Our firm is investigating abuses by brokers in the recommendation of certain Exchange Traded Funds (ETFs).  On August 8, 2009 the SEC and FINRA issued an investor alert warning of the extra risks for investors in leveraged and “inverse” ETFs.  Investors that experienced realized or unrealized losses may have claims against their brokers if these securities were unsuitable for them.


ETFs are typically registered investment companies whose shares represent an interest in a portfolio of securities that track an underlying benchmark or index. (Some ETFs that invest in commodities, currencies, or commodity- or currency-based instruments are not registered as investment companies.) Unlike traditional mutual funds, shares of ETFs typically trade throughout the day on a securities exchange at prices established by the market.


Leveraged ETFs seek to deliver multiples of the performance of the index or benchmark they track. Inverse ETFs (also called “short” funds) seek to deliver the opposite of the performance of the index or benchmark they track. Like traditional ETFs, some leveraged and inverse ETFs track broad indices, some are sector-specific, and others are linked to commodities, currencies, or some other benchmark. Inverse ETFs often are marketed as a way for investors to profit from, or at least hedge their exposure to, downward moving markets.


In June 2009, FINRA issued Regualtory Notice 09-31 which, because of the inherent risks associated with leveraged and inverse ETFs, reminded brokers of their regulatory obligations to ensure that the recommendations of these securities are suitable for customers and that they be sufficiently trained and broker-dealers of their supervisory requirements over the brokers that recommend these securities.


If your portfolio has these ETFs with losses, call the Securities Law Firm of Menzer & Hill, P.A. for a free case consultation.