knowledge or adequately explaining the potential risks. However, pursuing legal action is challenging, as you must prove that your financial losses were caused by negligence or wrongdoing on the part of your broker rather than simply by normal fluctuations in the market or the high volatility of the leveraged ETF.

Additionally, many investment contracts contain an arbitration agreement requiring investors to resolve disputes through arbitration rather than lawsuits. If you signed a contract containing this language, you and the firm might have to present your cases at a hearing before an arbitration panel, which will review the evidence and make a binding ruling.

Examples of ETF Cases

Securities fraud occurs when a broker, stock advisor, or securities firm misrepresents information to influence an investor’s decisions. An ETF case can arise from various circumstances, such as:

Furthermore, the SEC compiled a list of products brokers should not sell to investors using a buy-and-hold strategy. These products include:

  • SSO ProShares Ultra S&P 500
  • BZQ ProShares UltraShort MSCI Brazil
  • FAS Direxion Daily Financial Bull 3X shares
  • FBGX UBS AG FI Enhanced Large Cap Growth ETN
  • FIHD UBS AG FI Enhanced Global High Yield ETN
  • JNUG Direxion Daily Junior Gold Miners Index Bull 3X Shares
  • NUGT Direxion Daily Gold Miners Bull 3X Shares
  • UYG ProShares Ultra Financials
  • QLD ProShares Ultra QQQ
  • FLGE Credit Suisse FI Large Cap Growth Enhanced ETN
  • SPXL Direxion Daily S&P 500 Bull 3X Shares
  • SDS ProShares UltraShort S&P 500
  • TQQQ Proshares UltraPro QQQ
  • DUST Direxion Daily Gold Miners Bear 3X Shares
  • RUSS Direxion Daily Russia Bear 3X Shares
  • TECL Direxion Daily Technology Bull 3X Shares
  • TNA Direxion Daily Small Cap Bull 3X Shares
  • SOXL Direxion Daily Semiconductor Bull 3X Shares
  • SPXU ProShares UltraPro Short S&P 500
  • TZA Direxion Daily Small Cap Bear 3X Shares
  • UPRO ProShares UltraPro S&P 500
  • SQQQ Proshares UltraPro Short QQQ
  • YANG Direxion Daily China 3X Bear Shares
  • UDOW ProShares UltraPro Dow30
  • SH ProShares Short S&P 500
  • LABD Direxion Daily S&P Biotech Bear 3X Shares
  • ZBIO ProShares UltraPro Short Nasdaq Biotechnology
  • FXP ProShares UltraShort China 50
  • FIEE UBS AG FI Enhanced Europe 50 ETN
  • EDZ Direxion Daily Emerging Markets Bear 3X Shares
  • SPXS Direxion Daily S&P 500 Bear 3X ETF

FINRA Regulatory Notice

The Financial Industry Regulatory Authority (FINRA) issued a regulatory notice on sales practice obligations regarding inverse and leveraged ETFs. The notice reminds firms to only recommend suitable investments. Determining whether a product is suitable requires firms and brokers to understand the features and terms of the ETF as well as the client’s investment objectives, financial condition, tax status, and other relevant information to make a recommendation. Particularly, FINRA warned that these ETFs are not suitable for long-term investments.

Firms must train registered agents on the features, terms, and risks of all ETFs they sell. Training should include learning to recognize which factors make a product unsuitable or suitable and emphasize an investor’s need to consider and understand associated risks, including the effects of volatility and time on the fund’s performance. The regulatory notice also requires firms to establish a system to supervise employees and ensure that brokers comply with SEC and FINRA rules while recommending ETFs.

Legal Options if You Lose Money in an ETF

Brokers and their firms have a responsibility to make recommendations based on a client’s goals and limitations and not to pursue investments without their client’s knowledge and approval. You could have legal options for pursuing compensation if you lost money because your broker or advisor or their employer failed to do so. Our experienced attorneys can discuss your unique situation and the legal recourse that may be available.

Contact an Experienced ETF Lawyer for Help

Erez Law, PLLC represents clients nationwide and protects the rights of investors harmed by broker misconduct. Founding attorney Jeffrey Erez has tried over 40 FINRA arbitration proceedings to a verdict or final hearing, which gives him the experience and track record you can trust as you pursue the compensation you deserve.

If you believe you lost money in a leveraged ETF due to your broker’s negligence or wrongdoing, contact an experienced ETF attorney from Erez Law, PLLC for a free consultation today.